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spk04: Welcome to the Liberty Broadband 2023 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 will be recorded November 3rd. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.
spk00: 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 Trip Advisor with the SEC. These forward-looking statements speak 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 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 OIBDA, 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 introduce Greg Maffei, Liberty's president and CEO.
spk01: Thank you, Shane, and good morning to all. Today, speaking on the call, we will also have Liberty Broadband's chief accounting and principal financial officer, Brian Wendling. GCI management will be available to answer questions. Also during Q&A, we will be available to answer questions related to Liberty TripAdvisor. But please note, TripAdvisor has not yet reported their third quarter results. So we will obviously not be able to comment on the current quarter. So beginning with Liberty Broadband, we did resume selling into the charter buyback in October. We received 48 million in proceeds and we deployed $13.1 million into Liberty Broadband buyback at an average cost of $88.18 per share. We anticipate that we will continue to buy back LVRDA and K shares with the substantial majority of the after-tax proceeds we receive from Charter throughout the rest of the year. And now looking at Charter. Charter did report solid operating and financial results despite a tougher market and the Disney exchange. Charter added 63 broadband net ads. We continue to benefit from rural expansion with 31,000 subsidized rural net ads in the third quarter, and we are already achieving 50% penetration after 12 months of those net ads into customer cohorts, well above the case that those were underwritten upon. We believe this reinforces the rural investment opportunity, which we think is an attractive use of capital allocation. There is high demand for charter services, both broadband and mobile, in those markets. Mobile strength does also continue. We added 594,000 mobile lines during the third quarter. We will begin to see the benefit of those in the fourth quarter as spectrum one pricing opportunities roll off and we begin to see closer pricing on those. These free lines will begin to convert into paid lines during the fourth quarter. And as you may have heard from management last week, we've seen low churn on those conversions from our trial cohorts. We did have a successful resolution with Disney and we believe the new agreement is beneficial for both parties and does provide a path forward for both linear and over-the-top to work together with our network partners as a carriage provider, and that's a model we think could be good for all parties going forward. I'd also note that Zumo went live a month ago. Our video platform, which allows convenient access to both linear and DTC content with unified search and an excellent discovery interface, we're excited for it. The distribution of Zumo across both Charter and Comcast we think could be a winner. Finally, 23 has been an important year of investment. We believe this investment is excellent in establishing the foundation for our ongoing growth and there are opportunities which will be attractive headed forward, both upgrading and expanding our network. And we are pleased with the progress that was made across all the initiatives and confident that these investments will drive long-term results for charter shareholders. Let me turn to Liberty Trip Advisor. As I noted, Trip Advisor hasn't reported their third quarter results, so I'm not going to comment on that. But we do feel good about the business and its strategic direction. Liberty Trip Advisor did move to OTC trading on October 30th. This was due to noncompliance with some of the NASDAQ listing requirements. We did look at the range of alternatives and believe transitioning to OTC was the best course of action, and we do not anticipate this will have an impact or change Liberty Trips' business operations or strategy. And with that, let me turn it over to Brian to discuss the financials.
spk03: Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $88 million. This includes $38 million of cash at GCI. As of November 2nd, the value of our charter investment was $19.4 billion. And at quarter end, Liberty Broadband had total principal amount of debt of $3.9 billion. Note this excludes the preferred stock and the remaining indemnification obligation. After quarter end, the remaining LI, LLC, charter exchangeable debentures will be redeemed and a final indemnification payment will be made to Curate Retail. Looking at GCI, revenue was down 3% for the quarter and adjusted oil, but it was relatively flat. Strength in business data revenue was offset by declines in video and voice revenue and lower handset sales year-over-year, which impacts revenue but does not significantly impact margins. We also had the impact of a three-month fiber break in June that affected GCI's data, video, and wireless services provided on the North Slope and Western Alaska. The fiber break impacted both consumer and business revenue and in the aggregate negatively impacted revenue by approximately $5 million, with a modest impact on adjusted OIPEDA. The fiber break has since been fully repaired, which is good news. GCI has also been successful in moving customers to its converged GCI Plus product offering, which combines GCI's flagship data product with their wireless offering and provides significant savings to the customers. This has negatively impacted GCI's ARPU, but benefits churn, as GPI customers who bundle internet and mobile have nearly 50% lower churn than standalone customers. We expect, and GCI expects, margins on the products to increase over time as customers upgrade their services. Over the last year, GCI has added 3,800 revenue-generating wireless subscribers and 2,100 revenue-generating cable modem customers. Year-to-date, Liberty Broadband has received $65 million in dividends from GCI. Leverage is defined in its credit agreement, was three times at quarter end, and GCI has $397 million of undrawn capacity on its revolver.
spk01: And with that, I'll turn the call back over to Greg. Thanks, Brian. We look forward to seeing many of you next week at our annual Investor Day on Thursday, November 9th in New York. Additional information is available on our website. John Malone and I will be hosting our annual Q&A session. If you would like to submit questions in advance, you can email and VestaDay at libertymedia.com. We appreciate your continued interest in Liberty Broadband and Liberty Trip Advisor. And with that, operator, I would open the line for questions.
spk04: Thank you. We will now conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Kutkun Meral with Evercore ISI. Please state your question.
spk06: Great. Thanks for taking the question. A familiar one relates to charter. The discount seems to have recently widened quite meaningfully to historically high levels. Has that changed your approach or outlook on buybacks at Liberty Broadband? and whether it makes sense to maybe pursue opportunities to get more cash to the company to help fund these repurchases, whether it's levering up or exploring some flexibility with GCI. Thank you.
spk01: Thank you for the question. I think the widening of the discount, while unfortunate, actually does make our strategy of share repurchase that much more attractive. We are trying to maintain a careful balance of utilizing our cash received from charter for, as I said, the vast majority for buybacks, but also being prudent on debt levels, particularly given the increased cost. While we have very attractive pricing on our margin loans, the reality is underlying rates have gone up, and so that's more expensive to maintain those. So we're trying to play that carefully. That's also made it probably more expensive to look at other alternatives for buybacks. how to capture the advantage of that discount through third party debt or something. But we are looking at all those alternatives and we'll certainly keep them in mind.
spk04: Thank you. Thank you. Our next question comes from Ben Swinburne with Morgan Stanley. Please state your question.
spk05: Thanks. Greg, should we be thinking about Liberty Broadband as a vehicle for you know, sort of cable or fiber asset acquisitions. And I ask that because, you know, obviously we see the cost of capital has gone up, but there were a lot of businesses funded on cheaper debt, you know, to compete with cable operators, et cetera, take advantage of broadband. There's a lot of fiber that's gone on the ground. Some of that stuff might come to market. And I didn't know if you thought we should be thinking about Liberty, you know, like we might think of other sort of private equity vehicles out there that might be looking at picking up fiber assets or telecom assets or cable assets that might come to market, even if small. And I just had a follow-up on the Charter front.
spk01: Yeah. So, Ben, thanks for the question. I think, look, we're looking at Charter as our primary vehicle for an investment in cable. Obviously, there are special situations like GCI where we thought it was attractive, it could achieve something. And there may be other special situations that come up that we would look at. we are looking all the time, but I guess I should say we would execute on. Your point about the cost of capital going up is correct, and that's hurt others probably more than even it's hurt us, so they do create these opportunities. But I would note, as we saw in the prior question, we've also seen an expansion of the discount, which means that we have a very attractive opportunity to buy what we think is a very attractive asset in charter at a discount. So, you know, Suddenly that alternative gets more attractive as well, so you're going to weigh all those various factors. Yeah, makes sense. I'm not telling you we ain't doing it, but I'm also saying the bar got higher.
spk05: Yeah, that makes sense. And then, you know, interestingly, if you look at Charter, one of the things they told us last week is there's going to be more CapEx, you know, in the near term, which all else equals. lowers their buyback capacity, which lowers the cash you get to buy back your stock. I know you know all this already. I guess, I guess as an interest.
spk01: I'm actually on the board and the finance committee, so I am aware of these facts.
spk05: Of course, of course. As for the broader, the broader group, the, you know, I guess the question is why are you so comfortable? Cause you sound more than comfortable that this is the right strategy that to the, you know, put your foot on the gas, but it's kind of a, I'm going to,
spk01: overstate it but spend as much money as you can as quickly as you can for the benefit of the long-term value creation when you have you know in your case a double discount arguably going on with uh charter yeah and i would i agree there's tension there uh because the buyback has gotten more attractive charter is cheaper than it has been at many historical levels and as you note liberty broadband further cheaper um i think we look at the longer strategic value and the longer economic opportunity that's there. And we probably were not, you know, we can continue to play all of these, but we do look at the opportunity that may be done with these rural programs, particularly how they're subsidized, that that opportunity is now, and that is worthwhile. And we are also, I think, with high split, not only not only creating more economic opportunity, but also putting a further motor around the business. So those are important and those yield attractive economic opportunities. And we will continue to try and also take advantage of the discount. So there are, you know, three sets at least of attractive investment opportunities. And we're trying to weigh all those against the long-term growth and which ones are going to be available when.
spk05: Okay. Fair enough. Thank you.
spk04: Yeah. Thank you, and our last question comes from Michael Rollins with Citi. Please, to your question.
spk07: Thanks, and good morning. Two, if I could. First, on GCI, can you share how the business has benefited and the customers of the business have benefited from ACP and how you see that playing out over time in terms of whether that gets incremental funding from Congress? Just on the broader strategic front, last quarter, Greg, you made a comment that it could be logical at some point to combine Liberty Broadband and Charter. Just curious on your latest thoughts on that, and what would be the catalyst to make that logical in terms of timing and function? Thanks.
spk01: I'll handle the second question first, and then I'll let either Ron or Pete answer comment on ACP or if they want, Brian and I can take a shot. But on Liberty Broadband combining with Charter, I think you look, we've had these holding companies that we think have done very well and been very beneficial, in some cases taking advantage of things like share repurchase or written growth in the underlying asset. But in many cases, we've also at some point merged them in and closed the gap between their trading. Examples of that would be A close example would be Lomitia and DirecTV, Liberty Expedia and Expedia, certainly cases we've gone that along the way, what's been proposed between LSXM and SiriusXM. We do that when we think the logical path is pursued on why we should be independent and it would be more beneficial to merge these entities. That day could clearly come. Somewhere down the road for charter probably will come based on our history, but we don't think that day is today. On GCI and on ACP, Pete or Ron, do you want to take a shot?
spk02: Yeah, I think – Ron, are you there? Yeah, I'll go ahead.
spk01: Ron had knee surgery, so we're going to let him get a pass unless he chooses to step in. So we'll let you go, Pete, unless Ron decides he wants to preempt it.
spk02: Yeah, I think, look, the ACT program has been a good program helping lower income people get good broadband connectivity. It has been helpful for us as far as bad debt reduction as it's eliminated that aspect of revenue coming in. The longevity we'll have to see. There's kind of some upheaval. that is very, very difficult to predict how that will all pan out as far as this program going forward. But it's been a relatively small program, but very beneficial to several thousand of our customers.
spk01: Yeah, I would just add then on that, that as far as going forward, clearly there's a lot of popularity in this program in Washington as far as we can tell. But there also is obviously a lot of dysfunction on what will get funded and what timeframe in Washington. So hard to guess how that plays out. Thanks. Thank you. Operator, I think that we are done with the questions for the day. To our listening audience, thank you for your interest in Liberty Broadband and Liberty Trip Advisor. We look forward to speaking with you next quarter if we don't see you in New York. And with that, operator, I think we're done.
spk04: Thank you. And that concludes today's call. All parties may disconnect. Have a good day.
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