Q4 2020 Liberty Broadband Corp and Liberty Tripadvisor Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by.

For the Liberty broadband 2020 year end earnings call.

During the presentation, all participants will be in a listen only mode.

The words, we will conduct a question and answer session at that time. If you have a question. Please press star one on your telephone.

As a reminder, this conference is being recorded February 26, I would now like turn the conference over to Courtney Chun Chief portfolio Officer. Please go ahead.

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 our most recent form 10-K filed with the SEC.

These statements speak only as of 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 statements contained herein to reflect any change in liberty broadband or liberty tripadvisor expectations with regard thereto or any change in events conditions or circumstances on which any cash.

Statements made on today's call, we will discuss certain non-GAAP financial measures for the free broadband adjusted.

Adjusted OIBDA and adjusted OIBDA margin information regarding the comparable GAAP metrics, along with required definitions and reconciliations.

Including preliminary note and scheduled why Didnt you can be found in the earnings press release issued today, which is available on Liberty broadband website.

I'd like to turn the call over to Greg was day Liberty President and CEO. Thank.

Thank you Courtney and good morning to all of our listeners.

Thanks for taking on the call will also have Liberty broadband Chief Accounting Officer, and principal financial Officer, Brian Wendling.

Also during Q&A, we will be available to answer questions related to Liberty Tripadvisor.

Ron Duncan.

PPI P. Powell CFO of GCI will also be available to answer questions.

Let me start by talking about Liberty broadband itself.

On December 18th earlier.

Earlier than expected.

We completed the acquisition of GCI Liberty.

During the period November 1st of January 31, we repurchased one 9 million share of the Liberty broadband for $293 million.

One 8 million other repurchases were completed after the December shareholder vote for the GCI Liberty merger.

We spent about 272 billion on repurchases at an average price of about $155 a share.

While you May note the average purchase price over this period as higher than Yesterdays close.

They represent an attractive looking for price to charter.

$528 per share versus yesterday closed 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 buying back beginning in March and do so going forward on a monthly basis.

Free spot charters historic buyback cadence we.

We expect our share of sales to charter them to generate cash well north of $2 billion for Liberty broadband this year with about a five 5% tax leakage.

Our plan is to use this capital plus the ample liquidity, we have on hand already have broadband to attack the discount at Liberty broadband and take advantage of it.

This in mind, our board has increased the repurchase authorization.

Broadband to approximately two and a half million dollars.

Looking at charter in 2020.

Ben its place as one of the most important consumer and business services and charter added more broadband has got subscribers from the first half from 2020 in any calendar year is the time Warner merger.

With operational efficiencies from increased self installation and self service platforms and online digital sales the combination of these.

Combined with the mix shift continuing mix shift to broadband resulted in full year 2020 cable EBITDA margin exceeding 40 per cent for the first time in the company's history.

And we added a small number of video subscribers in 'twenty, a lone star and the current MBV.

Market.

Mobile is also an exciting growth business for charter with improving economics charter added one 3 million lives during 2020.

And is the fastest growing wireless provider in exports.

Back for 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.

So 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.

Keep some of our investors stuck in colder climate is thinking about the right thing to check out. The best features of 2021 trip announced this week, it's led by Whitehaven Beach in Australia.

Maria Beach in Cuba, perhaps shouldn't be there.

Optical control, taking a trip in 2020 have enabled operating leverage as revenue returns.

We're also excited about Tripadvisor plus the first of its kind of direct to consumer subscription offerings in the travel space currently in beta and we expect to roll it out in the U S. In the first half of 2021.

It provides travelers with compelling value for deal on hotels and experiences.

Well it is getting access to perks and benefits and this is just the beginning over time, we envision adding more services or benefits VIP amenities in destination travel benefit airline ports et cetera.

The addressable market for Tripadvisor philosophy is enormous.

We continue to have over 400 million monthly unique visitors that trip in 2000, and 2019, and we're converting even a small percentage of net traffic implies a meaningful long term growth opportunity and recurring revenue stream for trend.

Let me turn it over to Brian to talk about the financials.

Greg.

Quarter end Liberty broadband had consolidated cash and cash equivalents of $1 4 billion, which includes $42 million of cash for GCI.

After year end GCI received $174 million in payments from the government related to RAC funding years, 18 or 19 payment.

Payments allowed us to pay down their line of credit by $190 million subsequent to year end.

Value for charter investment at Liberty broadband at yesterday's close was $36 million.

At quarter end Liberty broadband had a total principal amount of debt.

8 billion.

What is the impact of the $180 million paid out CAD one of credit subsequent to quarter end, we broadband had principal amount of debt.

Okay.

Gci's leverage that for bonding its credit agreement was three <unk>.

Five times.

Meaningful for you elaborate from year end 2019 for GCI Leverages Blah Blah blah blah.

<unk> substantial question under its maximum leverage covenants.

Yes.

Three broadband has 300 million of on gross margin loan capacity at GCI has approximately $420 million.

On capacity on the planet credit volume.

These amounts exclude the indemnification obligation and preferred stock.

That's a quick update on <unk>.

2014 was a great year for the company from full year revenue grew 9% adjusted margin of 34 per cent for $345 million.

Company's highest ever adjusted OIBDA, driven by data demand and lower cost associated with that 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.

The impact for the quarter for $6 million.

Additional discussion of GPS results in our 10-K that will be filed later today.

Fourth quarter experienced 12% revenue growth and 20% adjusted OIBDA growth.

Operationally they added near the 14th.

Cable modem subscribers and built that Alaska's first watching Netflix and Anchorage.

Basically they for the broadcast TV business introduced their time and materials business to focus on their core competitive advantage the Alaska network.

Favorable impact to overall margins.

Oh, there was definitely some favorable macro trends impacting the strength of 2020 number.

Solid performance by the team from top to bottom that generated those results.

Just a truly trying times.

For more positive news, we received a new order from the SEC for January is rate certainty to last for providers for bonding years, ending in June 'twenty, two and 'twenty three.

We expect to have a shorter period between service delivery and cash collection going for.

That I will turn the call back over to Greg.

Thanks, Brian and thank you for to our listening audience for your continued interest in Liberty broadband and Liberty Tripadvisor and operator with that I'd like to open the floor for questions.

Thank you for if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to lighter signals for each of 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.

Hi, good morning.

Curious on Liberty broadband did.

Did you think about the assets and Liberty broadband going forward can you I think the look to price to charter earlier in the discussion do you expect liberty broadband to just keep the assets highs.

And in states fairly simple or all of you on the hunt for other assets.

Our investment in Liberty broadband.

Thank you for the question.

Look the easy money here.

Terms of what to do with the capital we received from a non capital on our balance sheet, but the capital we will receive from the repurchase.

Net charter bags in the payments, we get is to take advantage of the basically.

Ken.

8%.

Differential between the after tax proceeds we get and the discount to.

Charter that we have.

Bobby its place to put our capital now to a degree we become more.

Uncertainty 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 price it 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.

And earlier last year, you talked I believe about being in discussions with.

The charter for on how to handle this cash as you are approaching it.

Can you share any thoughts of what you learned connect discussion why didn't besides given of course, the calf versus maybe just letting you hold on to the share is that like you have can you just a final decision or is it possible that in the future at the structure any agreement might be revisited.

We did have discussions with a 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 repurchasing our shares.

Can't say that we won't revisit that don't know what will come in the future, but at the moment when I looked at the alternatives of what was presented to us versus as I said the opportunity.

Net cash back pay a five 5% tax rate and by what's been running about an age to buy the stock back Liberty broadband from what's been running at about 18, 5% discount to charter and thought that was a pretty attractive alternative.

Thank you very much.

We'll go next to James Ratcliffe with Evercore ISI.

Oh I'm talking Seattle.

While on Jordan's question, you mentioned should we be looking at for Q is pretty much normalized when it comes to LHC, something plus pricing going forward.

Secondly on L trip I'm talking about discount that's well not recently.

Hi.

Are there any tools available to take advantage of that.

For the capital to buy back its ultra.

So I'll, let you want to comment on the TCR and car battery O'brien from all over again.

I think of interest rates.

Operator, we have seem to have some feedback on the line. Thank you.

Brian do you want to comment and RMC, our already low level, Pete or into Iran patent income.

Yes, just on the one time items there was a there was one settlement for $6 million that came through in the fourth quarter.

Otherwise.

The results for the fourth quarter.

Or pretty much normalized battle net paid if there's anything you'd want to add on that.

No that's it Brian, particularly nothing unusual with our H C that impacted the income statement there.

I'm Liberty trip at a discount it's a funny thing, it's highly volatile and if you look at the beef price.

And you combine the bees in the a price it's not clear it's as big a discount now.

Yeah.

Flow and liquidity there isn't a b's I'll acknowledge that's a hard number to look at.

There is not a ton of excess liquidity held trips a day, but we continue to think about ways to take advantage of any discounts we see what we see.

Great. Thank you.

Moving next to Bentley Cross with TD Securities.

Two minor housekeeping question one.

What's the right corporate overhead garage right now other than my company and then secondly can you just lost sales, but the advertising in fact was reduced.

Yes.

Can you repeat the first question I didn't hear you.

What's the right corporate overhead drag to think about now the combined company.

That gave us once that Brian do you want to answer that.

Sure Yes.

It's slightly elevated in Q4 2020 as you see other leads.

Seven 3 million. So I went back off that a little bit without giving specific guidance, but that could be an approximation to annualize.

We reduced that down a bit.

Thank you Brian.

Yes.

Net.

Maybe you repeat the second question is to make sure we all organs as well.

Can you discuss the advertising impact.

PCI for political advertising in the quarter.

Ron or Pete you guys want to take a cut at that.

Yeah I'll go ahead ma'am.

Yeah, we are.

After the sale of the broadcast business, we got relatively de minimus cable advertising revenue that goes on our cable television programming there.

And due to the political advertising, we got about a 3 million dollar bumps are over and above what I would consider to be relatively de minimus revenue streams there.

Thank you.

We'll go next to Matthew Harrigan with benchmark.

Thank you.

Firstly, probably gets Watson on Liberty Siri.

Myriad earnings releases this morning, but the FCC just approved $50 broadband subsidies for lower income homes since that's a $75 per.

Arrival areas is that for them to our.

Tweak for 'twenty one.

<unk> for GCI from Alaska.

<unk>.

Neither population there and then secondly, I guess much more prominently in the news maybe.

C band auction one of southern zone.

So Comcast and charter were not winners not surprising I guess given those prices.

I know you'd get from silver coin framing your answer.

There've been some indication there.

You might be more amenable charter or Comcast, maybe you cant say definitively on.

The actions, we will make more sense to work with Verizon in terms of deepening the relationship on the small cell side give me a day answers the slides north pestered, you on that before but lots of moving pieces here you're auction results. Thank you.

So.

Pete or Rod do you guys want to talk about the potential impact and tribal areas of a $75 subsidy.

Yeah.

Right.

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 more fairly quickly into the broadband subsidy, it's Greg implied there all of a lost cause you trouble area. So the slips $75 subsidy applause statewide.

So there's some upside to that I believe for G suite, but you also have to look at the fact that our broadband penetration was 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 dry.

Going down to bad debt and supporting the income stream. Thank you.

And as far as the seabed C band auctions in charter I think.

Liberty like many observers would stand by the price it.

Obviously, you're looking at sort of the mid Ninety's to high $90 billion. When you include the cost for growing the spectrum.

And some of the amounts for each of the larger carriers, particularly by horizon.

But also T are paid.

Numbers.

I look and think our CBR S. Alternative that we did participated and we spent about $500 million of charter ins various auction is very attractive with a cost per pop basis.

Something like 7% of the price or something like that the other point I'd make is we're really beneficiaries.

Because of our recently renewed and be in a relationship with Verizon, where we're going to get the benefits of whatever spending they have and they do there.

In terms of.

The N B, 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 where we get owner economics, where we choose and <unk> at a fraction of the price and we get rental economics, there 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 at that.

Yes.

Bigger at certain alternatives they might do to participate in some other markets. We're in so I consider it a pretty good result for charter.

Book, specifically as far as the advantage you have on the small cell site powering about access and all that is that still something that's a moving target I know this is something I know Comcast has historically been reluctant to what.

Isn't the best with your network do you have any extent I'm sure charter sales probably in the same place.

I take it.

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 fell off the table for while.

I think it's the point you make.

Haven't rolled that out yet or <unk>, we haven't really rolled out our owner economics anywhere yet, but down the road one could imagine.

Providing access to our network as well.

Certainly do provide other places where we provide backhaul on the line for plenty of for larger mobile carrier. So I don't know why.

Last mile capacity as well.

Thanks, Greg.

We'll go next to Mike Latimore with TLC capital.

Yes, good morning, I have a couple of questions.

I'm looking at charter.

To me that with $60 million.

Homes passed.

Their penetration roughly is about 58%.

And the average monthly Bill was around 11 one.

Mm $111 what are you thinking in terms of again.

The opportunity for the total penetration.

And also what do you think is the.

Purchasing.

Our ability to.

Fund spending on cable relative to the average rent.

Which is approximately $902000 a month across the U S. How are you thinking about that.

When you discuss that please.

Please state your on the price increase that was announced at the end of last year about Shredder did it go through.

And what are your thoughts about inflation, sorry, I know, it's a lot, but I really appreciate your thoughtfulness.

I'm also going to write the final chapter of the Bible low we got here, but.

Look I think if you asked Tom Rutledge she wouldn't believed ultimately we're going to have.

Two thirds of low.

We'll grow our share for two thirds of the market or for price.

Perhaps even more of a 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 upgrade.

And so we really are well positioned in general yes charter has taken some price increases and it really is hard to say because it is flight plan, where it rolls out across the nation. It's not a uniform we turned the switch and everything goes up 3%. It really is when the customers contracted and what kind of plan that we're under and what.

Can be plants, we offered.

In General if you look at most analysis that I've seen.

Charter has not been a price taker, we've been a share taker.

And I think the management team at charter has done a great job of doing that where we gained share largely faster than anyone else. Among the big cable players and you price is 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 lead that volume that volume rather than.

Price style, rather than the volume dial.

Wes.

Less churn in that some of the others in the market.

As far as where it can go.

We'll see.

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 book value of the service is likely to arrive I don't have a number in my head.

Never really looked at or thought about it against the average rents, particularly because a lot of cases people own their homes is not a rental property.

We have businesses small businesses so.

Not necessarily think about it against rents are but.

But I do think the product as I started out as shown increasing broadband is from increasing value to consumers and businesses alike. In 2020, and I don't expect that participate much in the years ahead.

Can I just follow up with months.

And something else.

Sure.

The recent the recent.

The success of the Liberty Media acquisition Corp.

Clearly you have excess capital.

Liberty broadband and the free cash flow from the repurchase.

He 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 see.

Think about it.

Conflicts of interest in attempting to essentially treat every shareholder properly because liberty media.

Yeah. So.

Couple of things I think I talked about the first and primary opportunity we're pursuing today at Liberty broadband.

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 is can charter continues to shrink its equity grow its cash flow grow its revenue grow with dividends. So we're pretty enthused about that now.

Each of the companies that has been spun from Liberty media, specifically waive 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.

If we see something in ecommerce, that's probably likely to go into new curated if we see something around Motorsports, that's probably likely to go to formula one and.

And if we see something around music Thats, probably likely go into the Liberty Siri Theres just seem to be natural homes.

Now in the case of the stack.

Liberty media did not waive its conflicts so any opportunities that this vaccine will first be offered to Liberty media and we created for.

Physician, 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 non almac management team and they'll be day, one to decide whether it goes for Liberty media.

I think it's unlikely, we're really going to see that as a practical matter because.

Again, if we see something in motorsports, unless its two largest scale, it's likely to be formula one if we see something that doesn't fit, particularly well it may very well be and its back so.

We've had this conflict in effect for years, we've never really had an issue with shareholders about it because I think we're pretty we try to be transparent explain our motives and in general we try to create pure plays among the entities. We have not happened diversified unless there was a really good reason and in fact, one other reasons we credit this backward.

Look at those diverse alternatives that may not fit so well with the portfolio we have today.

Thank you and thank you for your team of GCI, you've done an amazing job of group for the long term shareholders from a plan to continue to get long term shareholders. Thank you.

Our last question comes from Mike Karen with Truest.

Hey, Thanks for taking my question I have two quick ones from what it looks like GCI moving some video subs from the business segment for the consumer segment. I was just wondering if that is correct and that explains some of the change in revenue my.

And 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 some more color.

On the reasoning and the implications for that change from the org structure.

I'll take the second one.

As often is the case and 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.

So when we sold the broadcast TV business, we elected to change the the unit that took the revenue it used to go into the GCI business revenues 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 seem to follow more of what the consumer revenue stream. So that's why Michael It moved from the business to the residential and it's just the advertising revenue.

Okay great.

Yeah. Thank you I think that's our last question.

Thanks to the management team's thanks to our employees and thanks for all our listeners for their interest in Liberty broadband and Liberty Tripadvisor, We hope to speak with you next quarter if not sooner.

This does concludes today's conference we thank you for your participation.

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