Q4 2022 Liberty Broadband Corp Earnings Call
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.
Reminder, this conference will be recorded February 17th I would now like to turn the call over to Shane <unk> Vice President Investor Relations. Please go ahead Shane.
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.
Actual events or results could differ materially due to a number of risks and uncertainties, including those meds.
Julien.
10-K file that can be brought in marine tripadvisor with the SEC. These forward looking statements speak only as of the date of this call and Liberty broadband Tripadvisor expressly disclaim any obligation or undertaking.
Any updates or revisions any forward looking statements contained herein to reflect any change in liberty broadband quality tripadvisor its expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based on today's call. We will discuss certain non-GAAP financial measures for Liberty broadband.
Information regarding that.
Definitions and reconciliations, including preliminary note and scheduled one and two.
The earnings press release issued today as well as earnings releases from prior periods, which are available on Liberty broadband website.
Introduce Greg to say Liberty's, President and CEO .
Good morning, 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.
Also during Q&A, we will answer questions. We are available to answer questions with Liberty Tripadvisor.
Let me start with Liberty broadband.
As we mentioned in the last call in September .
We began retaining approximately 50% of the cash flow from the charter sales to address our near term liabilities.
Approximately 1 billion and a half related to the charter exchangeable is due by October based on current prices.
Therefore from about the first of November to the end of January we repurchased we received $2 nine 1 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 $540 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 it being.
Slightly more than a 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 charter to be lower this year in 2020.
The middle of last year, we are under the 26% fully loaded ownership cap early in the year.
Driven by charters annual compensation get 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.
Previously heard from them and I will discuss more of 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 share taker like ourselves fewer chances 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 feel them in the short term nonetheless.
Nonetheless chartered posted strong operating results in the fourth quarter 92000 residential broadband units were at it and we had some sequential improvement over the prior two quarters spectrum, one our new pricing.
<unk> 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 and I would know cable share of mobile net adds in the third quarter and the fourth quarter, rather 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 the 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 is attractive returns with penetrations.
Way above our expectations, so far and initial bills and we are targeting mid to high teens IRR is.
By 2026, we do expect Capex as a percent of revenue excluding line extensions to be below 22 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's articulate 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 now 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 the 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.
Hotel motor recovery accelerated throughout the year in the U S. In 2022 hotel meta reach parity with 2019 with strength in both the collection pricing and volumes and we are driving more revenue from paid traffic.
From free revenue, which which is obviously hitting our margins to a degree I'm going to talk more about that.
<unk> was up 115% in the fourth quarter over the prior year 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.
With that I'll turn it over to Brian to discuss our financials.
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.
Of our charter investment based on our shares held as of February <unk> 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, 327% or 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 and 23, while additional IRS guidance guidance from the IRS and the treasury is pending.
So we believe clarification as possible this year.
I'd 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 our cadence and pricing charter share repurchases and clarification around certain aspects of the inflation reduction.
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 Liberty broadband during the year.
<unk> also paid an additional $40 million of dividends to Liberty broadband 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.
It is operationally GCI added 5300, consumer cable modem subscribers and 5900 consumer wireless customers in 2022.
Network quality continues to improve with growth in the <unk> wireless wireless network increased satellite capacity and the completion of the fiber build.
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.
Capacity on its revolver.
In 2020 to GCI has about 156 million on net capital expenditures. This is net of 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 <unk> evolution fiber projects we're.
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 will 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 pull for questions.
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 buyback can you.
Cash at the moment, but.
Does settling the Delaware litigation give you any additional flexibility around whether it's weather.
Whether that top 26, and a half between 6% cap is.
<unk> remains in place over time, and what would you be open to raising it if off charter Board works two and secondly, you mentioned the exchangeable sitter portable in October can you talk about the factors, we should consider and are considering in terms of how to refi 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 on 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.
Ideas about that we would be open to raising the cap.
We do think that many shareholders other than Liberty would view it as positive because given the increased investments in by charter in 2023 main productive high returning assets. Nonetheless, they are investing more in the business and lessened buybacks. The buyback will go down quite a bit on a relative basis, and we would be able to.
Ameliorate 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.
We are optimistic it might get done in 2023.
Nothing we'd like to do.
Okay.
With respect to the charter exchangeable.
You're 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.
It was probably a slight preference between margin loan and a new charter exchangeable, we'd probably prefer.
Charter exchangeable to maintain optimal liquidity.
Thank you.
Thank you.
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 my question was already asked this but look I think the streets looking for 2% EBITDA growth. This year for charter in charter has had high single digit EBITDA growth was levered equity returns that was hard to beat so I'm 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 stock. So the look through buyback for you, which is relatively risk list versus you know mid to high returns returns on invested in Capex is it.
An interesting dynamic from a liberty broadband perspective versus you know a long term charter shareholder. So I guess you know my question for you is ultimately you know we're as excited about charter as an investment as you were a few years ago and what's the algorithm for Liberty broadband in terms of returns from charter looking forward.
Yeah.
Thank you Doug.
A couple of points I think first.
Look when we were doing all of those 2 million upgrades on existing.
Additions on the existing network with relatively low capital Yeah, that's a damn attractive business, Okay will stipulate below grade.
The.
For mental capital that we have to spend is still a very attractive business and something we endorsed at Liberty at the board level and we're 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.
Set with the.
Set up a 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 out comparing that to the buyback over the long term is interesting, but the buyback opportunity probably isn't going to go away.
Yes.
We are making these investments.
But we think they are 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 with you some indication of that but we do have these issues.
Around attacking our own exchangeable, which effectively deciding how much we're going to take on a current basis over 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.
Great. Thank you.
Thank you 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 growth is slower capital intensity is up is there is there are I'm sure. There's some scenario, but is there a scenario you see.
What leverage level for charter lower today than where they were running at.
Do you think 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 Gigi soon becoming the FCC chair person, which is something that seemingly it may happen in short order honestly 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.
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 increased cost, but if you look at the stack of debt. The 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.
<unk> program and I'm not worried about the leverage.
Yeah.
And you know you're right to note.
The increased invite 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.
Yes.
And on the second point about.
Regulatory I mean that has been a.
Existing risk road ever present risk in the cable business since the early nineties right, but maybe earlier John John Kerry you can tell me earlier, but I would say certainly.
At the time I spent around it because it really nice cable.
Regulatory is always been a risk.
Went through a relatively activist.
Regulatory environment during the Obama administration with title II 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.
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 and in building out now so.
While it's certainly a risk.
Don't look at it as an increased increased risk that we've ever seen over at various times.
Yeah, well certainly the Capex investments in rural should help in fixed wireless still might be an actual silver lining and at least in this context.
Those are both good comments, but yeah. Thank.
Thank you.
Thank you.
Thank you next question is coming from Barton Crockett from Rosenblatt Securities. Your line is now live.
Okay, Yeah, I'd like to ask two questions if I could one is.
Just on D C. I mean, we.
We are looking at them they seem to have some volatility in wireless top up for the year I think it was down.
Now in this quarter.
Explain what's going on with the wireless subscriber numbers there.
Well, we could take a shot but I'll first offer it up to our Alaskan counterparts.
Ron 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 is 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 the platform. We're working on improving the platform right now to make it more competitive.
Will stabilize that but the core measure of our wireless success is really on the postpaid side.
That has been uniformly up for the last almost.
Three years.
We believe continue will continue to grow we've got far and away the.
The best 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 helping to postpaid sales.
I mean do you guys can you break down the postpaid and prepaid mix.
I don't know that we've published those numbers do we see.
No.
No.
Okay Alright.
Then switching to a different topic.
Just.
Noticing with some interest.
Useful around the big Alright, Sam complex at Diamond, which is a big source of programming cost for the cable industry.
And you know that they've acknowledged I think missed an interest payment there speculation that they're moving towards some type of bankruptcy.
And this presents I think an opportunity for this to be rethought reconsider.
And I wish you guys and you have a very interesting positioning on both sides as a distributor of these networks through charter.
As a owner of a sports team threw the brakes on a different equity call, but maybe you can come in here a little bit.
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 a cable companies.
Is there some risk to the revenues for sports it seems like the price.
Well Barton good question, it's a multi headed Hydra there I think.
Yeah.
The diamond situation is quite complicated.
And I think.
You may recall, we've been very closely aligned with MLP and looking at it in ways to try 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 you'll see less carriage.
And reductions that's just inevitable charterer I don't think its public with charter can continually renews bad news on attractive terms for charter, it's best to Ken, but I suspect those costs will continue to go down on a relative basis.
On the cases to the Brent on the looking at the Braves side.
They have more than a dozen more than a dozen RSA ends my understanding from everything we know.
For a lot of logical reasons, including the fact that we have the largest broadband territory, a very engaged fan base and a relatively.
Modest.
Compare to the Dodgers are relatively modest.
S N fee or fee.
Payments from Diamond the Braves are in very attractive and we believe their most profitable RSA.
So even in the event has been speculated that.
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 slimmed down version of.
Something that is owned by.
A diamond or Diamond successor that had it takes their profitable Rs and maybe renegotiate some things but.
It probably doesn't take all of that would be my speculation.
I mean do you you mentioned the MLP you bring aligned 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 will 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 H T. T has been for both GCI and charter if theres some quantification of that and your expectation for how this program will evolve to get potentially sustain the program and funding.
Given the characteristics of it is around a defined amount at the moment. Thanks.
Yes.
Right.
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 that we'll be back to buying using 100% of free cash flow.
Free cash flow here to find 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.
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've seen I think we saw such growth during COVID-19 of.
The broadband units our broadband.
Adds net adds so I think it's been an attractive program, we will see what the funding is there keeping track of all the funding in D. C. There are a lot of them going on we'll see whether how much. This one gets done Ron 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.
GCI norm pre COVID-19 of one point to one 5%.
And we've got a material number of subs less than 10000, but the 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.
The lowest end of our subscriber base that would ordinarily turn on and off.
Making them good stable customers that said, we're projecting the benefits of that program to go away sometime early in 'twenty four.
Our bad debt to return to more normal levels, because we think in the current political environment with Republicans take control of the house, it's unlikely that the funding necessary to continuation Pete would be provided and the actual termination date of the program. When it runs out of money is unknown, but it's likely in the first half of <unk>.
Four it depends on the ongoing expenditure rate.
Thanks, that's really helpful.
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.