Q3 2021 Liberty Broadband Corp and Liberty Tripadvisor Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Liberty Broadband 2021 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 one on your telephone.

Mind you. This conference is being recorded November before it I would now like to turn the conference over to coordinate Chun Chief portfolio Officer. Please go ahead.

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 I mean, 95 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, 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 just.

Terminate any updates or revisions to any forward looking statements contained herein.

Any change in Liberty broadband or Liberty Tripadvisor expectations with regard there to R&D.

The 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.

What are your preliminary note and schedules one and two can be found in the earnings press release issued today as well as earnings releases from prior periods, which are available on Liberty broadband website now I'd like to turn the call over to Gregg <unk> President and CEO.

Courtney and good morning to all of you.

Today speaking on the call we will have liberty broadband.

[noise] accounting officer, and principal financial Officer, Brian Wendling.

Ron Duncan CEO of GCI, and Pete pounds CFO of GCI will also be available to answer questions.

Also during the Q&A, we will answer questions related to Liberty Tripadvisor, but please do know Tripadvisor has not yet reported Q3 results. So we will be unable to comment on the current quarter.

So looking at Liberty broadband, we continue to receive meaningful cash flow from the participation in charters buyback holding our fully diluted ownership at 26%.

From the first of August through the end of October we received $1 $2 billion of proceeds from charter.

We do believe the market reaction to the Q3 results was overblown.

Charter is well positioned against the competition, including that from fiber overbuild.

And we remain bullish reflected in our own purchases from August one to watch.

Over 31, we repurchased five 3 million L. BRD shares for $935 million over the same period at an average price per share of <unk>.

170 750.

You look at the look through price in charter that's approximately 589 per share over this period and year to date purchases have been in an average look through price of $5 47 per share, which compares favorably to yesterday's close of $6 two per share.

Since <unk> began selling into the charter buyback earlier. This year, we received total proceeds of $3 $2 billion, representing 35% of our $9 $1 billion investment in charter.

Note that that $9 1 billion reflects the conversion of our legacy time Warner cable shares into charter as well.

Liberty broadband has repurchased 20 million shares for $3 3 billion.

$164 52 per share year to date.

And therefore has retired over 10% of its outstanding shares.

Looking at the NAV accretion.

<unk> NAV per share is up six 6% year to date compared to charter up $4 three.

I do want to remind you that the tax rate on our charter share sales.

For 2021 is about 5% to 7%.

Looking at charter itself delivered outstanding financial results in the third quarter.

Revenue was up nine 2% and it but it was up 14% over the prior year free cash flow increased 41% an increase of over $700 million versus the prior year.

Charter reported more free cash flow in the third quarter, then it reported in all of 2018.

And.

LTM charter has generated $8 five billions of dollars of free cash flow.

Charter had good subscriber growth in the quarter, adding 265000 broadband customers. Despite a relatively low churn environment, which provided fewer sales opportunities.

We like when.

When people move because we think we get an opportunity to sell them and we sell them more effectively and gain market share. So in periods of low movement low customer activity.

Do well financially, but have less opportunity to sell new services.

Turning to mobile.

Charter added 244000, new mobile lines in the third quarter.

And we continue to believe they are poised to take more share.

Last month charter launched new pricing programs for our multiline accounts.

At $30 per line for an unlimited family plan charter offers the best value in the industry for consumers I would note that that compares against pricing for large msos, which can result in saving as high as $20 to $40 per line for accounts with two to three lines.

With that let me turn it over to Brian to discuss the results. Thanks, Greg Let's first take a look at the balance sheet at quarter end Liberty broadband had consolidated cash and cash equivalents of $319 million, which includes $37 million of cash at GCI.

A value of our charter investment based on our shares held as of November 1st in charter share price as of yesterday's close was 38 billion.

At quarter end Liberty broadband had a total principal amount of debt of $4 billion, we drew down $350 million on the charter margin loan during the quarter and available capacity at quarter end is $800 million.

The drawdown was largely to fund share repurchases at L. B R D.

Given the timing differences in when we received proceeds from charter share sales and to fund the escrow payment that is discussed in the earnings release.

GCI continue to continue to Delever driven by strong results in an additional $65 million pay down on the revolver during the quarter leverage as defined in its credit agreement was three <unk> times at quarter end subsequent to quarter end GCI refinanced its term loan b with a new term loan a and a $150 million revolver.

Draw this will save GCI about $808 million per year in interest expense.

Pro forma for this drawdown gci's leverage was still a three times and capacity available capacity under its revolver was $367 million.

Note the amounts the above amounts exclude the indemnification obligation and preferred stock.

Turning to Gci's financial results GCI continues to post positive results revenue of $246 million was flat year over year as growth in data across both consumer and business segments was offset by the loss of revenue from Gci's broadcast media business that was sold in Q3 of 2020.

The loss of revenue from its time and materials business that has been de emphasized in order to focus on GCI core Alaska network.

Q3, 2020 revenue was also especially strong due to heavy political advertising.

OIBDA of $89 million was down marginally 3% year over year, primarily due to company healthcare expenses, which were abnormally low in Q3 last year due to the COVID-19 pandemic.

<unk> core business continues to perform very well with consumer cable modems and wireless subscribers up 7% and 5% respectively on a year over year basis.

Looking at a two year comp to Q3 2019 revenue was up 11% and OIBDA was up 23%.

With that I'll turn the call back over to Greg.

Brian.

We look forward to seeing you soon on Thursday November 18th at our annual Investor meeting.

All experienced we often in person at the New York Times Center and virtually the link to register it can be found on our homepage. Please note all in person attendees must be followed vaccinated against COVID-19.

We appreciate your continued interest in Liberty broadband and Liberty Tripadvisor and with that operator, I'd like to open the line for questions.

Thank you as a reminder, please press star one to ask a question, we'll take our first question from Ben Swinburne with Morgan Stanley.

Good morning.

Greg I'm with you on the charter reaction, but maybe just to play Devil's advocate.

And think about the risks.

What gives you guys confidence that as we see the fiber builds ramp from you know call. It a third of the country to half the country and I think charter I think frontier's biggest overbuild kind of footprint target as charter.

Combined with sort of some of the fixed wireless folks entering the market, whether its starlink or T mobile.

That we're not just going to enter a period of.

No pretty significantly slower net adds on the broadband side or maybe you can just think even if that's the case the free cash flows the free cash flow senior care, but I'd be curious how you think about the competitive environment over the next couple of years and what charter can do to try to make sure. It continues to perform well from a product perspective looking out over time.

Yep.

First of all I think there are fiber competitors, who are good operators, but they tend to be small if you look at our overlap our largest overlap by far is with AT&T.

And then Verizon then it scales down from there.

And we have looked at the data about how we perform against those guys and even against.

Fiber overbuild is and shortly we'll acknowledge when people do fiber overbuild, we probably grow less slowly more slowly, but we are still grow and as you rightly note I think there is a lot of free cash flow capabilities here in this business regardless.

And we have seen.

Now some people have actually rolled out and where they compete and we know that we can continue to have success against them. So I remain quite optimistic on the financial performance of charter even in the face of potential fiber overbuild.

Any thoughts updated thoughts on the fixed wireless side I mean, you know we got some disclosure from Verizon on their millimeter wave T. Mobile's added some I mean, they're not huge numbers, but the markets mature so.

Material, how do you feel about that threat over the course of time as well.

I find it interesting how little Verizon now talks about millimeter wave and deemphasize of it because I don't think that can be viewed as a success to date I think starlink is a fascinating product and in certain places where youre unable to get a better alternative that may work in I do knowledge that star link will have appeal to a certain segment.

For the those remote locations and because of its brand, but given the choice I don't think consumers are going to choose those slower speeds.

Particularly as it fills up.

Performance can be pretty good if you're the only game in town only guy on the pipe the satellite pipe, but it isn't going to change over time. So I don't I think starlink is an interesting niche I do not see this is a hugely competitive product for against.

Higher speed alternatives and that would include cable or fiber youre going to choose that I suspect. If you have a choice over star Lake or any of the other.

Satellite alternatives.

I think we will continue to see progress on our products getting better our ability to do more in the home our ability to make our Wi Fi smarter I think youll see us all of those things, helping and I think youll see that path as we upgrade.

Our ability after DOCSIS three one to continue to upgrade that path.

Ensures the long term financial health and a network that is resilient for cable.

Thank you.

Thank you we'll take our next question from Michael Rollins with Citi.

Thanks, Good morning.

Two questions if I could the first is when you think about just broadband industry penetration in the upper <unk>.

Who doesn't have broadband.

Demographically and if they haven't gotten it through the pandemic what are the catalysts to get penetration for 90 days or even a 100%.

Over the next few years and then secondly.

Just curious if you could talk about the on the Liberty broadband.

Are there any assets or valuations that you look for that would change the strategy from buying back liberty broadband stock to actually buying assets.

Liberty broadband level. Thanks.

Yeah.

Start with as I didn't understand the second part of that question buying access.

Assets.

Thank you I was just I didn't hear it.

Look I think penetration will continue to rise I think some of the government programs are going to continue to rise where have people not been penetrated I think it's largely in places where they were unable to get adequate high speed capacity or where an older audience, who is not as tech savvy or doesn't feel the knee.

<unk> or where there are financial constraints and frankly.

The money that's being spent on broadband probably attack number one and number three and there will be a changing of demography overtime on number two so I do think all of those factors point to increased penetration I don't think it happens in a week and one of the one of the realities is the pace of installers the pace of.

Modems the pace of everything about broadband means it's not going to move that dramatically that quickly. Despite the amount of money that is being thrown at it and there's a lot of money, but I think it will continue to rise for all those reasons, both the supply side and the demand side and changing demographics will continue to push penetrations up.

As far as what we would look at other assets are I think we would look at it when we thought that there were other alternatives that we liked better than buying back Liberty broadband stock at a 20% discount ish. The underlying charter. So you hear us being optimistic on charter and therefore, even more optimistic on the ability to buyback discounted charter.

The Liberty broadband.

We're not averse to looking at other alternatives, we'd like to think.

The market would give us a credit, but there probably be a few hiccups. If we went and did something big but were willing to.

To hold out for that possibility, but while we wait we look and say boy, it's pretty darn attractive to buy something you already like a lot at a 20% discount. So I think that's our plan, we never say no to an alternative but we like the hand, we have right now.

Thank you.

Thank you we'll take our next question from James Ratcliffe with Evercore ISI.

Thanks Charl.

Charters wireless focus seems to have been on lower service pricing, Greg as you noted.

Hence the handset promos that are dominating the offers from the big three I mean, lower service pricing you get lower upfront capital for handsets, but it's kind of harder to turn off over time.

Greg I'd love to hear your thoughts on those two different strategies I know what mix is appropriate for charter and either Ron or Pete I'd also be interested to hear what your experience has been.

Working on.

Promos are surface price or equipment, particularly given that right now it looks like your mix looks a lot more like the three incumbent carriers with high handset subsidies.

Yeah, I'll start and say I like our strategy I think the charter management team has articulated it well we can offer mobile pricing, that's very attractive, but it's still profitable for us and coupled with our broadband opportunities and as you noted less capital upfront it's unclear to me.

What some of the <unk> deals, where it really looked like on a free cash flow basis over time, and when given that handset outlay I like our hand, we know what we're getting upfront and yet we're continuing to pull profitable broadband lines with it so remain very optimistic on the mobile opportunity for charter and really for all of cable.

I'll, let Ron or Pete when do you guys want to comment on the second part.

You're right, we're very much more lined up with the <unk> version of the wireless space then charters.

Hello.

We do play in the sick handset subsidies.

The most aggressive.

We're probably more like Verizon it a little bit late back we're confident that there are good free cash flows and those deals were primarily selling in the market up here based on the network. We've got a clear network advantage with our fiber rollout.

That's.

Patently discernible to our customers I think that's what's driving our our wireless growth, but it's important for us to.

Renew the place since we're already at it.

30% to 40% market share in the market up here, it's important for us to continue to play in the mainstream which requires the handset subsidies.

I know that AT&T is reducing its allocated handset subsidy cost over that by extending the life of its customers I don't know how long that is going to continue but we're confident even with our.

Prior to your average customer life that are those free cash flow in those deals.

Great. Thank you.

Thank you our last question comes from Matthew Harrigan with benchmark.

Thank you.

So the extension of Ben's question, but if you look at broadband I mean as long as people are rational in pricing I mean, you could practically stopped growing units right now in the Sirius would still look reasonably attractive at the level of installed basis. You know people are consuming 25, 30% more year I mean, it's a very high utility service.

How much do you worry about getting real price disruption nustar length, but something go up.

Stars are talking about very very low cost coming out of the blocks is there anything that gives you pause like that.

That's on the urban.

And also do you have any issues or any comments on the G. Soon being named to the FCC, which is a little bit of a disappointment for some folks.

Look I think we always worry about thank you for the questions that we always worry about technological challenges he jumped dismiss them and certainly price competition is one thing, but I do.

<unk> said before I feel very good about our.

Tony in the territories, we operate and with the competition that we have our ability to upgrade relatively low cost through three one.

Our ability to move forward.

With new bills, partly fueled by art off I feel good about our growth path.

Again don't want to be dismissive of technical logical competition, that's out there, but I do not believe it will radically change the profile for charter.

As far as G G zone.

We'll see what happens obviously, she's got somebody who has questioned the industry.

I do think the appointment of Jessica Rosen whistle as <unk>.

Permanent chair is a great step forward a lot of respect for what.

MS Rosen worst will has done and we're excited to operate with the FCC going forward.

Thanks, Greg there's one more question out there. Thank you one more question I think.

You said, yes, our last question comes from Michael <unk> with Tls capital.

Good morning.

Before taking your questions.

I'm, just trying to understand a little bit where your current macroeconomic soldier power.

We have about 55% penetration of the broadband business in charter and that's roughly a $60 of our pool and that's competing versus $120.

Wireless.

Hum.

Mr. Robert.

Alluded to this.

We essentially have.

Less than 30% of the dollars available to us in terms of competition.

If the economics.

What we can do with Google market here.

As good as what we have today or is this incremental profitability.

Very different for nurses.

The typical business can you just share your thoughts.

Yes, I think the mobile business.

It's a business, which we will not have the same standalone profitability that we have in the broadband business, but I think a couple of things first that profitability increase with scale.

We will have the ability to go to buyer economics versus empty you know relationships on a market by market basis to further increase that profitability, but most importantly, this is incremental profitability to their broadband business and particularly the way we operated where you are as a customer being both a broadband any mobile customer it is only a positive.

Not only do we get the incremental revenue and margin from your mobile lines, we hopefully drive incremental business with more broadband lines, and we reduce churn because customers who buy multiple products are less likely to churn. So I think it's a win at least three ways. There are probably some other ways I can't remember this morning, but I think it's a win all the way around particularly.

When you look at it as really remember this is all on the margin.

Thank you so very much.

Thank you.

With that operator, I think we're done.

For your interest in Liberty broadband.

We look forward to seeing you at our Investor day on November 19th in person or virtually.

Excuse me.

Person or virtually and.

Uh huh.

Until then.

Be well.

This concludes today's call. Thank you for your participation you may now disconnect.

Okay.

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