Q1 2021 Liberty Broadband Corp and Liberty Tripadvisor Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by that come to the Liberty broadband Q1 earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press star one on your T.
And if one as a reminder, this conference is being recorded I would now like to turn the conference over to Courtney Chun Chief portfolio Officer. Please go ahead.
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 and.
<unk> events or results could differ materially due to a number of risks and uncertainties, including those mentioned and 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 disseminate any updates there.
And revisions to any forward looking statement contained herein to reflect any change and liberty broadband or liberty tripadvisor as expectations with regard there to 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.
Terrible GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one and two can be found and the earnings press release issued today, which is available on Liberty broadband and website now I'd like to turn the call over to Liberty's, President and CEO, Greg Martin Thank.
Thank you Courtney and good morning to all of you out there.
And speaking on the call. Besides myself, we'll have liberty broadband chief accounting and print and principal financial Officer, Brian Wendling.
Also during the Q&A, we will answer questions related to Liberty Tripadvisor.
Ron Duncan CEO of GCI and Pete pounds. The CFO of GCI will also be available to answer questions.
So turning out and Liberty broadband.
In March.
Liberty broadband and began participating and charters buyback holdings are fully dilutive ownership at 26%.
Through April we have received nearly $1 billion of proceeds and we used these proceeds to repurchase $6 1 million L. B R. D. K shares from February through April at an average price per share of $152 and <unk> 30 per share.
We view this having meaningful value creation for our shareholders with the <unk> NAV discount running about 19% and allowing us to have a look through purchase price on charter of about $516 per share.
While our quarterly repurchases may fluctuate due to the timing of cash received and et cetera, we expect that our <unk> repurchases to match or exceed the after tax proceeds we received from sales of charter shares on an annual basis.
I would remind you in 2021, we expect only 5% to 7% tax leakage on any charter share sales due to some tax loss carryforwards.
Looking now at charter itself, we are approaching the five year Mark of the purchase of time Warner cable and bright house.
The EV of charter has gone up over $100 billion through this period and our total gain and charter prior to the time and which we began selling into their our buyback with nearly $30 billion and were up over four times on our initial investment.
And Q1 at charter.
<unk> and data usage continues to grow we added 2 million internet customers over the past year and.
And the average Internet only customer is using 700 gig per month and the first part of the quarter up nearly 20%.
Year over year, and there are a sizeable cohort of users using more than one terabyte per month.
Charter continues to invest and its network to satisfy that demand at a high.
ROIC.
During the first quarter residential revenue grew five 8% the fastest level of growth and several years and the adjusted EBITDA grew 12, 5% that's up double digits for the third consecutive quarter and margins expanded over 200 basis points year over year.
Charter's mobile business continued to demonstrate strong growth revenues were up 90% year over year. We added 300000 mobile lines, which is especially impressive considering the general low level of sales activity in Q1, and Tom and Chris noted on their call.
There are meaningful and potential cost savings for customers, who choose charter as a full service and connectivity partner, including mobile.
So with that let me turn it over to Tripadvisor Liberty Tripadvisor and beginning first and Liberty trip at the corporate level, we completed the repurchase of 42% of Sir <unk> preferred shares for $373 million.
We note that 3% of the repurchase was actually completed after the quarter and.
We funded that with the net proceeds of a new $330 million trip exchangeable bond.
And we delivered $92 million and trip stock to surcharges.
Importantly for Tories wave there put rights under their preferred eliminating any potential negative overhang on L trip and giving us a full year runway on that security for value creation potential.
So target has been a great partner over the past year, we look forward to their continuing and ongoing involvement and Greg O'hara continuity on both the trip and ultra boards.
Now turning to Tripadvisor itself.
Tripp continues to see rising demand for leisure travel and its <unk> platform led by domestic travel, particularly for U S domestic travel.
We believe the U S can be a leading indicator for global travel and the vaccine rollout continues worldwide and other countries replicate the successes we have had here.
In March for example, U S traffic on the site approach, 80% of 2019 levels.
Trip continued to exhibit cost discipline, and the first quarter, which we believe positions us well for increased operating leverage going forward.
We also made good progress on our direct TV offering Tripadvisor plus.
And plus it's still only and beta data it is already savings subscribers and average of more than $300 per booking much greater than the $99 subscription fee.
Trip also opportunities Opportunistically access the bond market in tandem with the ultra bond offering we did in March and they price a 345 million and convertible note up 37, 5% and and attractive 25 bps right.
So with that let me turn it over to Brian to discuss the financials in a little more detail.
Thank you Greg at quarter, and Liberty broadband had consolidated cash and cash equivalents of $1 2 billion, which includes $51 million of cash at GCI.
The value of our charter investment and Liberty broadband as of yesterday's close was 39 billion and.
And at quarter, and Liberty broadband had a total principal amount of debt of $4 6 billion.
GCI strong results and the $180 million revolver pay down and the current quarter led to meaningful delevering with Leverages defined and GCI as credit agreement and three four times.
GCI and substantial cushion under its maximum leverage covenant of six five times.
Liberty broadband has $300 million of Undrawn margin loan capacity and GCI has $422 million of Undrawn capacity on its line of credit.
The above amounts exclude the indemnification obligation and preferred stock.
Turning to <unk> results.
And I had a great first quarter revenue grew 5% and adjusted OIBDA grew 11% to $96 million, the companys highest ever quarterly adjusted OIBDA driven by demand for data across the consumer and business divisions, and lower cost associated with that reduced bad debt and health care expenses combined with prior cost savings initiatives.
Note that Q1, and 2020 included $9 million and onetime revenue related to services provided in 2019 adjusting for this one time prior year benefit revenue and adjusted OIBDA would have grown by 9% and 24% respectively.
Operationally and GCI added over 15000, and consumer revenue generating cable modem subscribers and 6000 and consumer revenue generating wireless subscribers over the last year.
On the rural Health care from.
We received $175 million and payments during the quarter related to the funding years ended ended June 32019 and 2020.
Which we used to pay down our revolver, we continue to work with the FTC on rates and payments for the funding year ending 6021.
As mentioned last quarter, we received a new FCC order in January.
And as rates certainty to Alaska providers for funding years, ending in June 'twenty, two and 'twenty three and.
And we expect to have a shorter period between service delivery and cash collection going forward.
For that I'll turn the call back over to Greg.
Thank you Brian.
Listening audience. We appreciate your continued interest and Liberty broadband and Liberty Tripadvisor and with that operator, I'd like to open the line for questions. Please.
Perfect. Thank you. So if you would like to ask a question. Please press star one on Hudson Keypad and you start with our first question from James Ratcliffe Evercore.
Please go ahead your line is open.
Thank you.
Two for for.
And for Iran, and Pete on the GCI and then Greg one for you on Liberty trip.
When GCI can you talk about the potential tailwind from the emergency and broadband program and also more generally what sort of for the potential benefits and risks you see increased government support for broadband infrastructure.
And Greg on L trip, the spread to me and my math is 35% plus.
Any way to get cash to tackle that spread.
<unk> got to say and the recent history with margin loans and sustainably.
Eventful shall we say, but are there other structures or options you use and help just roughly how much of a priority is that spread for you. Thanks.
Do you want.
And the water. They were asked Greg do you want to take you for sure that sounds great. Brian If you guys want to take a shot that well GTE.
Alright.
A two part question and the first song and emergency broadband program, which will add and Alaska is $75.
<unk> credit for any consumer broadband, who as some others and some would be impacted by COVID-19.
Ordinarily you would expect a very strong uptick from something like that we're a participant and the lifeline wireline telephone program and we have a substantial number of customers for that.
Hi, I'm, a little cautious as to how much upside to expect from the broadband program in terms of new subscribers, just because we've done so well and.
And the last 15 months with the pandemic and added so many subscribers ultimately you hit a limit to how many are out there I suspect there will be a substantial number who use the program.
To their benefit how many new subscribers that ads is hard to say.
I'll also throw in one caveat to truly substantial growth coming from that program and that's a generalized industrywide modem shortage. The chip problem has led to a shortage of modems. We have some capacity to continue expanding but we will get through.
Much more than the third quarter.
Even at current growth rates, if we don't get delivery on some of our our pending.
Pending modem orders and that's an industry wide problem with respect to the amount of money flowing into the industry.
The potential new congressional acts.
My concern is there's more money that can be and can be absorbed by industry capacity, there simply isn't enough fiber and pulp.
<unk> cable and work force available to deploy $100 billion nationwide at the pace that people seem to expect.
Appointment and I worry about expectations getting out in front of reality those amounts really should be delivered but I think for a long way from knowing what the actual results are.
Okay. Thank you so and on the ultra discount.
As you know there is relatively limited volume and L trip and it has fluctuated from being a premium at various times for a discount and it was made more complicated by the structure, we have and the uncertainty around for targets and if you go back and remember when Liberty trip was spun away from Liberty ventures, and actually have that.
Margin loan, we twice restructured and to try and manage our downside once through a variable forward and once through encouraging a large dividend and trip both of which reduced our balances yet we still ran into trouble and the bottom of the pandemic. So we are.
Cautious and our capital structure and we're very excited about what we put in place because we feel it's relatively bulletproof.
And we have increased our upside and <unk> and.
And the potential that trip after the restructuring western targets.
After clearing up that capital structure and aligning us with trip more appropriately we will look at alternatives on things, we can do about cleaning up the discount, but I think a lot of and it is going to be educating the market about how of that alignment has improved and how we.
We are better positioned going forward with that runway and the uncertainty removed.
Great. Thank you.
Our next question is from Bentley Cross with TD Securities. Your line is open.
Please go ahead and two of them.
Two if I may 1st for Greg.
And I'm sure participated a little bit more aggressively maybe a lot more aggressively the most and the R&R program.
I'm wondering your thoughts on kind of what the different and view was between charter and the rest of the industry and allowed them to be able and more aggressive there.
And then secondly on GCI and 2020 results and then this quarter again seem to be a lot better than what was originally contemplated in the merger Docs wondering your view on what have been the major puts and takes.
And what's the upside from here. Thank you.
So on Argos.
I think it's really a function of a function of a couple of things.
First I think the charter management team.
<unk> shown their ability to operate effectively and many of these rural markets and know how to drive their cost attractively and in terms of their cost to connect their cost to service.
And so their opportunity to go after some of these was attractive secondly, the capital structure, we have candidly allowed us to be more aggressive.
Because we had flexibility and extend the runway of growth and being rewarded for that as we.
Got a shareholder base, which have seen our growth and understands and appreciates and all of those.
We're very effective third I think they kind of caught some of the Ah.
Our LEC competition Napping, I do not think that people thought they would be as aggressive as they were and they were able to at attractive prices create new.
<unk> given the incentives provided under the <unk> program.
So all of those things I think created an opportunity some of that still in flux. We will see some of the are there aren't off bidders and Argos.
And nominal winners are being challenged we'll see how that plays out there may yet be more opportunity hedge and we'll watch and the opportunities with the bite and administrations proposed broadband.
And incentives to see if there are more growth opportunities for charter as we go forward.
Yeah.
I guess, the second half of that as well and then.
In terms of GCI has improved performance. So I think there really are two key components. Most important one long term is probably be improvement situate the regulatory situations surrounding the rural health care environment up here and the fact that we're now able to get paid for the services.
That we're rendering to our rural health care customers and that we have a reasonably good degree of rate certainty going forward that overhangs.
First write offs that we had taken to accommodate the rate reductions and then the rate recoveries when they came back and better.
Statue impact and the turnaround between 2019 and 2020, we see that as a stable business going forward with some continued growth and I feel very strongly that that's a good platform for us that will help to continue to drive for the business second huge improvement and the turn from.
19 through 21 and of course is on the consumer side with the growth and cable modems and.
And I think we have to be cautious to figure out.
Much of that is pandemic related obviously, the pandemic drove a substantially increased demand for data volumes and it also reduced the vacancy rate and thus increase.
We increased the household formation rate because people werent being evicted or not being evicted from their apartments and it drove down our bad debt because people are paying for their cash.
Cable modems and how all of that plays out.
Once the stimulus benefits and the stimulus protections phase out is harder to see so it's difficult for me to call what the the post pandemic impact on GCI will be but we're cautious.
Hidden beneath the veil of these strong stimulus performance as a week Alaska economy, So I'm a little cautious there I am bullish about continued growth of wireless growth going forward, our five G network and Alaska is vastly superior to all the other wireless networks up here and that's what's being reflected.
And the and the wireless growth so kind of a mixed bag there.
And if I can add I think ron's underselling, while clearly.
Stimulus.
Improved regulatory.
Pandemic demand, we're all big factors I think the GCI management team has done a good job of focusing the business expense reductions.
Exiting some non core businesses for.
<unk> on its broadband strength and demand and as Ron did note the improved wireless offering.
And with the strongest network and Alaska also created a far better business up there just a hard and prepared to capitalize on the opportunities.
And I heard your comments thank you.
Our next question is from Mike for Rollins Citi. Your line is open. Please go ahead.
Thanks, and good morning, two questions.
First is there an opportunity to revisit the ownership cap discussion with charter and.
The cap being enforced at 26% flu and how easy the structure of Liberty broadband and whether or not you would just rather own charter shares directly instead of through Liberty broadband.
And then also just curious you mentioned five G. If.
If you could describe if you're seeing any new use cases from your customers in the early days and the <unk> network. Thanks.
I'll, let Ron touch on the <unk> and a moment.
On the 26% cap.
Did have discussions we were offered some alternatives to increase the cap.
We looked at those as unattractive relative to repurchasing our own stock at a 19% discount and there's nothing to say, we can't revisit some of those discussions down the road.
But at the moment, we like paying a 5% to 7% tax and repurchasing our own stock at 19% discounted underlying charter. So you ask why one should choose L. B R D over.
Over charter I think thats exactly yet youre purchasing at a 19% discount to the underlying charter and.
And you have the opportunity to see us accrete.
And as charter it creates its own share countered decreases and share kind of accretive share price hopefully we have the opportunity that even more attractively at a more leveraged basis with a discounted share repurchase so.
And we liked charter, we really like <unk>.
And on the five G. In spite of the industry height, and I think it's early to be seeing any material impacts from.
New use cases, the population of five G devices relative to the overall wireless population is still less than.
10% I think most of our users are using five G as faster speed and it is blazingly faster speeds as much as 10 times faster for some of our users and that's the selling point today, we're not seeing dramatic new use cases evolve, but doesn't mean that won't happen or won't accelerate.
As we get a denser population of five G devices, but in terms of what's driving our sales and what's driving the revenue. It's it's the speed and the network quality right now.
Thank you.
Our long for question is from Matthew Harrigan.
From benchmark. Please go ahead your line is open.
Thank you Ron already asked and answered my question, but on the relative buyback and stack you know Greg made the point and the last call, but I guess amazingly youre actually increased and the number of charter shares owned per LP RDA shares as a result of the net effect of the buyback activity does that.
Net disappear when you thought the NOL I mean are you still going to have only debt very slight tax leakage and moving forward for and intermediate period or is that just kind of a short term thing and then apart from the very favorable napkin math is there anything and Washington from attacks.
And point of regulatory vantage point that could motivate you to get something done sooner rather than later and do everything is pretty nebulous, its early and administration, but.
You and John Malone, and have always been very savvy and that to say the least.
Thank you for the question and the compliment on the tax rate, we think it will tip up marginally in 2022, but it will still be very attractive.
Relative to certainly the current discount.
And when you do share repurchase it's always you have two mines, one minded take advantage of a low price and the second minded to get your own stock up.
We have for the moment are happy to take advantage of that share price discount to NAV discount and take advantage of what we know will be a large flow of capital approaching $3 billion a year from charter. So I look at this as a likely to be a.
As you said, a napkin value creator and we like napkin value creators because if they are pretty simple to understand even we can get it and hopefully the market will get it to.
So we are enthused about continuing to value.
We purchased at the discounted value and to the degree it shrinks well, we can reevaluate and talk about other alternatives, but at the moment, we're going to lean in with all we got.
And then I have no idea, what's going to happen to the bite and tax rates it seems to be all in flux.
And I do not anticipate that we will have a major impact overall on what we're doing but there's certainly a lot of fog.
Thanks, Thanks, Greg.
Thank you and with that operator, I think we are done for today and thank you again to all of the listeners and thank you for interest and the Liberty companies and we hope to speak with you next quarter again, if not sooner.
This concludes today's call. Thank you for your participation you may now disconnect.
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Ladies and gentlemen, thank you for standing by that come to the Liberty broadband Q1 earnings call. During the presentation, all participants would be and in listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press star one on your telephone as a reminder, this conference is being record.
I would now like to turn the conference over to Courtney Chun Chief portfolio Officer. Please go ahead.
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 and the most recent forms 10-K, and 10-Q filed by Liberty broadband and Liberty Tripadvisor.
And 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 disseminate any updates or revisions to any forward looking statement contained herein to reflect any change and liberty broadband or liberty tripadvisor as expectations with regard there to 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 and the earnings press release issued today, which is available on Liberty broadband and web site now.
I'd like to turn the call over it for Liberty's, President and CEO, Greg Maffei.
Thank you Courtney and good morning to all of you out there today.
Today speaking on the call. Besides myself, we'll have liberty broadband chief accounting and for net principal financial Officer, Brian Wendling.
Also during the Q&A, we will answer questions related to Liberty Tripadvisor.
Ron Duncan CEO of GCI and Pete pounds. The CFO of GCI will also be available to answer questions.
So turning out and Liberty broadband and March Liberty.
Liberty broadband and began participating and charters buyback holdings, our fully diluted ownership at 26%.
Through April we have received nearly $1 billion of proceeds and we use these proceeds to repurchase $6 1 million L. B R. D. K shares from February through April at an average price per share of.
$152 and <unk> 30 per share.
We view that having meaningful value creation for our shareholders with the L. P R and D NAV discount running about 19% and allowing us to have a look through purchase price on charter of about $516 per share.
While our quarterly repurchases may fluctuate due to the timing of cash received and et cetera, we expect that our L. B R D repurchases to match or exceed the after tax proceeds we received from sales and charter shares on an annual basis.
And remind you in 2021, we expect only 5% to 7% tax leakage on any charter share sales due to some tax loss carryforwards.
Looking now at charter itself, we are approaching the five year Mark of the purchase of time Warner cable and bright house.
The charter has gone up over $100 billion through this period and our total gain and charter prior to the time and which we began selling into their our buyback with nearly $30 billion and were up over four times on our initial investment.
And Q1 at charter.
Growth and data usage continues to grow.
And we added 2 million internet customers over the past year and we.
The average Internet only customer is using 700 gig per month and the first part of the quarter up nearly 20% year over year and there are sizeable cohort of users using more than one terabyte per model.
Charter continues to invest and its network to satisfy that demand and a high ROIC.
During the first quarter residential revenue grew five 8% the fastest level of growth and several years and the adjusted EBITDA grew 12, 5% that's up double digits for the third consecutive quarter and margins expanded over 200 basis points year over year.
Charter's mobile business continued to demonstrate strong growth revenues were up 90% year over year, we added 300000 mobile lines.
And especially impressive considering the general low level of sales activity in Q1, as Tom and Chris noted on their call.
And there are meaningful and potential cost savings for customers, who choose charter and a full service and connectivity partner, including mobile.
So with that let me turn it over to Tripadvisor Liberty Tripadvisor and beginning first and Liberty trip at corporate level, we completed the repurchase of 42% of Sir <unk> preferred shares for $373 million.
We note that 3% of that repurchase was completed after the quarter and.
We funded that with the net proceeds of a new $330 million trip exchangeable bond.
And we delivered $92 million and trip stock to certain targets.
And importantly, third parties waived their rights under their preferred eliminating any potential negative overhang on L trip, and giving us a whole year runway and that security for value creation potential.
And target has been a great partner over the past year, we look forward and they're continuing and ongoing involvement and Greg O'hara continuity on both the trip and ultra boards.
Now turning to Tripadvisor itself.
Tripp continues to see rising demand for leisure travel and its <unk> platform led by domestic travel, particularly U S domestic travel.
We believe the U S can be a leading indicator for global travel and the vaccine rollout continues worldwide and other countries replicate the successes. We have had here in March for example, U S traffic on the site approach, 80% of 2019 levels.
Trip continue to exhibit cost discipline, and the first quarter, which we believe positions us well for increased operating leverage going forward.
We also made good progress on our direct TV offering tripadvisor plus well.
And plus is still only and beta data it is already savings subscribers and average of more than $300 per booking much greater than the $99 per subscription fee.
Trip also opportunities Opportunistically access the bond market in tandem with the ultra bond offering we did in March and they price a $345 million convertible note up 37, 5% and and attractive 25 right.
So with that let me turn it over to Brian to discuss the financials and a little more detail.
Thank you Greg at quarter, and Liberty broadband had consolidated cash and cash equivalents of $1 2 billion, which includes $51 million of cash at GCI.
The value of our charter investment at Liberty broadband as of yesterday's close was $39 billion and.
And at quarter, and Liberty broadband had a total principal amount of debt of $4 6 billion.
GCI and strong results and the $190 million revolver pay down and the current quarter led to meaningful de levering with Leverages defined and GCI credit agreement and three four times <unk>.
<unk> and substantial cushion under its maximum leverage covenant of six five times.
Liberty broadband has 300 million of Undrawn margin loan capacity and GCI has $422 million of Undrawn capacity on its line of credit.
For your above amounts exclude the indemnification obligation and the preferred stock.
Turning to <unk> results.
I had a great first quarter revenue grew 5% and adjusted OIBDA grew 11% to $96 million, the companys highest ever quarterly adjusted OIBDA driven by demand for data across the consumer and business divisions, and lower cost associated with that reduced bad debt and health care expenses combined with prior cost savings initiatives.
Note that Q1 2020 included 9 million of one time revenue related to services provided in 2019 adjusting for this one time prior year benefit revenue and adjusted OIBDA would have grown by 9% and 24% respectively.
Operationally and GCI added over 15000 and.
Sumer revenue generating cable modem subscribers and 6000 consumer revenue generating wireless subscribers over the last year.
On the rural Health care front.
We received $175 million and payments during the quarter related to the funding years ended ended June 32019, and 2020, which we used to pay down our revolver. We continue to work with the FTC on rates and payments for the funding year, ending <unk> <unk> 'twenty, one as mentioned last quarter, we received a new FCC order in January.
And it gives rate certainty to Alaska providers for funding years, ending in June 'twenty, two and 'twenty three and we expect to have a shorter period between service delivery and cash collection going forward.
For that I'll turn the call back over to Greg.
Thank you Brian.
And let's say the audience. We appreciate your continued interest and Liberty broadband and and Liberty Tripadvisor and with that operator, I would like to open the line for questions. Please.
Perfect. Thank you for if you would like to ask a question. Please press star one on Hudson Keypad and you start with our first question from James Ratcliffe Evercore.
Hi, Ed.
Please go ahead your line is open.
Thank you I've got.
Two for sure.
For Iran, and Pete on the GCI and then Greg one for you on Liberty trip.
And GCI can you talk about any potential tailwind from the emergency and broadband program and also more generally and what sort of the potential benefits and risks you see increased government support for broadband infrastructure.
And Greg on L trip, the spread to me and my math is 35% plus.
Any way to get cash to tackle that spread and other sitars get to say and the recent history with margin loans has been.
Eventful shall we say, but are there other structures or options for us and help just roughly how much of a priority is that spread for you. Thanks.
Do you want.
And the water. They were asked Greg do you want to take you for sure that sounds great. Brian If you guys want to take a shot that will <unk>.
Alright.
A two part question the first on the emergency broadband program, which will add and Alaska a $75.
<unk> credit for any consumer broadband who has some has been somewhat impacted by COVID-19.
Ordinarily you would expect a very strong uptick from something like that we are a participant and the lifeline wireline telephone program and we have some.
Statutory numbers customers for that.
Hi, I'm, a little cautious as to how much upside to expect from the broadband program in terms of new subscribers, just because we've done so well and.
And the last 15 months with the pandemic and added so many subscribers ultimately you hit a limit to how many are out there I suspect there will be a substantial number who use the program.
Their benefit how many new subscribers that ads is hard to say.
We'll also throw in one caveat to truly substantial growth coming from that program and that's a generalized industry wide modem shortage. The chip problem has led to a shortage of modems. We have some capacity to continue expanding but we will get through.
Much more than the third quarter.
Even at current growth rates, if we don't get delivery on some of our.
Pending modem orders and Thats, an industry wide problem with respect to the amount of money flowing into the industry.
The potential new congressional acts.
My concern is there is more money and that can be and can be absorbed by industry capacity, there simply isn't enough fiber and pulp.
<unk> cable and work force available to deploy $100 billion nationwide at the pace that people seem to expect.
Appointment and.
Worry about expectations getting out in front of reality those amounts really should be delivered but I think for a long way from knowing what the actual results are.
Okay. Thank you so and on the ultra discount.
As you know there is relatively limited volume and El trip and it has fluctuated from being a premium at various times to a discount and it was made more complicated by the structure, we have and the uncertainty of routes or targets and if you go back and remember when Liberty trip was spun away from Liberty ventures, and actually have that.
And loan we twice restructured and to try and manage our downside once through a variable forward and once through encouraging a large dividend and trip both of which reduced our balances yet we still ran into trouble and the bottom of the pandemic. So we are cautious and our capital structure and we're very excited about what we put in place because we feel it.
Relatively bulletproof.
And we have increased our upside and.
And the potential that trip after the restructuring western targets. So after clearing up that capital structure and aligning us with trip more appropriately we will look at alternatives on things, we can do about cleaning up the discount, but I think a lot of and it is going to be educating the market about how of that alignment is approved and how.
We are better positioned going forward with that runway and the uncertainty removed.
Great. Thank you.
Our next question is from Bentley Cross from TD Securities. Your line is open.
Please go ahead.
Two if I may 1st for Greg.
Charter participated a little bit more aggressively or maybe a lot more aggressively than most and erode off program.
Wondering your thoughts on kind of what the different and view was between charter and the rest of the industry and allowed them to be able and more aggressive there.
And then secondly on GCI 2020 results and then this quarter again seem to be a lot better than what was originally contemplated in the merger Docs wondering your view on what have been the major puts and takes.
And what's the upside from here. Thank you.
Yeah.
So on Argos.
I think it's really a function of a function of a couple of things.
First I think the charter management team.
Shown their ability to operate effectively and many of these rural markets and know how to drive their cost attractively and in terms of their cost to connect their cost to service.
And so their opportunity to go after some of these was attractive and secondly, the capital structure, we have candidly allowed us to be more aggressive.
Because we had flexibility and extend the runway of growth and being rewarded for that as we.
I've got a shareholder base, which have seen our growth and understands and appreciates and all of those.
We're very effective third and I think they kind of some of the.
Our LEC competition Napping, I do not think that people thought they would be as aggressive as they were and they were able to attract and prices.
New subscribers given the incentives provided under the <unk> program.
So all of those things I think created an opportunity some of that still in flux. We will see some of the are there aren't off <unk> and Argos and <unk>.
And I'm Gonna winners are being challenged and we'll see how that plays out there may yet be more opportunity hedge and we'll watch and.
And the opportunities with the Biden administrations proposed broadband.
So incentives to see if there are more growth opportunities for charter as we go forward.
I guess, the second half of that as well and then.
In terms of GCI has improved performance I think there really are two key components. Most important one long term is probably be improvement situate the regulatory situations surrounding the rural health care environment up here and the fact that we're now able to get paid for the <unk>.
Services that we're rendering to our rural health care customers and debt, we have a reasonably good degree of rate certainty going forward that overhangs.
The first write offs that we had taken to accommodate the rate reductions and then the rate recoveries. When they came back and had a substantial impact and the turnaround between 2019 and 2020, we see that as a stable business going forward with some continued growth and I feel very.
Strongly that debt.
A good platform for us that will help to continue to drive the business.
Huge improvement and the turn from 19 through 21 and of course is on the consumer side with the growth and cable modems.
And I think we have to be cautious to figure out how much of that is pandemic related obviously, the pandemic drove a substantially increased demand for data volumes and it also reduced the vacancy rate and thus.
The increase the household formation rate because people werent being evicted or not being evicted from their apartments and it drove down our bad debt because people are paying for their cable modems and how all of that plays out.
Once the stimulus benefits and the stimulus protections phase out is harder to see so it's difficult for me to call what the the post pandemic impact on GCI will be but we're cautious because hidden beneath the veil of these strong stimulus performed.
As a week, Alaska economy, so I'm, a little cautious there I am.
Bullish about continued growth of wireless growth going forward, our five G network and Alaska is vastly superior to all the other wireless networks up here and that's what's being reflected in the and the wireless growth so kind of a mixed bag there.
And if I could add I think ron's underselling, while clearly.
Stimulus and.
Improved regulatory.
Pandemic demand, we're all big factors I think the GCI management team has done a good job of focusing the business expense reductions.
Exiting some non core businesses.
Focus on its broadband strength and demand and as Ron did note the improved wireless offering.
And with the strongest network and Alaska also created a far better business up there just.
Hard and prepared to capitalize on the opportunities.
Hi, Doug for your comments thank you.
Our next question is from Mike for Rollins Citi. Your line is now open. Please go ahead.
Thanks, and good morning, two questions.
First is there an opportunity to revisit the ownership cap discussion with charter and.
Does the cap being enforced at 26% flu and how easy the structure of Liberty broadband and whether or not you would just rather own charter shares directly instead of through Liberty broadband.
And then also just curious you mentioned five G.
If you could describe if you're seeing any new use cases from your customers in the early days and a <unk> network. Thanks.
So I'll, let Ron touch on the <unk> and a moment.
On the on the 26% cap we did have discussions we were offered some alternatives to increase the cap.
And we looked at those as unattractive relative to repurchasing our own stock at a 19% discount and there's nothing to say, we can't revisit some of those discussions down the road.
But at the moment, we like paying a 5% to 7% tax and repurchasing our own stock at 19% discount and underlying charter. So you ask why one should choose L. B R D over.
And over charter I think thats exactly yet youre purchasing at a 19% discount to the underlying charter and you have the opportunity to see us accrete.
And as charter it creates its own share countered decreases and share kind of accretive share price hopefully we have the opportunity that even more attractively at a more leveraged basis with a discounted share repurchase so.
We like charter, we really like <unk>.
And on the five G. In spite of the industry high but I think it's early to be seeing any material impact from.
New use cases.
Population of <unk> devices relative to the overall wireless population is still less than.
10% I think most of our users are using five G as faster speed and it is blazingly faster speed as much as 10 times faster for some of our users and that's the selling point today, we're not seeing dramatic new use cases evolve that doesn't mean that will happen or won't accelerate.
As we get a denser population of <unk> devices, but in terms of what's driving our sales and what's driving the revenue.
The speed and the network quality right now.
Thank you.
Our last question is from Matthew Harrigan.
From benchmark. Please go ahead your line is open.
Thank you Ron already asked and answered <unk> question, but on the relative buyback and stack you know Greg made the point and the last call debt.
Amazingly Youre actually increased and the number of charter shares owned per LP Rdas shares as a result of the net effect and the buyback activity does that disappear when you thought that NOL and are you.
Still going to have only that very slight tax leakage.
Going forward for and intermediate period or is that just kind of a short term thing and then apart from the very favorable napkin math is there anything and Watson fit from a tax cash.
And this point a regulatory advantage point that could motivate you to get something done sooner rather than later and do everything pretty nebulous and thoroughly and administration, but.
You and John Malone and have always been very savvy on that to say the least.
Thank you for the.
The question and the compliment on the tax rate, we think it will tip up marginally in 2022, but it will still be very attractive.
Relative to certainly the current discount.
When you do share repurchases as always you have two mines, one minded take advantage of a low price and the second minded to get your own stock up.
We have for the moment are happy to take advantage of that share price discount to NAV discount and take advantage of what we know will be a large flow of capital approaching $3 billion a year from charter. So I look at this as a likely to be a.
As you said a napkin.
<unk> creator and we like napkin value creators because if they are pretty simple to understand even we can get it and hopefully the market will get it to.
So we're enthused about continuing to value.
And we purchased at this discounted value and to the degree it shrinks well, we can reevaluate and talk about other alternatives, but at the moment, we're going to lean and with all we got.
And then I have no idea whats going to happened and the bite and tax rates it seems to be all in flux.
And I do not anticipate that we will have a major impact overall on what we're doing but there's certainly a lot of fog.
Thanks, Thanks, Greg.
Thank you and with that operator, I think we're done for today and thank you again to all of the listeners and thank you for interest and the Liberty companies and we hope to speak with you next quarter again, if not sooner.
This concludes today's call. Thank you for your participation you may now disconnect.