Q4 2022 Liberty Broadband Corp Earnings Call
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Hello, and welcome to the Liberty broadband 2022 year end 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 keypad as a reminder, this conference will be recorded.
I'd be very 17th I would now like to turn the call over to Shane <unk> Vice President Investor Relations. Please go ahead Shane.
Good morning, before we begin we'd like to remind everyone. This call includes certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 90, 95, and 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 that can be brought in marine tripadvisor with the SEC. These four.
Looking statements speak only as of the date of this call and Liberty broadband Tripadvisor expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein to reflect any change in liberty broadband tripadvisor its expectations with regard there to or any change in events conditions or circumstances on which any.
Such statements are based on today's call, we will discuss certain non-GAAP financial measures from the BT broadband and critical information regarding the comparable GAAP metric.
Definitions and reconciliations, including preliminary note that schedules, one and two.
And in the earnings press release issued today as well as earnings releases proprietary assets, which are available on Liberty broadband website.
Introduce Greg to say Liberty's, President and CEO .
Thank you Shane.
Today speaking on the call, we will have Liberty broadband Chief 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 Q&A. We will answer questions. We are available to answer questions related to Liberty Tripadvisor.
So let me start with Liberty broadband.
As we mentioned the last call in September .
We began returning approximately 50% of the cash flow from the charter sales to address our near term liabilities.
Approximately a $1 billion half related to the charter exchangeable is due by October based on current prices.
Therefore from about the first time that member to the end of January we repurchased we received $291 million of proceeds from charter sales and spent only $177 million on liberty broadband repurchases.
The look through price to charter on those repurchases.
It was about $272 versus the current charter or just under $500 a share.
There is a slight mismatch on the timing of the proceeds when they come in when we expand them and that may account for that.
Slightly more than 50%.
Going forward, we do plan to continue to apply 50% of proceeds from the charter share sales towards repeat Brian purchases. We do also expect total proceeds from charters to be lower this year in 2023.
Similar to last year, we are under the 26% fully diluted ownership cap early in the year.
Driven by charters annual compensation grants.
But as the year goes forward, we do expect lighter buybacks at charter compared to 2022 to the investments they are making at the company and he was even previously heard from them that we will discuss more on that.
We will revisit capital allocation later in the year after our debt maturities are addressed.
So let's look at charter.
We had lower broadband unit growth in 2022. Some of this is a COVID-19 pull forward no doubt some of it was lower move environment with fewer sales opportunities for our share taker like ourselves fewer chances as to get the customer and increased competition from new entrants, including fixed wireless.
So we would note that in many cases fixed wireless has been a market expander not a share taker and we do not view them over the long term as a competitor, although we will surely build them in the short term nonetheless.
Nonetheless chartered posted strong operating results in the fourth quarter 92000 residential broadband units were added and we had some sequential improvement over the prior two quarters spectrum, one our new pricing.
Product is helping drive momentum in mobile.
And we recorded a record 615000 mobile net adds in the fourth quarter. It has been a huge success compared to other mobile operators.
No cable share of mobile net adds in the third quarter and our fourth quarter RASM was 35% and charters was 22% of all.
Mobile net adds.
So charter was nearly a quarter of all the mobile net adds which is a stunning number.
We believe this demonstrates the value of cost savings to customers through bundling and seamless connectivity.
As Chris Winfrey outlined in December .
Charter is undertaking a series of initiatives to accelerate growth and attack large connectivity opportunities that includes accelerating our network evolution plan through high split.
Differentiated converged product offerings like spectrum one.
And our rural build which we think has attractive returns with penetrations.
Way above our expectations, so far and initial builds.
We are targeting mid to high teens IRR.
By 2026, we do expect Capex as a percent of revenue excluding line extensions to be below 2002 and decline further but in the interim these investments will increase that capex as a percent of revenue.
Liberty here I've had a long positive relationship working with Chris Winfrey and excited by his strategy.
That he has articulated both to the board in our marketplace.
Even with the investments in the business the increase in the stock price charter and Liberty broadband both offer attractive free cash flow yields and a growth vehicle.
I would note, it's even more compelling relative value at Liberty broadband charter free cash flow yield is about nine 1% nine 1% despite their investments.
And the Liberty broadband look through 'twenty, two free cash flow yield was 12, 9%.
Let me turn now to Tripadvisor.
Travel recovery continued in the fourth quarter exceeding managements expectations full year trip revenue was 96% of the 2019 number in the fourth quarter actually reached 106% of the 2019 number.
Our hotel meta recovery accelerated throughout the year in the U S. In 2022 hotel meta reach parity with 2019 with strength in both auction pricing and volumes and we are driving more revenue from paid traffic and less from free revenue, which which is obviously hitting our margins to a degree I'm gonna toss.
More about that sector.
Slide four was up 115% in the fourth quarter over the prior year and with reduced losses, Despite the increased marketing spend.
We continue to see benefits and improved customer.
Improved conversion and repeat customers and we are very confident in the growth of this experiences segment.
Management is focused on the long term strategic opportunities and using product enhancements to drive growth.
I would note they expect in 2022 to maintain flat margins through disciplined cost management and allocation despite increased investment in our growth segments, including experiences and with that I'll turn it over to Brian to discuss the financials. Thank.
Thank you, Greg and good morning, everybody.
And Liberty broadband had consolidated cash and cash equivalents of $375 million, which includes $85 million of cash directly at GCI.
<unk> of our charter investment based on our shares held as of February one and charter share price at yesterday's close was $18 $9 billion a.
At quarter end Liberty broadband had a total principal amount of debt.
$3 9 billion note that this excludes the indemnification obligation and preferred stock.
Reiterate greg's commentary that we expect reduced proceeds from charter shares share sales to charter in the early part of 2023. However for the shares we do so we are updating our annual tax rate guidance for 'twenty three to seven years to 13% compared to our previous guidance of 7% to 9%.
High end of the updated range assumes the <unk> dividend received deduction does not apply to charter share sales for the book minimum tax under the inflation inflation reduction Act.
We are accruing for a higher tax rate at 23, while additional IRS guidance guidance from the IRS and the Treasury is pending.
Though we believe clarification as possible this year.
Note that any book minimum tax paid for 'twenty three will carry forward to offset regular income tax in future years to the extent regular income tax exceeds the BMT, making this more of a timing impact for us.
We are not providing specific tax guidance beyond 'twenty three as there are many variables outside our control, including cadence and pricing charter share repurchases and clarification around certain aspects of the inflation reduction that.
Looking at GCI.
2022 was a great year for the company with record adjusted OIBDA, Despite headwinds from the roaming contract that impacted year over year comparisons through the third quarter.
<unk> generated solid free cash flow and distributed $110 million of dividends to liberty broadband during the year.
<unk> also paid an additional $40 million dividends to liberty broadband and year to date, so far in 'twenty, three and we anticipate additional dividends will be paid this year.
For the full year revenue was flat and adjusted OIBDA grew 1% to $358 million, the companys highest ever adjusted OIBDA, driven primarily by data demand, which drove both subscriber and <unk> growth.
In the fourth quarter revenue was up 2% adjusted OIBDA was up 14%.
This was also driven by strong data growth as well as lapping the impact of the roaming agreement that we entered into in 2021, which has positive long term that created negative comparisons from Q4 'twenty one through third quarter of this year.
Operationally GCI added 5300, consumer cable modem subscribers and 5900 consumer wireless customers in 2022.
The network quality continues to improve with growth in the <unk> wireless network increased satellite capacity and the completion of the fiber built to Dutch Harbor.
The strength of the operating results led to continued deleverage for the full year GCI isn't that debt declined $57 million Leverages defined in its credit agreement was two eight times at year end and GCI has $397 million undrawn.
Capacity on its revolver.
In 2020 to GCI has about 156 million on net capital expenditures. This is net proceeds received from federal and state Grant funding.
Capex spend was.
Related primarily to improvements in wireless hybrid fiber coax networks, and the Dutch Harbor fiber project.
Net capex for 'twenty, three we expect to be approximately $195 million, which would be elevated due to the additional high returning investments in Midland last mile connectivity with continued network expansion in rural Alaska, including the Bath don't Wanna Evolutions fiber projects, we're taking a proactive approach in rural connectivity projects.
Which we view as critical to securing the necessary government funding.
And with that I'll turn the call back over to Greg. Thank you Brian .
To the 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.
Certainly when I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad. One moment. Please while we poll for questions. Our first question today is coming from James Ratcliffe from Evercore ISI. Your line is now live.
Alright, Thanks for the question, Greg two if I could first of all regarding the selling into the charter by back to you.
Cash at the moment, but.
Does settling the Delaware litigation give you any additional flexibility around whether it's at how whether that.
26, and a half for 26% cap is remains in place over time, and what would you be open to raising it.
The charter Board works, two and secondly, you mentioned the exchangeable sitter Puttable in October can you talk about the factors, we should consider and you consider in terms of how to.
We find those or pay them down assuming that they are in fact, but thanks.
Thanks, James I'll handle the first one I'll hand, it to our treasurer Ben already to give you some color on the second so on the first I think you're right to note that the litigation settlement does open up more opportunities for us to have fruitful discussions with charter.
And we've had some.
Preliminary.
It's about that we would be open to raising the cap and we do think that many shareholders other than Liberty would view it as positive because given the increased investments in by charter in 2023, many productive high returning assets. Nonetheless, they are investing more in the business and lessen buybacks.
The buyback will go down quite a bit on a relative basis, and we would be able to.
Familiar right that or less of that by taking our 26% off the table.
26% that goes to us. So I do think that is something that could get done and we are optimistic it might get done in 2023, something we'd like to do.
Okay.
With respect to the charter exchangeable.
You are right, we are accruing a meaningful amount of cash I think what we would say at this point is that we have the option to address those with some combination of cash on hand.
Accessing the margin loan that we have related to charter shares.
And potentially a new exchangeable.
There's probably a slight preference between margin loan and a new charter exchangeable, we'd probably prefer.
Artur exchangeable to maintain optimal liquidity.
Yeah.
Thank you.
King.
Okay.
Thank you next question is coming from Doug Mitchelson from Credit Suisse. Your line is now live.
Thanks, So much I just was curious you know I'm not quite sure whether anybody that's asked this but look I think the streets looking for 2% EBITDA growth. This year for charter in and charter has had high single digit EBITDA growth was levered returns that was hard to beat so I was just curious your outlook.
For charter as an investment at this point you know.
It's interesting that they're investing more versus buying back stocks at a look through buyback for you, which is you know relatively risk lifts versus you know mid to high routines returns on invested in Capex. It's an interesting dynamic from a liberty broadband perspective versus a long term charter shareholders. So I guess you know my question for you is ultimately you know are as excited about charter as an and.
Investment as you were a few years ago and what's the the algorithm for Liberty broadband in terms of returns from charter looking forward.
Thank you Doug a.
A couple of points I think first.
Look when we were doing all of those 2 million upgrades on the existing <unk>.
Additions on the existing network.
With relatively little capital Yeah, that's a damn attractive business, Okay will stipulate, we'll all agree.
The.
The incremental capital that we have to spend is still a very attractive business and something we endorsed at Liberty at the board level and we are enthused about what they're doing we think the investments we're making are high split really do give us a lot of runway on the existing network in the world build outs are quite attractive.
On a return basis and more attractive these set with the <unk>.
Set of broadband investments made by state and local governments as well as the federal government then the art off bidding process, which in many cases led people to bid up higher and then they're not actually fulfill but the whole market got pushed up I think these broadband initiatives are going to be very attractive IRR. So we're enthused about that.
Holding a comparing that to the buyback over the long term is interesting, but the buyback opportunity probably isn't going to go away.
Yes.
We're making these investments.
But we think they're worthwhile for the long haul and we are attractive and on an offensive and defensive basis for charter. So I remain liberty remains quite enthused about charters prospects and the fact that we're buying back and have continued to buy back all the way through is some indication of that though we do have these issues.
Around attacking our own exchangeable, which is effectively deciding how much we're going to take on a current basis of where the future basis, given we're going to issue some kind of other likely equity like securities.
Do you see charter returning to mid single digit or high single digit EBITDA growth in the not too distant future.
Yes.
Right. Thank you.
Yeah.
Thank you. Your next question today is coming from Ben Swinburne from Morgan Stanley . Your line is now live.
Hey, good morning, Greg I guess following up a little bit on Doug's question around charter.
Yeah.
You guys are obviously favorable around the financial leverage that's obviously been John's approach for many years rates are higher than they were a growth is slower capital intensity is up is there is there are I'm sure. There's some scenario, but is there a is there a scenario you see.
From a leverage level for charter lower today than where they were running at.
Do you think that actually it should be higher given the stock has come off quite a bit over the last 12 months.
And then I was kind of somewhat unrelated topic, although tied to charter I was just curious if you guys are thinking about any implications from G. G. Soon becoming the FCC chair person, which is something that seemingly may happen in short order honestly. She she's got a lot of strong views on the broadband market in cable, but I'd be curious if you have any perspective.
On things, you're concerned about or watching on that front. Thank you.
Thanks Brent.
Look on the leverage front I think.
Charter can handle.
It might be more leverage, but the public markets today equity markets in particular and not to just about more leverage. So there's no reason to push that up we're not in an environment, where people are buying that you're right to note about.
About increased cost, but if you look at the stack of that charter has it's really only very little which is floating or to getting refinance any periods of a net increase in our actual borrowing cost is relatively de minimis.
Given how much is existing versus how much is getting rolled or floating.
I think you could make a case for.
Higher as I said, I think it's harder to make a case for lower other than the capital markets are fearful I don't think that I think these businesses are very stable.
We have a very sophisticated.
Finance program and I'm not worried about the leverage.
And you're right to note.
The increase in.
And by the environment with increased costs and increased investment, but I would note. The stock is half of what it was so yeah. If you look at all that it's still pretty attractive in my view.
Uh huh.
And on the second point about.
Regulatory I mean that has been a.
Existing risk road.
Present risk and the cable business since the early nineties right, but maybe earlier John John here. He can tell me earlier, but I would say certainly from my time I've spent around it because it really nice cable.
Regulatory is always been a risk we went through a relatively activist irregular.
The regulatory environment during the Obama administration with title two regulation that we navigate them successfully.
I think it's.
Unlikely that we would see something more aggressive than that.
But that is always you know one of the things that we are constantly vigilant about and I do think there are.
Many voices in Washington, which are less aggressive in warrants to any of the free market attractiveness and what a great job that broadband industry had done through COVID-19.
And building out now so.
While it is certainly a risk.
Looking as an interest increased risk that we've ever seen over at various times.
Yeah, I mean, certainly the capex investments in rural should help in fixed wireless still might be an actual silver lining and at least in this context I think thats those are both good comments yeah.
Thank you thank.
Thank you.
Thank you next question is coming from Barton Crockett from Rosenblatt Securities. Your line is now live.
Okay.
Now I'd like to ask two questions if I could one is.
Just on D C I mean.
We are looking at them they seem to have some volatility in wireless subs up for the year I think it was down.
Down this quarter.
To explain what's going on with the wireless subscriber numbers here.
Well, we could take a shot but I'll first offer it up to our Alaskan counterparts.
John do you want to answer that or Pete.
I think what you're seeing the.
Postpaid wireless subs, we've been up for 11 consecutive quarters, there's volatility in the prepaid business both due to seasonality, there's a very strong surge in the summer and the fall months with prepaid sales to the fishing industry in a number of our communities and then.
Those fall off.
Then this year there was an overall decrease in prepaid due to some problems, we're having with a platform. We're working on improving the platform right now to make it more competitive.
Stabilize that but the core measure of our wireless success is really on the postpaid side.
And that has been uniformly up for the last almost three.
Three years and we can we.
We believe continue will continue to grow we've got far and away. The best five G network. The best network in Alaska. If you look at the speed test comparisons we always ranked number one often by a factor of two or three and that's that plus the bundling with the high speed data products is healthy but postpaid sales.
Okay.
You guys can you break down the postpaid and prepaid mix.
I don't know that we published those numbers do we see.
No.
No.
Okay.
Switching to a different topic.
Greg I, just I'm noticing with some interest.
News flow around the big Rx and complex at Diamond, which is a big source of programming cost for the cable industry and you know that David knowledge I think missed an interest payment there's speculation that they're moving towards some type of bankruptcy.
And this presents an opportunity for this to be <unk>.
Thought reconsidered and I wish you guys and you have a very interesting positioning on both sides as a distributor of these networks to charter them.
As a owner of a sports game to the Braves on a different equity call, but maybe you can come in here a little bit.
I was just wondering if you could talk about what you think is likely to play out does this present an opportunity for a reduction in programming costs of the cable companies.
Is there some risk to the revenues for sports teams like the price.
Yeah.
Well Barton good question, it's a multi headed Hydra there I think.
You know the diamond situation is quite complicated.
And I think.
As you May recall, we've been very closely aligned with MLP and looking at it in ways to try and.
Make it the best situation for baseball as well as an attractive investment.
But first putting on the charter had I think over time.
You will see reductions in RSA cost, that's just youll see less carriage.
And reductions that's just inevitable charterer I don't think its public with charter can you know continually renews that renews on attractive terms for charter asbestos, Ken but I suspect those costs will continue to go down on a relative basis.
On the cases of the Brent on the looking at the Braves side.
You know they have more than a dozen more than a dozen RSA ends my.
From everything we know.
There are a lot of logical reasons, including the fact that we have the largest broadband territory very engaged fan base and a relatively.
Modest certainly compared to the Dodgers are relatively modest.
S N fee or fee.
Payments from Diamond the Braves are in very attractive we believe their most profitable RSA.
So even in the event has been speculated that you know.
There was a filing by diamond we think they are unlikely not to accept.
Sure.
Well not rejected.
Like our contract in bankruptcy, because it's a very attractive <unk> for that.
What will happen over the long term I suspect there will be a slimmed down version of.
Something that is owned by.
Diamond or diamond successor that had it takes their profitable RSA ends maybe renegotiate some things but.
It probably doesn't take all of them would be my speculation.
I mean do you you mentioned the MLP you bring a line I mean do you think theres an opportunity for the leaks to take ownership of the RSA ends or if the rights and do something else maybe.
I think there is some.
Opportunity for the leagues to look at but we'll see.
It's complicated.
Speculating on honestly, its just speculation more than that.
Okay, well I appreciate it.
Thank you for all that correct.
Thank you that question.
Our final question today is coming from Michael Rollins from Citi. Your line is now live.
Thanks, and good morning, Greg you mentioned earlier in the call that you would revisit capital allocation later in the year. After you get through the upcoming maturity can you give us a preview of your consideration set for Liberty broadband.
And then secondly, just curious if you could share how meaningful ACP has being for both GCI and charter if there's some quantification of that and your expectation for how this program will evolve to potentially stay in the program and funding.
Given the characteristics of it is around a defined amount at the moment. Thanks.
Yes.
I think on the first point once we get through our financing will look at the with the charter stock price is what the Liberty broadband stock prices, if there's a discount what our long term if there's more clarity around the taxes all of those factors will weigh, but it's quite possible that probably more likely they will be back to buying.
Using a 100% of free cash flow mean free cash flow here define for Liberty broadband is basically what we get repurchase from charter.
That will be using that to buy back stock I think that's the most likely case.
On the.
On the question of ACP. It clearly we saw that as an attractive program during COVID-19.
That helped one of the reasons why and I'll, let you comment on Iran as well.
One of the reasons why.
Yeah.
We've seen such and declines in debt bad debt. It's one of the reasons why we see I think we saw such growth during COVID-19 of.
The broadband.
Our broadband.
Adds net adds so I think it's been an attractive program, we will see what the funding is there are you know keeping track of all the funding in D. C. There are a lot of them going on we'll see what the how much. This one gets done Ron might what might you add.
Where we've been particularly benefited by ACP in Alaska, and I think it's the primary reason that our bad debt is running at such almost absurdly low levels. We were six tenths of a percent of total revenue for bad debt last year versus an industry norm.
And then a GCI norm pre COVID-19 of one point to one 5%.
And we've got a material number of sub less than 10000, but a material number of subs at Alaska. We qualified for the tribal benefits. So we're getting $75 a month and I think what it's doing is it's taking the lowest end of our subscriber base that would ordinarily turn on and off and making them good stable customers.
That said, we're projecting the benefits of that program to go away sometime early in 'twenty, four and our bad debt to return to more normal levels, because we think in the current political environment, where the Republicans take control of the house, it's unlikely that the funding necessary to continuation.
He would be provided.
The actual termination date of the program when it runs out of money is unknown, but it's likely in the first half of 'twenty four it depends on the ongoing expenditure rate.
Thanks, that's really helpful.
Great.
So with that operator, I think we're done. Thank you very much for your interest in both Liberty trip in Liberty broadband, we look forward to talking to you next quarter if not sooner.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.