Q1 2022 Liberty Broadband Corp and Liberty Tripadvisor Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Liberty broadband 2020 to Q1 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.

A minder. This conference is being recorded May 6th I would now like to turn the conference over to Courtney Chun Chief portfolio Officer. Please go ahead.

Good morning, Thank you.

Before we begin we'd like to remind everyone that this call includes certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Form 10-K filed by Liberty broadband and Liberty Tripadvisor with the SEC. These forward looking.

And speak only as of the date of this call and Liberty broadband and Liberty Tripadvisor expressly disclaim any obligation or undertaking to do.

Seminate any updates or revisions to any forward looking statements contained herein to reflect any change in liberty broadband or liberty tripadvisor its expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based on.

On today's call, we will discuss certain non-GAAP financial measures for Liberty broadband, including adjusted OIBDA information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one and two can be found in the earnings press release issued today as well as earnings releases from prior periods, which are available on live.

Pretty broadband website now I would like to turn the call over to Liberty, President and CEO , Greg Maffei.

Thank you Courtney and good morning to the listening audience today speaking on the call. We will also have Liberty broadband chief accounting and principal financial Officer, Brian Wendling, and Ron Duncan CEO of GCI, and Pete pounds CFO of GCI will be available to answer questions.

Also during the Q&A, we'll be happy to answer questions related to Liberty Tripadvisor.

So beginning with Liberty broadband from the first of February through the end of April we repurchased $5 1 million Liberty broadband shares for $718 million over the same period. We received 753 million of proceeds from charter share sales. This reflects two months of <unk> sales as noted last quarter.

Because we did not participate in the charter buyback in February .

The average look through price of charter on these repurchases was $451 per share.

As a reminder, the annual tax rate on our charter share sales for 2022 is expected to be in 2023 is expected between seven and 9%.

For tax purposes, the shares sales back to charter are treated as dividend income and eligible for 65% dividends received deduction.

Our tax basis in the charter shares is reduced by the amount of D. R D honest share by share basis.

It will result in a gradual increase in our tax rate over time.

No we are not providing specific tax guidance beyond 2023, now because of the meroney variables outside of our control, including the cadence and timing of charters prices are with share repurchases the pricing of those share repurchases tax reform et cetera.

I'd also note and then it'll be our D. We sold the subsidiary Skyhook.

And received approximately $170 million of net proceeds on may 2nd.

Turning to charter itself.

They had reported strong financial results in the first quarter with revenue and EBITDA, both up 5% and free cash flow up 9%, excluding a litigation payment.

Notably the mobile momentum continues there, adding 373000 lines in the first quarter.

Charter continues to leverage its fixed network to drive an additional value to mobile customers.

Adding features such as mobile boost and <unk> and CBR small cells in the future.

We remain confident in the hybrid capital efficient approach to charters mobile rollout.

Broadband net adds were softer at 185000 in the first quarter, reflecting a low churn and low therefore sales opportunity environment across the industry.

We had expected moderation of broadband demand coming out of Covid.

And that's obviously been exacerbated by the lack of move opportunities in the market today.

Are there market fears about SWA fiber have surely compressed cable multiples.

Charter is voting with its feet and aggressively pursuing its active buyback. We are similarly bullish on the opportunity and it seems like the market has at least gotten a bounce over the last couple of days and recognize that perhaps was over Don Don.

A.

Notably charter also unveiled the JV with Comcast to generate develop rather a next gen streaming platform.

We think this provides a compelling path forward on video and it means a benefiting from revenue streams that are ancillary to linear video.

This new operating platform will streamline and aggregate experience for optimal customer.

Our user interface and alike.

And will enable the transition to IP delivery for video allow additional spectrum to be deployed in other ways, particularly broadband.

Turning to Tripadvisor.

Had a strong start to the year.

January was impacted by omicron, but.

Business materially improved throughout the quarter in Q1, the consolidated revenue reached 70% of 2019.

It's post Covid peak.

H M and P and E&E segments combined reached 75% of their 2019 levels and we exited Q1 at 88% of the 2019 levels in March.

The H M and P segment <unk>.

Actually at 76% of the 2019 revenue in the E&S segment exceed.

Exceeded the 2000, 1911, 11 use levels growing 290, 229% year over year, and reaching 115% of 2019 levels.

We continue to leverage <unk> to drive paid traffic in the auction and are generating good returns in that auction.

We also experienced very positive gross booking value.

At experiences and a key operating metric European travelers returning.

And we're seeing signs that Europe is almost at par with North America as a destination.

And we're also seeing strong repeat booking rates among the 2021 acquired cohort. So the customers we have card in 2021.

Lastly, a trip we were thrilled to announce Matt Goldberg is joining as CEO on July one the market seems to have great. He has long history as a proven operator, most recently a trade desk. He has experience in travel media and digital content.

And we want to thank Steve Kaufer for his long tenure as founder and CEO and with that let me turn it over to Brian to discuss the financials.

Thank you Greg.

<unk> and Liberty broadband had consolidated cash and cash equivalents of $300 million, which includes a $111 million of cash at GCI.

<unk> of our charter investment based on shares held as of May one in charter share price at yesterday's close was 24 billion.

And at quarter end Liberty broadband had a total principal amount of debt of $4 1 billion we.

We drew down $300 million on the charter margin loan during the quarter and available capacity at the end of the at the end of the quarter of $700 million.

The drawdown was largely to fund share repurchases at L. BRD given the timing difference in when we received proceeds from charter share sales.

As Greg mentioned, we did not sell in the charter buyback in February and received only two months of proceeds from charter share ourselves in this reporting period.

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

Looking at GCI GCI had good had a good first quarter the company generated solid free cash flow and continue to delever.

Subsequent to quarter end GCI paid a 70 million dollar dividend to Liberty broadband and broadband.

Broadband is using their cash on hand.

Leverage as defined in its credit agreement was two nine times at quarter end prior to the impact of the dividends up to the parent.

GCI has $397 million of undrawn capacity under its own under its revolver.

Revenue and adjusted OIBDA were both down $9 million as we noted at year end revenue and adjusted OIBDA are seeing the effects of the new roaming agreement agreed to in the fourth quarter of 2021.

Which has positive long term, but does create some negative comparisons to the prior periods in 2022.

Additionally, our video business continues to shrink, which significantly impacts revenue, but does not meaningfully impact free cash flow.

This decline in our video business was offset by growth in our consumer broadband and wireless offerings.

Over the last year GCI has added nearly 5000 revenue generating wireless subscribers and nearly 10000 cable modem customers. We believe many of these gains are directly attributable to our deployment of two gig speeds in communities across Alaska.

80% of Alaska now have access to GCI two gig speeds I don't think any other state in the country even comes close.

Deploying two gig and some of the most remote communities in the nation.

Later this year, we'll light up our new 800 mile subsea fiber to bring two gig service to Dutch Harbor, which many of you probably recognize is home to the deadliest catch soon Dutch harbor will be known for King crab and virtually unlimited speeds in data safe to say GCI as in bridging the digital divide their eliminating it.

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

Thank you Brian .

And to our listening audience. 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 and as a reminder, if you would like to ask a question. Please press star one at this time again that is star one for questions.

And we'll take our first question from Doug Mitchelson with credit Suisse.

Oh, thanks, so much I guess, just two questions right you've got the benefit of being a long term investor. So I'm. Just curious is there anything in the current environment for charter that has surprised you or the team at at Liberty. Obviously, the equity markets are telling you. There's some surprise about either how much fiber is getting built or the efficacy.

We have fixed wireless so far so I'm just curious you know what.

Whether it's it's been a surprise for you folks who have been thinking longer term and that is just think separate you know macro backdrop, you know Greg does that.

A rise in interest rates and you get lower charter equity influence, how you think about managing capital for our Liberty broadband. Thank you.

Thanks, Doug.

Yeah, you know I think I'm surprised that the broadband net adds fell as much as they did.

We can all speculate how much of that is due to at least five factors I can think of which is you know just general saturation of the market Covid pull forward.

Lack of move and therefore lack of selling environment.

Increase in F. W. E are increase in fiber.

I'm fairly confident that the fifth one is not been ramped up dramatically in the first quarter. There's just no way to do it the market environment to actually build is not getting easier it's getting harder in terms of availability of supplies and availability of labor. So there's no reason in my mind I think that's been raped.

Rent is there some potential that <unk> has been ramped Matt potentially I don't think that's as much of a long term threat, but you know that could have that popped in the quarter certainly.

On the on the issue of the first three I tend to think it's mostly you know some degree we are going to be in a slowing environment in terms of saturation, but I really do think it's mostly COVID-19 pull forward and move among those five factories, which has caused the decline. So I remain optimistic that we have a growing broadband asset at charter.

And we will have increasing free cash flows increasing margins and a big mobile opportunity. So I don't think our view on the business is fundamentally changed in the risk reward at the prices. We're talking about in terms of doing the share repurchase looks a lot more attractive and so I don't think that's a big change as far as the overall market environment.

You know we are in the business as you know Doug I've tried to be long term investors, we do try and find opportunities and more attractive environments and as I suspect as you know the ramifications of higher rates and more difficult equity markets plays through there will be opportunities.

And we have a lot of capital at broadband as well as a lot of capital at one end of the stack.

But it takes usually a while for those to flow through and we're not people, who sort of get to play with the market's down 10%, let's buy more it's a longer term deals that come our way. It's just the nature of how long deals take and how long it takes sellers in many cases to readjust their expectations. So I do think there will be opportunities, but I don't think it's like Theyre going to show up next week, just because of all.

Arkansas this amount.

Understood. Thank you.

And we'll go to our next question from Ben Swinburne with Morgan Stanley .

Good morning, Greg I'm, just sticking with the charter theme in sort of your buyback strategy did you not so in February because you know you don't want to sell at these prices or any other factors there and you know just remind us how all that works with your ownership caps, because obviously, it's charters buying and you're not.

You are creating.

Yeah, that'd be great. Thank you happy to happy to try and clarify.

The ownership cap is measured on a fully diluted share. So as they are issued some options and done some things related we've got more room under the cap and so we're not required to sell.

And is there a reason for not selling in February because you don't like where the prices are the way. It was there anything technical in the quarter, but we're not trying to sell charter stock, we're being obligated to sell into that and we were not obligated to do so in February because of their actions in terms of share issuance and the like.

I gotcha, Okay that makes sense okay. Thank you.

And we'll take our next question Barton Crockett with Rosenblatt Securities.

Hi, Thanks for taking the questions. One question I wanted to touch on the fixed wireless commentary.

And the question is this I mean, they face the same environment that cable that's right people aren't moving but they're adding you know a couple of million subs.

T mobile is.

I'm curious, Greg where do you think those subs are coming from.

And you know if a under a new market opportunity may be kind of a low end household that the cable guys don't see.

Just curious where you think that sources.

Well I think it's a good question Barton I don't claim to have absolute clarity, but my.

What I have seen what I've read what I believe is they probably have created some new market opportunity and they've taken some share of the growth in the market, particularly among customers in areas, where cable is not competitive or where customers have relatively low end needs, but I don't believe SWA is a long term solution for a vast majority.

Customers with whom we're going to compete for just the nature of how they fill their pipe and the nature of the relative attractiveness in terms of speeds and what it will be available at that pipe sales.

Okay, what's probably sorry ex of taking.

I don't think they're taking a lot of our existing customers I think our churn is low I think they probably have taken created some new growth in the market and taken some of the growth in the market, which has been more limited.

Okay, Alright, that's helpful and then.

Gears completely I'm, just I'm kind of curious about GCI.

GCI in Alaska and it's this.

Price of oil is obviously, you know kind of ethically Ah rebounded that would seem to be correlated to a stronger economy in Alaska.

Which might help GCI fundamentally I'm, just wondering if youre feeling any dynamics like that at this point.

I'm sure that's the case and I'll, let Ron or Pete probably you run a wax eloquent about the Alaskan economy.

Well, that's a lot of eloquent works yet the state revenues are definitely up and our legislature is still in session bisley trying to figure out how to weigh all those new revenues, but they haven't got the economy, yet the mood up here is definitely more positive than it was 15 months ago and I think we're looking at.

At a reasonably strong economy between oil revenues and a tremendous amount of $16 billion of federal stimulus infrastructure that slowing into the state Fortunately only a small portion for broadband over the next several years, but that really hasn't been reflected in <unk>.

The employment or the population yet we're still net negative outflows.

The population unemployment is coming back, but we're not at pre pandemic levels, yet we're confident about the economy up here for the next 24 months at least so that should be something of a tailwind and quite frankly are.

Formats in the marketplace has not slowed down as much.

As the rest of the industry, nor as much as we expected post COVID-19, we're still adding both broadband and wireless or the least but respectable clip.

Okay. That's helpful. Thank you.

We'll take our next question from James Ratcliffe with Evercore ISI.

Thanks for taking the question.

A couple of things one first of all.

Are there circumstances, where it could make sense to buy a.

Cable assets or something like that at Liberty broadband rather than charter or with the synergies that you get by buying at charter I mean, that's the logical place for it and secondly, I saw you sold Sky Hope does that have any impact on structural flexibility or any tax implications. Thanks.

Hey take.

Take the second first thank you James.

No no impact on structural flexibility.

I think we were very pleased with the Sky Hook sale in terms of most people's expectations, where are we.

Might not be able to achieve that kind of valuation and to turn into cash at that number is pretty good. It's certainly higher than I've seen at any other analysts write about so that's a plus.

Why what might we buy a cable company at.

Liberty broadband rather than charter.

You can imagine there could be a couple of things. One is we might do one in a way that created an ATB and gave us more flexibility for some other kind of structural transactions with broadband down the road.

It's not inconceivable theres, an asset we liked that ultimately we wanted to own that might not be.

It's appealing to charter, but I suspect it's unlikely in both cases, if that's what happens.

Thank you.

We will go to our next question from Michael Rollins with Citi.

Thanks, I just wanted to revisit the discussion on the charter shares and just giving your views in charter and the broadband category have you or would you like to reopen negotiations with charter to hold onto your charter shares.

<unk> not be obligated to sell into the charter buyback program.

Well I think a complicated topic in the sense that we like our charter shares.

But we don't exactly complain about buying liberty broadband back at the discount even net of the taxes. So.

Yeah, I always want more flexibility, we always like more optionality.

But the current situation is certainly not a poor one.

And given the timing of the GCI transaction.

Investors think about a timeframe where at Liberty broadband you would had.

The greatest flexibility from a tax perspective to consider a full range of transactional opportunities.

Yeah, I think given how the the GCI deal was done whatever flexibility, we will get from GCI, which is good and very good will not change over time, we're already have achieved.

Never flexibility, we're going to get.

Thank you.

Well go to our next question from Michael <unk> with T. L F capital.

Good morning.

Two questions one.

In light of the inflation.

Inflation forces in your comments in terms of the net adds losses can you discuss what your thinking is about the pricing power of cable versus your competition.

Yeah first I did I would not describe it as net add losses I would describe it as a slowing of growth we continue to be a growing asset and entity and I believe we will that's the likely path going forward.

<unk>.

You know I think if you look at most of the things I've seen it suggests that we have a relatively low cost broadband compared to men as much of the competition, we have not taken price in a way that much of the other cable or other providers has so I think there's actually pretty good pricing flexibility for Cha.

Artur.

And pricing opportunity ahead, which is mostly been deferred because they have continued to grow faster than most of the industry.

You are correct about the net adds in <unk> and I.

I did not use the right dose.

And you're absolutely right problem underground.

Just wanted to tell you I'm glad I didn't I'm and I'm glad you corrected me.

I don't know we're sensitive to the idea that many analysts have written as if cable shrinking that's not happening and I don't foresee that happening.

Exactly and then the second question actually has to do with curate from our point of view Liberty and also the indemnity due Q at retail.

What are your thoughts about how long do you think it'll take them to address the.

Inventory issue and the fire at the warehouse and various other things that they have to block and tackle.

To fix the business.

Well.

I'll try and be helpful. Because we.

They've been once that our R&R treasurer once that I think they went into quite a lot of depth about how this on the prior call. We had this morning, sorry, you missed it.

But that transcript will be available and you can hear David Rawlinson and Jeff.

Jeff be more articulate on the topic.

But Glenn you want to add I'll, just add that in terms of the how the indemnity works Liberty broadband is obligated to fund the premium over the face value.

So as the value of Charter's stock goes down that indemnity get smaller and smaller which is in our favor.

In the favor of charter excuse me the favorites in February I got it right.

And the favorite Blue bottle right.

I think very buyer was huge tragic just to finish that car is a huge tragedy. It has had multiple.

Multiple effects, including a.

Businesses continuity, it's caused us to have less efficiency in terms of our ability to ship to customers less lower therefore, lower satisfaction. There are a lot of knock on effects, but I think if you look at that transcript, you'll give more articulate answers you'll hear more articulate answers and I can give.

Yeah.

Thank you so much.

We will take our last question from Matthew Harrigan with benchmark.

Oh, Thank you Oh, it's gonna have to the pricing question, but I just cant central to that is there much you can do to really increase the perceived value in the real value of the product apart from just the speed and the usage statistics, which are clearly working your way I mean, even when you look at something like like you cast a lot of it is installed off the shelf.

A lot more you could probably do it in house like this there are there's probably some benefit possibly from the Comcast charter.

J b, but just a way to stay as a product and just the overall book.

Okay, even including you know voice.

Irrespective of just just the usage are fixed.

Well I think.

Charter is focused on trying to provide.

High quality products that the market wants and obviously some of the things we're doing in terms of both on the broadband side with things like the high split in terms of being able to divide and provide upstream capacity as well as downstream capacity is not purely a speed issue obviously speed related.

Working with our strategic vendors like <unk> to provide an improved broadband Wi Fi experience and then also working on the mobile side doing things as I talked about like our boost opportunity inside the home if you're a.

Our mobile customers. So I do think there is a lot around the interface and speed obviously, the as you noted the JV with Comcast I think is going to improve our video offering and our video capabilities.

Comcast is.

Invested quite a lot and it's already down the road on much of that would flex and I think that's an opportunity for us to work together it'll be a positive.

Thanks, Greg Palm and Miami.

Thank you.

Thank you to all of our listeners for your interest in both Liberty broadband and Liberty trip and we look forward to speaking with you again next quarter if not earlier.

Yeah.

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

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