Q3 2022 Liberty Broadband Corp and Liberty Tripadvisor Holdings Inc Earnings Call
Welcome to the Liberty Braves Banner Corporation, 2022 third quarter, earning 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 as a reminder, this.
Conference will be recorded November for Us I.
I would now like to turn the call over to Courtney Chun Chief before her four sorry portfolio Officer. Please go ahead.
Thank you before we begin we'd like to remind everyone that this call includes certain forward looking statements.
The private Securities Litigation Reform Act of 1995, actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the commentary some Form 10-K, and 10-Q filed by Liberty broadband and Liberty Tripadvisor with the SEC. These.
These forward looking statements speak only as of the date of this call.
Broadband and Liberty Tripadvisor expressly disclaim any obligation or undertaking to disseminate updates or revisions to any forward looking statement contained herein to reflect any change in liberty broadband or liberty tripadvisor its expectations with regard there too early.
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.
Regarding the comparable GAAP metrics, along with required definitions and reconciliations we put even 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 Liberty, President and CEO of Franklin thing.
Coordinating and good morning to all on the call today speaking on the call. Besides myself will also have liberty broadband chief accounting and principal financial Officer, Brian Wendling.
Ron Duncan CEO and Pete pounds CFO of GCI, respectively will also be available to answer questions.
So during the Q&A, we will be available to answer questions related to Liberty Tripadvisor, but please do note. The tripadvisor has not yet reported on its third quarter results. So some of our answers may be limited.
Turning first to Liberty broadband.
Period of August 1st through the end of October .
Broadband repurchased five 5 million shares for $550 million.
Priced charter of about <unk> $19 76 per share.
Over the same period, we received $616 million.
The proceeds from charter share sales.
I know, we also recreate REIT increased our repurchase authorization in August .
Now as to one 5 billion remaining on it as of the first of November .
Towards the end of the quarter, we did pull back on some of our <unk> buyback.
This was an intent to retain some portion of the cash flow from our charter sales to address some of our near term liabilities.
Looking at charter.
And its operating results for the third quarter, which were strong revenue was up 3%.
And we added 61000 residential broadband net adds.
That's a large sequential improvement and a meaningful beat against consensus.
Importantly, we also added nearly 400000 mobile lines, even in a low move and low incremental broadband environment.
Mobile revenue was up 40%.
Because at the end of the third quarter charter had $4 7 million total mobile lines.
We at Liberty and those that charter remain very excited about the value of bundling mobile and the mobile opportunity overall with meaningful gains in share of mobile net adds.
In October charter launched spectrum, one we.
We think this is a differentiated converged offer it to take to market.
With compelling broadband Wi Fi and mobile priced at 499.
49 99 per month.
Get 300, Megabits of broadband speeds and mobile lines and we do expect this will continue to accelerate mobile growth and drive broadband pull through.
Charter continues to and also expand its footprint through new builds.
It remains a priority and we believe it's a very attractive economic opportunity. We are pleased with the early progress on art off and the additional subsidy opportunities in the pipeline.
Do want to thank Tom for his.
Leadership over the past 10 years, and we very much also look forward.
We'll continue on our partnership with Chris Winfrey, which will start when we accelerate rather when he becomes CEO Center first.
With that let me turn it over to Brian to discuss the financials in some more detail.
Thank you Greg at quarter end, Liberty broadband had consolidated cash and cash equivalents of $203 million.
Which includes $37 million of cash at GCI.
The value of our charter investment based on our shares held as of November 1st in charter share price from yesterday's close was $16 5 billion.
At quarter end Liberty broadband had a total principal amount of debt of $3 9 billion. We opportunistically amended the terms of our charter margin loans subsequent to quarter end pledging, an additional 6 million charter shares and importantly, providing increased flexibility and improving our loan to value ratio there.
Billable capacity under the charter charter margin loan is $900 million.
Note the above amounts exclude the indemnification obligation and preferred stock.
And at GCI, we had a solid third quarter revenue was up $2 million and adjusted OIBDA was up $1 million.
As we noted at year end revenue and adjusted OIBDA are seeing the effects of a roaming agreement that was effective in the fourth quarter of 2021, which has positive long term for the company, but does create some negative comparisons in 2022 of the prior periods.
Actually our video business continues to shrink, which significantly impacts revenue, but does not meaningfully impact free cash flow. This.
This decline in our video business and the impact of the roaming agreements were offset by growth in our consumer broadband and wireless offerings as well as our business data revenue.
Over the last year GCI has added 6300 revenue generating wireless subscribers and over 8000 revenue generating cable modems customers.
Many of which are attributable to our deployment of two gig speeds in communities across the Alaska.
<unk> is continuing to expand its two gig offering expecting to launch and on Alaska by the end of the year for.
GCI in Alaska, and certain members of our Investor Relations team. This final supplies of the fiber connection connecting the Dutch Harbor is this monumental as the Golden Spike the completed the U S transcontinental railroad in the late 1800.
Cash for the quarter at GCI was down $43 million with strong adjusted OIBDA offset by $40 million $40 million dividend to Liberty broadband.
Capex during the quarter and the normal seasonal increase in accounts receivable from the RAC program. During the first quarter of our achieves fiscal year also were impact.
Leverage as defined in its credit agreement was three one times at quarter end GCI has $370 million to $397 million of undrawn capacity under its revolver.
With that I'll turn it back over to Greg for closing comments. Thank you Brian .
We do look forward to seeing many of you at our annual Investor Day on Thursday November 17th in New York.
Additional information is available on our website.
And I will be hosting our annual Q&A session, if you'd like to submit questions. In advance you can email investor at Liberty Media Dot com.
We appreciate your continued interest in Liberty broadband and Liberty Tripadvisor and with that operator, let's open the line for questions.
If he would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star He is hello.
Our first question is from Ben Swinburne with Morgan Stanley . Please proceed.
Hey, good morning, guys. Thanks for the question Greg.
Great I wanted to ask about convergence that a little bit of a higher level, but also relevant to your charter and GCI investments.
And.
In Europe , they've they've had converged fixed and wireless for a long time.
And despite lots of I think enthusiasm.
It's been a tough place for cable he would rather own U S cable than European cable, maybe its not because of the convergence element, but certainly conversion has it led to great results and you've seen pricing pricing pressure Glenn.
Glenn convergence turns into discounting so with charter in particular, they are clearly leaning in here.
And there's a big debate in the market, whether that's going to be good or bad. So I'm wondering if you could just talk about your outlook for the impact of convergence on the U S cable business charter in particular, and whether you think the <unk> model can be a better model in the states than it's been in other countries, where it's been obviously a low margin business.
Got it.
I think great question Ben.
Look in Europe .
And I think the U S market stock market watch that closely and taken some lessons, which may not be complete in Europe , you've obviously seen that convergence where.
You see much more fiber out of a building as a percent you've seen the Ptt's Bay, a bigger percentage of the fiber building and you've seen definitely a race to the bottom starting with lower rates to begin with less attractive pricing to begin with and then.
Declining rates is the two converge.
The U S models, a little different we have already basically achieved the same multiples as the mobile for competitors, which I think is a mistake.
Cable companies I believe are better positioned here than they are relatively.
Europe .
First the broadband market is more distributed you've got I think positions, where we're more secure in many cases with lower grades of competition or competition that when we're able to handle still any opportunity to.
<unk> gained share from DSL players and alike.
I also think.
You know clearly the in many cases, the mobile operators are trying to get into broadband and that is a longer harder road for them than it is for US who now have a complete <unk> everywhere in the nation.
And have the opportunity to pursue owner economics and markets that are attractive.
Where there is sufficient volume so we don't need to not do not need to build out in markets, where there is insufficient volume, we can leverage our MP and a relationship but we can build out where we can get owner economics that are more attractive in that relationship.
I'll remind you that the perpetual relationship one we've already rebid wants to a better rate and I think there'll be future opportunities to continue to make that a better margin opportunity for us.
But most importantly, I think we have a very secure broadband position and the opportunity to add those mobile far more easily than the mobile operators have to come into our business and I do remind you what you surely know Ben that the mobile business is more than twice as big as the broadband business here in the United States.
Allergies are interesting, but there are some key differences too yeah, no that all makes sense and just as a follow up strategically do you think we will see.
Convergence driven consolidation in the U S is that a lot of big companies out there. So the regulatory question as others.
Major one but at the same time.
For those wireless only players they may need more fiber or want more fiber and maybe vice versa. I don't know if you have thoughts on that and then I'll shut up.
Well one of the.
<unk>.
Mobile operators.
Generally operate nationally and a cable operator has fiber operators generally operate regionally or locally depending on your perspective, so there's sometimes a mismatch.
And Theres, probably more appeal for the mobile operator to get the.
Fiber the broadband operator, where he or she can rather than the case where they.
Broadband operator sees the appeal of having a national mobile footprint.
Compared to the regional footprint that they have so there's a little bit of a mismatch there.
Yes. Thank you.
Our next question is from Michael Rollins with Citi. Please proceed.
Thanks, and good morning, just curious for an update if you look at.
Where the charter share prices your thoughts on continuing to participate.
Selling into the charter.
The repurchase program given the ownership limits that are currently set under the agreement.
And if you think it's it's you know at the time is ripe to revisit that relationship.
Uh huh.
I'll first start with we have a pretty good position today where are.
The proceeds were getting and the drag on tax that we have is less than the discounted NAV. So it's actually been the case that we are ahead of the game by repurchasing our stock with the proceeds we got from charter.
Might we just want to revisit or think about how that relationship changes we've had different caps at various times I think that's something to be considered in the future, but at the moment, we're pretty happy with our hand.
And are there any new thoughts on how to close at a deep discount that currently exists beyond the current course and speed that you're on.
Yeah I think.
There are options out there to do that.
Like the and that we've got right now.
This is our third earnings call today, and I've had several variations on this our history is.
That we have.
Generally gone out and create asset backs are created opportunities for mergers of entities like this over time, but we thought at that time was right.
And.
That potential surely exist somewhere down the road that we will do that between charter and Liberty broadband, but we feel no rush, we feel we're continuing to benefit from our participation in charter and were feeling that we benefit from the continued relationship and the continued opportunity even if they repurchase shares to repurchase our own stock at a discount.
And just finally to follow up on some earlier comments that you may go given your views of cable and where values have come down to is there any interest to use liberty broadband.
It's.
A form of capital to invest in additional cable franchises or are you content with.
What you currently own.
I wouldn't say there is no way, we're going to buy another cable franchise, we did that quite attractively at GCI and you could imagine another pretender had other benefits to it but you could imagine other transaction.
But the reality is charter has enormous synergies.
And we would first look to say Hey, does this acquisition fit better with charter because theyre going to bring a lot to the table. There may be some reason it doesn't maybe some reason we want to pursue it.
But theres a lot of logic to putting any of those consolidation plays into charter because it's got a.
Enormous potential to bring synergies to the table relative what we can bring.
Thank you.
Our next question is from Barton Crockett with Rosenblatt Securities. Please proceed.
Okay. Thanks for taking the question.
I was curious about Greg your kind of thoughts about the current environment for.
Buying things, making investments because we've got kind of crosscurrents right.
Stocks equity values, probably private market values on top of that has come way down which has been a setup where in the past you guys have been able to swoop in and do some historic deals.
Maybe so I'm curious.
This seems like it's approaching you know a situation where you might see some really attractive opportunities or Conversely, if the cost of capital gone up so much with the increase in interest rates.
That Ah things are not particularly attractive right now because of the cost of capital just your thought about the landscape there would be interesting.
Alright, thank you.
You're a generous to say, we profited from those times in the past and I, but I do think that's right. When you want to invest where others have fear is I think the buffet line and certainly some of the opportunities we've seen a pickup in because of that.
Your point about the Red the increased cost of finance the raised cost of finance, making some of those hard really in some cases, just the complete availability of financing, making it hard to do certain kinds of deals suggest that in some cases, you may want to already buying two existing capital structures and take advantage of discounts that maybe in the debt.
Or you may want to do things, which are entirely equity financed.
We have capability and capacity to do either or experience of doing both rather.
But I would note one more thing.
Seller expectations are much slower to come around then buyers' expectations about how the landscape has changed pricing and sellers are generally only seeking capital where they have to where they're forced to where they have debt obligations.
Push the issue.
People, who don't need financing or trying not to seek financing. So we will see how that how long they can hold their breath and what opportunities arises seller sellers face the reality of a changed marketplace.
And just to follow up on that point.
You know, if we don't yet see the fear and sellers highs or there's blood in the streets, but that might be coming I mean does this argue that this is an environment, where it makes sense for liberty across your structures to start marshalling resources to be ready.
For when opportunities present is that something that's entering your mindset at this point.
Yeah, I think you look and say capital is more dear.
The risk of not having it is higher.
And the opportunities that may be created by having it or better. So yeah, I would say that's a fair mindset.
Okay, great. Thank you.
Our next question is from James Ratcliffe with Evercore ISI. Please proceed.
Thanks, one liberty broadband specific in one or more tables in general on Liberty broadband I any color on what drives the a versus T buyback net send a given quarter or period also I know you are we still deal with Dr. Malone to keep his ownership stake from getting too hot.
If you buy back the A's.
We should be thinking about on that and really Lee.
Thank you mentioned near term obligations.
Color on that was the March alone or something else.
And secondly, just on <unk>.
Cable competition thoughts on the how aggressively cable operator should respond to over builders whether to.
Do more to protect <unk> or kind of go scorched Earth and say, we're not going to lose customers and if theres going to be a transfer of value from us it's going to go to the consumer rather than to a competitor. Thanks.
So on the.
Sounds like three questions. The first one in eight versus case.
We buy the low cost security, which has tended to be the A's and now that we rightly have the relationship you pointed out with.
Dr Malone, where the boat is less of an issue.
That's our focus.
I'll, let Ben on comment on the maturities.
And so again and also with respect to the in the case that the scale of our.
Quarterly buyback is quite large and so we do have indicators somewhat to where there is liquidity.
And we are sensitive to the fact that the more as we buy despite the benefit from a dollar price perspective.
We do risk a strong liquidity there so we want to be sensitive to that and that's why you do see you did see in the last quarter.
And emphasis on case.
With respect to maturities.
Really our our only debt there is the exchangeable, which we feel very very comfortable in our ability to refinance.
And the margin loan, which has a tremendous support from a significant group of lenders and so our ability to extend that.
It's also a pretty great.
Loan and.
The convertible market in general is a call it three to five years.
Type of maturity and so you'll look for us to extend each of those obligations.
As we get closer to maturities.
And dressing.
Cable competes.
I'd say the environment is actually likely to get better.
You've seen.
Fixed wireless gain quite a lot of share where they have capacity I don't think that's an infinite amount of capacity.
And you've seen the market, where fiber overbuild as had been consistent grown a little bit over the last several quarters, but I actually think the environment for them because many of them are either still seeking equity capital or even using that capital will get more difficult.
And also the competition and things that charter was doing like its own world builds I mean, we're competing for both labor and components are there being supply so that that market is likely to get tighter not looser.
So all of those I think actually make a better market condition.
On both sides, both the low end and the theoretical high end with fiber.
Our history of fiber overbuilding is not good.
John Malone has.
Talk to me about history, that's probably predates all of us about how many successful overbuild as there had been and you'd have to look far and wide to find any.
That doesn't mean, they can't screw up your market and so I think being aggressive in offering value to consumers.
The better strategy.
And I think charter is well aware of how to compete effectively in those markets.
I'd also say one more thing, which is fiber overbuild of overbuild is probably go after the low hanging fruit in that low hanging fruit is several things its aerial versus.
Aerial fiber versus varied cables, it's higher density markets, both of which they probably attack for awhile and also goes where places where there is far more DSL and low hanging fruit in terms of the competition. So I think that probably all portends pretty well for charter as well in terms of what fiber risk is it's there and they will.
<unk> be some leakage, but I don't think its a growing risk in the near term.
Great. Thank you.
Our final question is from Doug Mitchelson with credit Suisse. Please proceed.
I don't think so much round to Greg So liberty is pretty typically pretty smart technology, just curious your level of confidence of the DOCSIS 4.0.
Cable plant can compete with fiber.
As it's built out further.
Further in your footprint and then does the strategy for Liberty broadband get impacted at all of charter decides to go through an investment cycle next year get more aggressive with rural Buildout to pull forward network upgrades and I assume that lowers your stock buyback capacity, but it's as simple as that that we just think about the flow through or does it actually impact how you.
You are thinking about strategy for Liberty broadband thank you.
So I'll take the second first I think your analysis. It just means we have less and we buy back at a lower rate, it's probably the right analysis.
We are fully involved I am on the Finance committee, which looks at all of our.
How they do their buybacks what alternatives are out there has looked at full board has looked at the rates of return on maintenance rural builds and I think there are attractive opportunities. So we're certainly behind that and as you rightly noted actually it takes some pressure off our cost cap or our our ownership cap rather.
As far as DOCSIS four <unk>.
I think it's been a well tested strategy I think it'll be very effective in fiber I have to laugh because the bears have us, saying that nobody needs capacity. Therefore, SWA is going to eat our lunch.
Or alternatively, everybody needs capacity, therefore fiber is going to eat our lunch and there's no room for us obviously on what we are starting to make the bear and Bull case look less substantial than I think they are.
But I think they're wrong on both of those fronts cable is well positioned both with high split and eventually DOCSIS four <unk> it would be very competitive in all sorts of markets.
Uh huh.
I think we're confident in where the technological direction charter is headed.
Alright, thank you.
So operator with that I think we're done thank you to our listening audience and as I said, we hope to see many of you in a couple of weeks in New York.
And if not hope to speak to you on the next call if not sooner. Thank you very much.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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Yeah.