This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Gentlemen, thank you for standing by. Welcome to the Liberty Broadband 2022 Q1 earnings call. During the presentation, all participants will be in a listen-only mode. Afterward, 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 May 6. I would now like to turn the conference over to Courtney Chun, Chief Portfolio Officer. Please go ahead.
spk01: Courtney Chun Good morning. 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 filed by Liberty Broadband and Liberty Trip Advisor with the SEC. These forward-looking statements make only as of the date of this call, and Liberty Broadband and Liberty Trip Advisor 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 Advisor's 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 OIDA. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one and two, 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 Liberty President and CEO, Greg Masay.
spk11: Thank you, Courtney, and good morning to the listening audience. Today, speaking on the call, we will also have Liberty Broadband's Chief Accounting and Principal Financial Officer Brian Wendling and Ron Duncan, CEO of GCI, and Pete Pound, CFO of GCI, will be available to answer questions. Also during the Q&A, we'll be happy to answer questions related to Liberty Trip Advisor. So beginning with Liberty Broadband, from the first of February through the end of April, we repurchased 5.1 million Liberty Broadband shares for $718 million. Over the same period, we received $753 million of proceeds from charter share sales. This reflects two months of share sales as noted last quarter because we did not participate in the charter buyback in February. The average look-through price to charter on these repurchases was $451 per share. As a reminder, the annual tax rate on our charter share sales for 2022 is expected to be, and 2023, is expected between 7% and 9%. For tax purposes, the shares sales back to charter are treated as dividend income and eligible for 65% dividends received deduction. Our tax basis in the charter shares is reduced by the amount of DRD on a share by share basis. It will result in a gradual increase in our tax rate over time. Please note, we are not providing specific tax guidance beyond 2023 now because of the many variables outside of our control, including the cadence and timing, of Charter's prices, share of purchases, the pricing of those share of purchases, tax reform, et cetera. I'd also note that at LBRD we sold the subsidiary Skyhook and received approximately $170 million of net proceeds on May 2nd. The Charter itself, they had reported strong financial results in the first quarter with revenue and EBITDA both up 5%. and free cash flow up 9%, excluding a litigation payment. Notably, the mobile momentum continues there, adding 373,000 lines in the first quarter. Charter continues to leverage its fixed network to drive an additional value to mobile customers, adding features such as mobile boost and CBRS small cells in the future. We remain confident in the hybrid capital efficient approach to Charter's mobile rollout. Broadband net ads were softer at 185,000 in the first quarter, reflecting a low churn and low, therefore, sales opportunity environment across the industry. We had expected moderation of broadband demand coming out of COVID, and that's obviously been exacerbated by the lack of move opportunities in the market today. There are market fears about FWA and fiber have surely compressed cable multiples. Charter is voting with its feet and aggressively pursuing its active buyback. We are similarly bullish on the opportunity, and it seems like the market has at least gotten a bounce over the last couple of days and recognized that perhaps was overdone. Notably, Charter also unveiled a JV with Comcast to develop a next-gen streaming platform. We think this provides a compelling path forward on video. and a means of benefiting from revenue streams that are ancillary to linear video. This new operating platform will streamline and aggregate experience for optimal customer user interface and the like, and will enable a transition to IP delivery for video, allow additional spectrum to be deployed in other ways, particularly broadband. Turning to TripAdvisor, we had a strong start to the year. January was impacted by Omicron, but we Business material improved throughout the quarter. In Q1, the consolidated revenue reached 70% of 2019. It's post-COVID peak. HM&P and E&D segments combined reached 75% of their 2019 levels, and we exited Q1 at 88% of the 2019 levels in March. The HM&P segment exited actually at 76% of the 2019 revenue, And the E&D segment exceeded the 2019 levels, growing 229% year-over-year and reaching 115% of 2019 levels. We continue to leverage high CPCs to drive paid traffic in the auction and are generating good returns in that auction. We also experienced very positive gross booking value at Experiences. and a key operating metric. European travel is returning, and we're seeing signs that Europe is almost at a par with North America as a destination. And we are also seeing strong repeat booking rates among the 2021 acquired cohorts, so the customers we acquired in 2021. Lastly, at TRIP, we were thrilled to announce Matt Goldberg is joining as CEO on July 1st. The market seems to agree. He has long history as a proven operator, most recently at Trade Desk. He has experience in travel, media, and digital content. And we want to thank Steve Kaufer for his long tenure as founder and CEO. And with that, let me turn it over to Brian to discuss the financials.
spk02: Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $300 million, which includes $111 million of cash at GCI. The value of our charter investment based on shares held as of May 1 and charter share price at yesterday's close was $24 billion. And at quarter end, Liberty Broadband had a total principal amount of debt of $4.1 billion. We drew down $300 million on the charter margin loan during the quarter, and available capacity at the end of the quarter is $700 million. The drawdown was largely to fund share repurchases at LBRD, given the timing difference and when we received proceeds from charter share sales. As Greg mentioned, we did not sell into charter buyback in February and received only two months of proceeds from charter share sales in this reporting period. Note the above amounts exclude the indemnification obligation and preferred stock. Looking at GCI, GCI had a good first quarter. The company generated solid free cash flow and continued to de-lever. Subsequent to quarter end, GCI paid a $70 million dividend to Liberty Broadband using their cash on hand. Leverages defined in its credit agreement was 2.9 times at quarter end prior to the impact of the dividend up to the parent. And GCI has 397 million of undrawn capacity under its revolver. Revenue and adjusted OIDA were both down $9 million. As we noted at year end, revenue and adjusted OIDA are seeing the effects of the new roaming agreement agreed to in the fourth quarter of 2021, which is positive long term, but does create some negative comparisons to the prior periods in 2022. Additionally, our video business continues to shrink, which significantly impacts revenue but does not meaningfully impact free cash flow. This decline in our video business was offset by growth in our consumer broadband and wireless offerings. Over the last year, GCI has added nearly 5,000 revenue-generating wireless subscribers and nearly 10,000 cable modem customers. We believe many of these gains are directly attributable to our deployment of 2-gig speeds in communities across Alaska. Eighty percent of Alaskans now have access to GCI's 2-gig speeds I don't think any other state in the country even comes close. And we're deploying 2GIG in some of the most remote communities in the nation. Later this year, we'll light up our new 800-mile subsea fiber to bring 2GIG service to Dutch Harbor, which many of you probably recognize as home to the deadliest catch. Soon, Dutch Harbor will be known for Kig Crab and virtually unlimited speeds and data. Safe to say, GCI isn't bridging the digital divide. They're eliminating it.
spk11: With that, I'll turn the call back over to Greg. Thank you, Brian. And to our listening audience, we appreciate your continued interest in Liberty Broadband and Liberty Trip Advisor. And with that, operator, I'd like to open the line for questions.
spk05: Thank you. And as a reminder, if you would like to ask a question, please press star 1 at this time. Again, that is star 1 for questions. We'll take our first question from Doug Mitchelson with Credit Suisse.
spk03: Oh, thanks so much. I guess just two questions, Greg. You've got the benefit of being a long-term investor, so I'm just curious. Is there anything in the current environment for Charter that has surprised you or the team at Liberty? Obviously, the equity markets are telling you there's some surprise about either how much fiber is getting built or the efficacy of fixed wireless so far. So I'm just curious. You know, whether it's been a surprise for you folks who have been, you know, thinking longer term. And I just think macro backdrop, you know, Greg, does that, you know, rising interest rates and yet lower charter equity influence how you think about managing capital for Liberty Broadband? Thank you.
spk11: Thanks, Doug. Yeah, you know, I think I'm surprised that the broadband net ads fell as much as they did. you know, we can all speculate how much of that is due to at least five factors I can think of, which is, you know, just general saturation of the market, COVID pull forward, lack of move and therefore lack of selling environment, increase in FWA or increase in fiber. I'm fairly confident that the fifth one, has not been ramped up dramatically in the first quarter. There's just no way to do it. The market environment to actually build is not getting easier. It's getting harder in terms of availability of supplies and availability of labor. So there's no reason, in my mind, to think that's been ramped. Is there some potential that FWA has been ramped? Not potentially. I don't think that's as much of a long-term threat. But that could have popped in the quarter, certainly. On the issue of the first three, I tend to think it's mostly, you know, some degree we are going to be in a slowing environment in terms of saturation, but I really do think it's mostly COVID pull forward and move among those five factors which has caused the decline. So I remain optimistic that we have a growing broadband asset at Charter, and we will have increasing free cash flows, increasing margins, and a big mobile opportunity. So I don't think our view on the business has fundamentally changed, and the risk-reward at the prices we're talking about in terms of doing the share repurchase looks a lot more attractive. So I don't think that's a big change. As far as the overall market environment, you know, we are in the business, as you know, Doug, of trying to be long-term investors. We do try and find opportunities in more attractive environments, and I suspect as, you know, the ramifications of higher rates and more difficult equity markets plays through, there will be opportunities. and we have a lot of capital at broadband as well as a lot of capital at FON and at the SPAC. But it takes usually a while for those to flow through, and we're not people who sort of get to play with the market's down 10%, let's buy more. It's longer-term deals that come our way. It's just the nature of how long deals take and how long it takes sellers in many cases to readjust their expectations. So I do think there will be opportunities, but I don't think it's like they're going to show up next week just because the market's off this amount.
spk03: Understood. Thank you.
spk05: And we'll go to our next question from Ben Swinburne with Morgan Stanley.
spk08: Good morning, Greg. Just sticking with the charter theme and sort of your buyback strategy, did you not sell in February because you don't want to sell at these prices or any other factors there? Just remind us how all that works with your ownership cap, because obviously it's charters buying and you're not, you're accreting. Yeah, that'd be great. Thank you.
spk11: Happy to try and clarify. The ownership cap is measured on fully diluted shares, so as they have issued some options and done some things related, we have more room under the cap, and so we're not required to sell.
spk08: And is there a reason for not selling in February because you don't like where the prices are, or was there anything technical in the quarter?
spk11: We're not trying to sell charter stock. We're being obligated to sell into that, and we were not obligated to do so in February because of their actions in terms of share issuance and the like.
spk08: I got you. Okay. That makes sense. Okay. Thank you.
spk05: We'll take our next question. Barton Crockett with Rosenblatt Securities.
spk06: Hi. Thanks for taking the questions. One question I wanted to touch on the fixed wireless commentary, and the question is this. I mean, they face the same environment that cable does, right? People aren't moving, but they're adding, you know, a couple of million subs. T-Mobile is. I'm curious, Greg, where do you think those subs are coming from? And, you know, if they unearth a new market opportunity, maybe kind of a low-end household that the cable guys don't see, just curious, you know, where do you think that source is?
spk11: I think it's a good question, Barton, and I don't claim to have absolute clarity. But what I have seen, what I've read, what I believe is they probably have created some new market opportunity and they've taken some share of the growth in the market, particularly among customers in areas where cable is not competitive or where customers have relatively low-end needs. But I don't believe FWA is a long-term solution for a vast majority of customers whom we're going to compete for, just the nature of how they fill their pipe and the nature of the relative attractiveness in terms of speeds and what will be available if that pipe fills. So it's probably some mix of taking – I don't think they're taking a lot of our existing customers. I think our turn is low. I think they probably have taken – created some new growth in the market and taken some of the growth in the market, which has been more limited.
spk06: All right, that's helpful. And then switching gears completely, I'm kind of curious about GCI in Alaska, and it's this. The price of oil is obviously kind of epically rebounded. That would seem to be correlated to a stronger economy in Alaska, which might help GCI fundamentally. I'm just wondering if you're feeling any dynamics like that at this point.
spk11: I'm sure that's the case, and I'll let Ron or Pete, probably you, Ron, wax eloquent about it.
spk00: alaskan economy well no that's a lot of eloquent wax yet the state revenues are definitely up and our legislature is still in session busily trying to figure out how to piss away all those new revenues but they haven't hit the economy yet the mood up here is definitely more positive than it was 15 months ago and i think we're looking at a reasonably strong economy between oil revenues and a tremendous amount, $16 billion of federal stimulus under the Infrastructure Act flowing into the state. Fortunately, only a small portion for broadband over the next several years. But that really hasn't been reflected in the employment of the population yet. We're still in that negative outflows on the population and employment's coming back, but we're not at pre-pandemic levels yet. We're confident about the economy up here for the next 24 months at least, so that should be something of a tailwind. And quite frankly, our performance in the marketplace has not slowed down as much as the rest of the industry, nor as much as we expected post-COVID. We're still adding both broadband and wireless at a respectable clip. Okay, that's helpful. Thank you.
spk05: We'll take our next question from James Ratcliffe with Evercore ISI.
spk09: Thanks for taking the question. Greg, a couple things. One, first of all, are there circumstances where it could make sense to buy a cable asset or something like that at Liberty Broadband rather than Charter? Or would the synergies that you'd get by buying at Charter mean that's the logical place for it? And secondly, I saw you sold Skyhook. Does that have any impact on structural flexibility or any tax implications?
spk11: Thanks. Take the second first. Thank you, James. No, no impact on structural flexibility. I think we were very pleased with the Skyhook sale in terms of most people's expectations were we might not be able to achieve that kind of valuation and determine the cash if that number is pretty good. Certainly higher than I've seen any other analyst write about, so that's a plus. Why might we buy a cable company at Liberty Broadband rather than Charter? You could imagine there could be a couple things. One is we might do one in a way that created an ATB and gave us more flexibility for some other kind of structural transactions at Broadband down the road. Or it's not inconceivable there's an asset we liked that ultimately we wanted to own that might not be as appealing to Charter. But I suspect it's unlikely in both cases that that's what happens.
spk09: All right. Thank you.
spk05: We'll go to our next question from Michael Rollins with Citi.
spk10: Thanks. I just wanted to revisit the discussion on the charter shares and just giving your views on charter and the broadband category. Have you or would you like to reopen negotiations with charter to hold onto your charter shares and not be obligated to sell into the charter buyback program?
spk11: Well, I think it's a complicated topic in the sense that we like our charter shares, but we don't exactly complain about buying Liberty Broadband back at the discount, even net of the taxes. So, yeah, I always want more flexibility. We always like more optionality. But the current situation is certainly not a poor one.
spk10: And given the timing of the GCI transaction, should investors think about a timeframe where at Liberty Broadband you would have the greatest flexibility from a tax perspective to consider a full range of transactional opportunities?
spk11: Yeah, I think given how the GCI deal was done, whatever flexibility we will get from GCI, which is good and very good, will not change over time. We already have achieved whatever flexibility we're going to get.
spk10: Thank you.
spk05: We'll go to our next question from Michael Bunyaner with TLF Capital.
spk07: Good morning. I have two questions. One, in light of the inflation forces and your comments in terms of the NatAds losses, Can you discuss what your thinking is about the pricing part of cable versus your competition?
spk11: First, I would not describe it as net-add losses. I would describe it as the slowing of growth. We continue to be a growing asset and entity, and I believe that's the likely path going forward. I think if you look at most of the things I've seen that suggest that we have relatively low cost broadband compared to much of the competition. We have not taken price in the way that much of the other cable or other providers has. So I think there's actually pretty good pricing flexibility for Charter and pricing opportunity ahead, which has mostly been deferred because they have continued to grow faster than most of the industry.
spk07: You were correct about the net ads and I did not use the right description.
spk11: You're absolutely correct.
spk07: And I'm glad you corrected me.
spk11: No, no, no. We're sensitive to the idea that many analysts have written as if cable is shrinking. That's not happening, and I don't foresee that happening.
spk07: Exactly. And the second question actually has to do with curate from a point of view of liberty and also the indemnity to curate retail. What are your thoughts about how long do you think it will take them to address the inventory issue and the fire at the warehouse and various other things that they have to block and tackle to fix the business?
spk11: Well, I'll try and be helpful because we, and Ben once said, or our treasurer once said, I think they went into quite a lot of depth about how this on the prior call we had this morning. Sorry, you missed it. But that transcript will be available, and you can hear David Rawlinson and Jeff be more articulate on the topic. But Ben, you want to add something?
spk12: I'll just add that in terms of how the indemnity works, Liberty Broadband is obligated to fund the premium over the face value. And so as the value of Charter's stock goes down, that indemnity gets smaller and smaller, which is in our favor.
spk11: In the favor of Charter. Excuse me, in the favor of Charter. Right.
spk12: Yes.
spk11: In the favor of Liberty Project. Right. Thank you very much. I think the fire was a huge tragedy. Just to finish, the fire is a huge tragedy. It has had, you know, multiple effects, including, you know, businesses, continuity. It's caused us to have less efficiency in terms of our ability to ship to customers, therefore lower satisfaction. There are a lot of knock-on effects, but I think if you look at that transcript, you'll hear more articulate answers than I can give.
spk07: Thank you so much.
spk05: We'll take our last question from Matthew Harrigan with Benchmark.
spk04: Thank you. I was going to ask a pricing question, but I just can't answer to that. Is there much you can do to really increase the perceived value and the real value of the product apart from just, you know, speed and the usage statistics, which are clearly working your way? I mean, even when you look at something like UCAS, a lot of it is just off the shelf. There's a lot more you could probably do in-house. I guess there's probably some benefit possibly from the Comcast charter, JV, but just, you know, a way to snazz up the product and just the overall even including voice, irrespective of just the usage. Thanks.
spk11: Well, I think Charter is focused on trying to provide high-quality products that the market wants, and obviously some of the things we're doing in terms of both on the broadband side with things like the high split in terms of being able to divide and provide upstream capacity as well as downstream capacity is not purely a speed issue, though it's obviously speed-related, working with strategic vendors like Plume to provide an improved broadband Wi-Fi experience, and then also working on the mobile side doing things, as I talked about, like our boost opportunity inside the home if you're a mobile customer. So I do think there's a lot around the interface and speed. Obviously, as you noted, the JV with Comcast I think is going to improve our video offering and our video capabilities Comcast has invested quite a lot and it's already down the road on much of that with Flex. And I think that's an opportunity for us to work together. It'll be a positive.
spk04: Thanks, Greg. Have fun in Miami.
spk11: Thank you. Thank you to all of our listeners for your interest in both Liberty Broadband and Liberty Trip. And we look forward to speaking with you again next quarter, if not earlier.
spk05: And this concludes today's call. Thank you for your participation. You may now disconnect.
Disclaimer