Liberty Broadband Corporation

Greetings and welcome to the Liberty Broadband 2024 Year-End Earnings Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead, Shane.

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 or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-K filed by Liberty Broadband with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Broadband expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband'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 addressed at OIBDA. 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, as well as earnings releases for prior periods, which are available on Liberty Broadband's website. Speaking on today's call, we have Liberty Broadband's Chief Accounting Officer and Principal Financial Officer, Brian Wendling, Liberty's Executive Vice President and Treasurer, Ben Oren, and available to answer questions, we will have Ron Duncan, the CEO of GCI, Pete Pound, CFO of GCI, Renee Wilm, Liberty's Chief Legal and Administrative Officer, and Marty Patterson, Liberty's Co-Head of Corporate Development. And with that, I'll turn the call over to Brian.

Thank you, Shane, and good morning, everyone. On November 12th, we entered into a definitive agreement for Liberty Broadband to be acquired by Charter. We believe this transaction provides certainty for our shareholders, enhance trading liquidity for both Charter and Liberty Broadband, and serves in the best interest of all shareholders. Today we'll provide a brief update on the transaction before turning to the results of the GCI business and then opening it up to Q&A. A quick review of the terms of the transactions. Holders of the Liberty Broadband Series A, B, and C common stock will each receive .236 of a share of charter common stock for each share of Liberty Broadband held. We received Liberty Broadband shareholder approval yesterday, February 26th. The transaction is still expected to close on June 30, 2027 unless otherwise agreed to. We're very optimistic about Charter's future and look forward to continuing our strong partnership with them over the next two and a half years. Liberty Broadband has agreed to spin off GCI prior to the transaction close to Liberty Broadband shareholders. The GCI distribution is expected to be taxable to Liberty Broadband and its stockholders. Charter has agreed to bear the corporate level tax liability upon completion of that transaction. If the corporate level tax liability exceeds $420 million, Charter will be entitled to share and certain tax benefits realized by GCI under the terms of the merger agreement. The distribution of GCI will provide incremental value to shareholders that is not captured in the exchange ratio with charter. Ron Duncan will be the new CEO of the entity and called GCI Liberty, which is a throwback to GCI Liberty's old public days, and he'll also remain the CEO of GCI Opco. We expect to complete the spinoff in late Q2 or early Q3 of this year. which will simplify Liberty Broadband's equity story until the close of the transaction. Now taking a quick look at the operating results of GCI. In 2024, GCI achieved record revenue that crossed the billion-dollar mark for the first time. GCI also generated solid adjusted OEBDA and free cash flow and distributed $150 million of dividends to Liberty Broadband in the year. Revenue increased 5% in the fourth quarter and 4% for the full year, driven by strength in data revenue. Business data revenue benefited from a strong upgrade cycle in school and healthcare corporations in rural Alaska. Adjusted OIVDA decreased 4% in the fourth quarter and was up $1 million to $362 million for the full year, as revenue growth was primarily offset by higher SG&A expense from increased labor-related costs. Over the last year, adjusted for the reclassification from GCI business, GCI consumers saw a decline of 300 revenue-generating wireless subs, and cable modem subscribers declined 4,900, with approximately 3,800 of these losses driven by the expiration of the ACP program. In 2024, GCI spent $193 million on capital expenditures and that proceeds received from federal and state grant funding. This is slightly below our prior expectation of $200 million, largely due to delays in rural fiber projects. CapEx spend was primarily related to improvements to the wireless and data networks, Particularly in rural Alaska, GCI's net capital expenditure for 2025 are expected to be approximately $250 million, primarily related to additional investments in middle and last mile connectivity, with continued network expansion in our most important markets in rural Alaska. Taking a proactive approach to rural connectivity projects is critical to securing necessary government funding and a significant portion of the increased capex in 2025 are related to fulfilling build-out requirements of the Alaska plan. And with that, I'm incredibly excited to turn the call over to Ben Oren to go through the balance sheet and more transaction-related items.

Thank you, Brian. At quarter end, Liberty Broadband had consolidated cash and restricted cash of $229 million, which includes $75 million of cash and restricted cash at GCI. There was $65 million of restricted cash at Liberty Broadband as of year-end representing proceeds from charter share sales to be used towards debt service. At quarter-end, GCI leverage was 3.1 turns with sufficient cushion relative to the 6.5 times minimum net leverage covenant threshold stipulated in the credit facility. And GCI had $342 million of undrawn capacity under its revolver net of letters of credit. The value of our charter investment based on our shares held as of February 1st and charter share price at yesterday's close was $15.9 billion. At quarter end, Liberty Broadband had a total principal amount of debt of $3.7 billion. Note this excludes preferred stock. Under the terms of the agreement with charter, charter will repurchase $100 million of its Class A common stock from Liberty Broadband each month until the transaction closes. If necessary, charter will repurchase a greater amount of shares or make loans to Liberty Broadband sufficient for Liberty Broadband to satisfy its debt obligations as they come due. Proceeds from charter share sales that are applied to debt service will be tax-free. From November 1st through January 31st, Liberty Broadband received $205 million of proceeds from charter share sales. Such proceeds are included in restricted cash. and to be used for debt service at Liberty Broadband within six months of receipt. As Brian mentioned, the spinoff of GCI is expected to be completed in late Q2, early Q3 of this year, after which we expect Ron Duncan, GCI management, and our team will separately conduct an earnings process for the spinoff entity. We appreciate your continued interest in Liberty Broadband, and with that, operator, we'd like to open the call for questions.

Thank you. I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question is coming from from Evercore ISI. Your line is now live.

Great. Thanks for taking the questions. A few, if I could. First, as we and investors do a lot more work on GCI Liberty, ahead of the spinoff this summer. Can you help us think about the competitive backdrop today and how you see it evolving, particularly with increased focus in the market around Starlink and other satellite operators on top of fixed wireless competition? And then maybe with greater clarity on the timing of the spinoff set for this summer, maybe you could help provide an update on the gating factors for moving up the close with Charter ahead of the June 2027 date. And sorry, just last one. You know, there have been a lot of headlines recently around government subsidies for broadband build-outs, particularly with Bede. So maybe you could provide an update on how you're thinking about subsidies and how it fits into your expectations for the next few years at GCI. Thank you.

Ben, or somebody, do you want to take the timing one first, and then I'll combine the market and the government subsidies into one answer?

Real quick on timing of the GCI spin, and then we'll turn it over to Marty to talk about broadband and charter transaction. But the timing of the GCI spend, we would expect to close late second quarter, early third quarter, as we continue to work through kind of audit uplifts in the SEC process.

Yeah, Cuck, and as it relates to the timing of the broadband transaction itself, as we in charter have talked about, this transaction provides a couple objectives for us. It allows for an early transition from the governance rights and existing partnership that we have with charter to continue through the 2027 close date. It also allows broadband to reduce its level of net debt prior to closing. So that impact for the broadband shareholders is it provides certainty today under a timeline that works for both parties. In terms of things that could happen from here to accelerate the timeline, really that would be if we mutually agree with charter to accelerate a close.

Ron, do you want to take the competitive backdrop and subsidies?

I will give it a shot. Yeah. The Alaska market is overall stable in what is at best a flat economic environment. On the wireless side, GCI competes primarily with AT&T. Verizon's in the market, but they haven't moved to 5G in Alaska yet because they don't have C-band spectrum up here. And that has limited their competitive impact in the Alaska market. We in AT&T share the majority of the wireless market. On the wireline side, on a statewide basis, the two principal competitors are GCI and ACS, the local phone company that's in Anchorage and a number of the other urban areas, and then a number of small rural local phone companies in the remainder of Alaska who are not much of a competitive factor in the overall big picture market. The bulk of the market is driven by the Universal Service Fund support of schools and healthcare facilities, and that's where GCI has a predominant market share. In terms of the evolution of the market, I don't see a whole lot changing in the near term. We're slowly adding wireless share because our wireless product is more compelling than what the competition has to offer. And it's pretty much stable on the wired side. ACS is engaging very slowly in fiber to the prem build out, but we're not seeing material impact on that. If you look at the breakout of the subs, GCI is pretty flat on wired subs in the urban footprint. We have lost wired subs to Starlink in the rural areas, largely due to service disruptions arising from multiple breaks in the backbone fiber around Alaska that's owned by Quintilian. It broke last year and it broke again this year. When that happens, our rural consumer business is forced back from two and a half gigabits of service to a very, very poor level of service. And many people in that environment switch to Starlink. In those cases, it's taken a long time and it's been difficult to get them back. Starlink is certainly a competitor in the rural areas and very much so for situations where GCI service is degraded by outages to the backbone fiber. We're seeing some Starlink appearances in urban Alaska, but it's not material yet. It's sort of a price point issue, but I don't think we'll see substantial urban penetration, and once the fiber networks are built out and the redundant rings are completed, I don't anticipate more of the sorts of disruptions that led to Starlink gaining ground in the rural areas. Starlink will probably be a competitor under the revised BEAD rules. We're expecting the BEAD rules to be changed now that there's a new administration to be more tolerant of satellite provision. But the economics of the situation are still such that for the enterprise users, it makes more sense to be on a fiber backbone when it's available. Government subsidies are obviously a huge piece of the market up here, both for capital and for operating. On the capital side, the state has currently established an April date for the submission of BEAT applications, which currently are targeted about a billion dollars to flow to Alaska. We're waiting to see whether there'll be any adjustments in either that amount or the terms and conditions of those grants following the changes that may come out of the new administration. I think everybody's aware that there's pressure to open that up more to Starlink, and certainly Starlink's a viable competitor in some of the rural areas, but I don't expect it to make material changes in what we're planning for rural fiber network construction.

Incredibly helpful. Thank you so much.

Thank you. Our final question today is coming from Matthew Harrigan from Benchmark. Your line is now live.

Thank you. I was going to ask about a macro question. Frankly, given that you and Hawaii might not be the most recent US states, you already kind of alluded to Washington. But what do you think about the possibility that you might have some substantial revisions in the subsidies on the healthcare side as well as the fiber side? I mean, Elon clearly is favoring Starlink, so it feels like there's risk there. And do you feel like you're fairly hardened out against an economic slowdown? I mean, obviously, there's more fat-tail risk now, even for the lower 48. You just had an increase in tariffs in China. I think, announced today. But if we were to get an actual recession, I mean, do you think you can withstand that roughly comparable to your lower 48 brethren, or do you think that there's just always more volatility in the Alaska economy? Thank you.

Alaska typically has been countercyclical on recessions, largely due to our energy economy and our energy dependence there. And with Trump's focus on domestic energy production, we think there's probably more upside than downside resulting from the new administration. Under the prior administration, Alaska was basically shut down for new energy and new mineral development. And that looks to be facing a very substantial acceleration under the Trump administration with the potential for the first time in a long time that we might actually see progress on the gas line, which would be a big boon to the Alaska economy. With respect to Starlink competition, I fully expect Starlink to qualify for participation in the next round of federal grants, both BEAD and the remaining grants that might come out of NTIA. The Biden administration, of course, had a strong preference for fiber. I expect that we'll see that will be a technologically neutral bias. But that said, we believe that our largest customers need more capacity than is effectively available through the LEO network, and there still will be a very robust demand for fiber. Clearly, that space is going to be more competitive going forward, but I think we're well positioned to address it.

What about the healthcare subsidies, just to nag?

With respect to the pending USF case or something else?

Just the broad healthcare subsidies for the tribes in Alaska. I thought that that was something that was fairly material rather than incidental to some of your results.

The subsidies to the healthcare users in Alaska are very material. to our results. There is a pending case before the Supreme Court that could disrupt some of the structure of the Universal Service Fund. We think the probability of material changes to those are low in terms of the competitive entrance on the health care side and the possibility of Starlink competition there. The bandwidth consumed by health care today is such that the individual facilities would tax the Starlink network and are much more likely, I believe, to stay on the fiber network.

Great. Thanks, Ron. I appreciate it.

With that, we thank you all for your time. And, Operator, that's the end of the call. Thank you. Thank you.

That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.