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spk02: Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Broadband 2021 Third Quarter 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 November the 4th. I would now like to turn the conference over to Courtney Chun, Chief Portfolio Officer. Please go ahead.
spk01: Thank you. 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 or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent forms 10-K and 10-Q, filed by Liberty Broadband and Liberty TripAdvisor with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Broadband and Liberty TripAdvisor expressly disclaim any obligation or undertaking to 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 OIPDA, information regarding the comparable GAAP metrics, along with the required definitions and reconciliations, including preliminary note and Schedules 1 and 2, can be found in the earnings press release issued today, as well as earnings releases for prior periods, which are available on Liberty Broadband's website. Now I'd like to turn the call over to Greg Buffett, Liberty's President and CEO.
spk05: Thank you, Courtney, and good morning to all of you. Today, speaking on the call, we will have Liberty Broadband's Chief Accounting Officer and Principal Financial Officer, Brian Wendling, Ron Duncan, CEO of GCI, and Pete Pounds, CFO of GCI, will also be available to answer questions. Also during the Q&A, we will answer questions related to Liberty TripAdvisor. But please do note, TripAdvisor has not yet reported its Q3 results, so we will be unable to comment on the current quarter. So looking at Liberty Broadband, we continue to receive meaningful cash flow from the participation in charters buybacks. holding our fully diluted ownership at 26%. From the 1st of August to the end of October, we received $1.2 billion of proceeds from Charter. We do believe the market reaction to the Q3 results was overblown, and Charter is well positioned against competition, including that from fiber overbuilders. And we remain bullish, reflected in our own repurchases. From August 1st to October 31st, we repurchased 5.3 million LBRD shares for $935 million over the same period at an average price per share of $177.50. If you look at the look-through price to charter, that's approximately $589 per share over this period. And year-to-date purchases have been at an average look-through price of $547 per share, which compares favorably to yesterday's close of $692 per share. Since LBRD began selling into the charter buyback earlier this year, we have received total proceeds of $3.2 billion, representing 35% of our $9.1 billion investment in charter. Let me note that that $9.1 billion reflects the conversion of our legacy Time Warner cable shares into charter as well. Liberty Broadband has repurchased 20 million shares for $3.3 billion in at $164.52 per share year-to-date, and therefore has retired over 10% of its outstanding shares. Looking at the NAV accretion, the LBRD NAV per share is up 6.6% year-to-date compared to charter up 4.3%. I do want to remind you that the tax rate on our charter share sales for 2021 is about 5% to 7%. Looking at Charter itself, it delivered outstanding financial results in the third quarter. Revenue was up 9.2%, but it was up 14% over the prior year. Free cash flow increased 41%, an increase of over $700 million versus the prior year. Charter reported more free cash flow in the third quarter than it reported in all of 2018. And LTM Charter has generated 8.5% billion of free cash flow. Charter had good subscriber growth in the quarter, adding 265,000 broadband customers, despite a relatively low churn environment, which provided fewer sales opportunities. We like when people move because we think we get an opportunity to sell them, and we sell them more effectively and gain market share. So when periods of low movement, low customer activity, we do well financially, but have less opportunity to sell them new services. Turning to mobile, Charter added 244,000 new mobile lines in the third quarter, and we continue to believe they're poised to take more share. Last month, Charter launched new pricing programs for multi-line accounts. At $30 per line for an unlimited family plan, Charter offers best value in the industry for consumers. I note that that compares against pricing for large MNOs, which can result in saving as high as $20 to $40 per line for accounts with two to three lines.
spk04: With that, let me turn it over to Brian to discuss their results. Thanks, Greg. Let's first take a look at the balance sheet. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $319 million, which includes $37 million of cash at GCI. The value of our charter investment based on Our shares held as of November 1st, and charter share price as of yesterday's close was $38 billion. At quarter end, Liberty Broadband had a total principal amount of debt of $4 billion. We drew down $350 million on the charter margin loan during the quarter, and available capacity at quarter end is $800 million. The drawdown was largely to fund share repurchases at LBRD, given the timing differences in when we received proceeds from charter share sales, and to fund the escrow payment that is discussed in the earnings release. GCI continued to delever, driven by strong results and an additional $65 million paid down on the revolver during the quarter. Leverage, as defined in its credit agreement, was 3.0 times at quarter end. Subsequent to quarter end, GCI refinanced its term loan B with a new term loan A and $150 million revolver draw. This will save GCI about $8 million per year in interest expense. Pro forma for this drawdown, GCI's leverage was still at $350 Times and available capacity under its revolver was $367 million. Note the above amounts exclude the indemnification obligation and preferred stock. Turning to GCI's financial results, GCI continues to post positive results. Revenue of $246 million was flat year over year as growth in data across both consumer and the business segments was offset by the loss of revenue from GCI's broadcast media business that was sold in Q3 of 2020, and the loss of revenue from its time and materials business that has been de-emphasized in order to focus on GCI's core Alaska network. Q3 2020 revenue was also especially strong due to heavy political advertising. YBITDA of $89 million was down marginally 3% year over year, primarily due to company health care expenses, which were abnormally low in Q3 2020. last year due to the COVID-19 pandemic. GCI's core business continues to perform very well with consumer cable modems and wireless subscribers up 7% and 5% respectively on a year-over-year basis. Looking at a two-year comp to Q3 2019, revenue was up 11% and OIBEDA was up 23%. With that, I'll turn the call back over to Greg. Thanks, Brian.
spk05: We look forward to seeing you soon on Thursday, November 18th at our annual investor meeting. The full experience will be offered in person at the New York Times Center and virtually. The link to register can be found on our homepage. Please note, all in-person attendees must be fully vaccinated against COVID-19. We appreciate your continued interest in Liberty Broadband and Liberty Trip Advisor, and with that, Opera, I'd like to open the line for questions.
spk02: Thank you. As a reminder, please press Todd wants to ask a question. We'll take our first question from Ben Swinburne with Morgan Stanley.
spk06: Morning. Greg, I'm with you on the Charter reaction, but maybe just to play devil's advocate, you know, and think about the risks. What gives you guys confidence that as we see the fiber builds ramp from, you know, call it a third of the country to half the country? And I think Charter, I think Frontier's biggest overbuild kind of footprint target is Charter. combined with sort of some of the fixed wireless folks entering the market, whether it's Starlink or T-Mobile, that we're not just going to enter a period of pretty significantly slower net ads on the broadband side. Or maybe you just think even if that's the case, the free cash flows, the free cash flows, you don't care. But I'd be curious how you think about the competitive environment over the next couple of years and what Charter can do to try to make sure it continues to perform well from a product perspective, looking out over time?
spk05: Yeah. First of all, I think, you know, there are fiber competitors who are good operators, but they tend to be small. If you look at our overlap, our largest overlap by far is with AT&T and then Verizon, then it scales down from there. And we have looked at the data about how we perform against those guys and even against how fiber overbuild is and surely will acknowledge when people do fiber overbuild we probably grow less slowly more slowly but we still grow and as you rightly note I think there is a lot of free cash flow capabilities here in this business regardless and we have seen how some people have actually rolled out and where they compete and we know that we can continue to have success against them so I remain quite optimistic on the financial performance of Charter, even in the face of potential fiber overbuilders.
spk06: Any thoughts, updated thoughts on the fixed wireless side? I mean, you know, we got some disclosure from Verizon on their millimeter wave. T-Mobile's added some. I mean, they're not huge numbers, but the market's mature, so, you know, material. How do you feel about that threat over the course of time as well?
spk05: I find it interesting how little Verizon now talks about millimeter wave. and de-emphasizes it because I don't think that can be viewed as a success to date. I think Starlink is a fascinating product, and in certain places where you're unable to get a better alternative, it may work. And I do acknowledge that Starlink will have appeal to a certain segment for those remote locations and because of its brand. But given the choice, I don't think consumers are going to choose those slower speeds, particularly as it fills up performance can be pretty good if you're the only game in town, only guy on the pipe, the satellite pipe, but it's going to change over time. So I don't, I think Starlink is an interesting niche. I do not see this as a hugely competitive product for, against higher speed alternatives, and that would include cable or fiber. You're going to choose that, I suspect, if you have a choice over Starlink or any of the other satellite alternatives. I think we will continue to see progress on our products getting better, our ability to do more in the home, our ability to make our Wi-Fi smarter. I think you'll see us all of those things helping, and I think you'll see the path as we upgrade our ability after DOCSIS 3.1 to continue to upgrade that path ensures a long-term financial health and a network that is resilient for cable.
spk09: Thank you.
spk02: Thank you. We'll take our next question from Michael Rawlings with Citi.
spk09: Thanks. Good morning. Two questions, if I could. The first is, when you think about just broadband industry penetration in the upper 80s, who doesn't have broadband demographically? And if they haven't gotten it through the pandemic, what are the catalysts to get penetration to the 90s or even 100% over the next few years? And then secondly, just curious if you could talk about on the Liberty Broadband side, are there any assets or valuations that you look for that would change the strategy from buying back Liberty Broadband stock to actually buying assets at the Liberty Broadband level? Thanks.
spk05: Can I start with this? I didn't understand the second part of that question. Buying access? Assets. Thank you. I didn't hear it. Look, I think penetration will continue to rise. I think some of the government programs are going to continue to rise. Where have people not been penetrated? I think it's largely in places where they were unable to get adequate high-speed capacity or where an older audience who is not as tech-savvy or doesn't feel the need or where there are financial constraints. And frankly... the money that's being spent on broadband, probably attack number one and number three. And there will be a changing of demography over time on number two. So I do think all of those factors point to increased penetration. I don't think it happens in a week. And one of the realities is the pace of installers, the pace of modems, the pace of everything about broadband means it's not going to move that dramatically that quickly, despite the amount of money that is being thrown at it, and it is a lot of money. But I think it will continue to rise for all those reasons, both the supply side and the demand side, and changing demographics will continue to push penetrations up. As far as what we would look at other assets, I think we would look at it when we thought that there were other alternatives that we liked better than buying back Liberty Broadband stock at a 20% discount-ish to the underlying charter. So you hear us being optimistic on charter and therefore even more optimistic on the ability to buy back discounted charter via Liberty Broadband. We're not adverse to looking at other alternatives. We'd like to think the market would give us credit, but there probably would be a few hiccups if we went and did something big. But we're willing to hold out for that possibility. But while we wait, we look and say, boy, it's pretty darn attractive to buy something you already like a lot at a 20% discount. I think that's our plan. We never say no to an alternative, but we like the hand we have right now.
spk09: Thank you.
spk02: Thank you. We'll take our next question from James Ratcliffe with Evercore ISI.
spk08: Thanks. Charter's wireless focus seems to have been on lower service pricing, Greg, as you noted, rather than the handset promos that are dominating the offers from the big three. I mean, lower service pricing, you get lower upfront capital for handsets, but it's kind of harder to turn off over time. Greg, I'd love to hear your thoughts on those different strategies, what mix is appropriate for charter. And either Ron or Pete, I'd also be interested to hear what your experience has been with working on promos of service price or equipment, particularly given that Right now, it looks like your mix looks a lot more like the three incumbent carriers with high handset subsidies. Thanks.
spk05: Yeah, I'll start and say I like our strategy. I think the charter management team has articulated it well. We can offer mobile pricing that's very attractive but still profitable for us and coupled with our broadband opportunities and, as you noted, less capital up front. It's unclear to me what some of the M&O deals will really look like on a free cash flow basis over time, and given that handset outlay. I like our hand. We know what we're getting up front, and yet we're continuing to pull profitable broadband lines with it. So remain very optimistic on the mobile opportunity for Charter, and really for all of cable. I'll let Ron or Pete, one of you guys want to comment on the second part?
spk00: You're right. We're very much more lined up with the M&O market. version of the wireless space than charters and bno and we do play in the thick of the handset subsidies we're not the most aggressive we're probably more like verizon a little bit laid back we're confident that there are good free cash flows in those deals we're primarily selling in the market up here based on the network we've got a clear network advantage with our 5g rollout And that's patently discernible to our customers. I think that's what's driving our wireless growth. But it's important for us to continue to play since we're already at a 30% to 40% market share in the market up here. It's important for us to continue to play in the mainstream, which requires the handset subsidies. I know that AT&T is reducing its allocated handset subsidy cost over the by extending the life of its customers. I don't know how long that is going to continue, but we're confident even with our prior two-year average customer life that there's free cash flow on those deals.
spk08: Great. Thank you.
spk02: Thank you. Our last question comes from Matthew Harrigan with Benchmark.
spk03: Thank you. Really just an extension of Ben's question, but If you look at broadband, I mean, as long as people are rational on pricing, I mean, you could practically stop growing units right now and the shares would still look reasonably attractive at the level of the installed basis. You know, people are consuming 25%, 30% more a year. I mean, it's a very high utility service. How much do you worry about getting real price disruption and not Starlink, but some of the real upstarts like Starry are talking about, you know, very, very low prices? costs coming out of the blocks. Is there anything that gives you pause like that that's unnerving? And also, do you have any issues or any comments on GG Zone being named to the FCC, which is a little bit of a disappointment for some folks?
spk05: Look, I think we always worry about... Thank you for the question, Matthew. We always worry about technological challenges, and you don't dismiss them. And certainly, price competition is one thing, but I do, as I I feel very good about our opportunity in the territories we operate and with the competition that we have, our ability to upgrade relatively low cost through 3.1, our ability to move forward with new builds, partly fueled by RDOF. I feel good about our growth path. I, again, don't want to be dismissive of technological competition that's out there, but I do not believe it will radically change the profile for charter. As far as Gigi Sohn, we'll see what happens. Obviously, she's got somebody who's questioned the industry. I do think the appointment of Jessica Rosenworcel as permanent chair is a great step forward. A lot of respect for what Ms. Rosenworcel has done, and we're excited to operate with the FCC going forward.
spk03: Thanks, Greg.
spk05: I think there's one more question out there. Thank you. One more question, I think, is
spk02: Thank you, sir. Yes, our last question comes from Michael Buniener with TLS Capital.
spk07: Good morning, and thank you for taking the question. I'm just trying to understand a little bit what your thoughts are about the economics of the following. We have about 55% penetration of the broadband business and charter, and that's roughly at $60 of our pool, and that's competing versus $120 per month in wireless. So Mr. Rutledge alluded to this, that we essentially have less than 30% of the dollars available to us in terms of competition. Is the economics of what we can do with gaining market share is as good as what we have today, or is this incremental profitability is very different versus the basic cable business? Can you just share your thoughts on
spk05: Yeah, I think the mobile business is a business which we will not have the same standalone profitability that we have in the broadband business. But I think a couple of things. First, that profitability will increase with scale. Second, we will have the ability to go to buyer economics versus MVNO relationships on a market-by-market basis to further increase that profitability. But most importantly, this is incremental profitability to their broadband business, and particularly the way we operate it where you are, as a customer, being both a broadband and a mobile customer, it's only a positive. Not only do we get the incremental revenue and margin from your mobile lines, we hopefully drive incremental business with more broadband lines, and we reduce churn because customers who buy multiple products are less likely to churn. So I think it's a win in at least three ways. There are probably some other ways I can't remember this morning. but I think it's a win all the way around, particularly when you look at it as really remembering this is all on the margin.
spk07: Thank you so very much.
spk05: Thank you. With that, Operator, I think we're done. Thank you for your interest in Liberty Broadband. As I said, we look forward to seeing you on our Investor Day on November 19th, in person or virtually. Excuse me, in person or virtually. And until then,
spk02: This concludes today's call. Thank you for your participation. You may now disconnect.
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