Liberty Broadband - Earnings Call - Q1 2025

Executive Summary

• Liberty Broadband’s Q1 2025 revenue was $266.0M, up 9% year over year and slightly above Q4 2024 ($263.0M), with consolidated operating income of $43.0M and Adjusted OIBDA of $99.0M; diluted EPS was $1.87.
• The quarter featured significant corporate actions: sale of 830K Charter shares for $300M, issuance of a redemption notice for $860M of 3.125% exchangeable debentures due 2054 (cash settle expected by May), and increased restricted cash dedicated to deleveraging.
• GCI delivered its best quarter ever: revenue $266M (+9%), operating income $56M (+51%), Adjusted OIBDA $111M (+23%), with margin expansion driven by business data and temporary distribution cost savings amid a third-party fiber outage; net 2025 capex guide maintained at ~$250M.
• Wall Street consensus revenue for Q1 2025 was ~$248.6M vs. actual $266.0M, a beat; EPS consensus was not available*.
• Near-term catalysts: progress on the GCI spin-off (amended S-1 filed, investor event scheduled), execution on fiber resilience and rural network expansion, and clarity on USF regulatory developments.

What Went Well and What Went Wrong

What Went Well

• Record quarter: “The first quarter of 2025 was GCI's best quarter ever with revenue of $266 million and adjusted OIBDA of $111 million, up 9% and 23%... Adjusted OIBDA margin was 42%.”
• Business momentum: GCI Business revenue grew 13% YoY to $145M, led by data (+19%) on continued upgrade cycles in schools and healthcare in remote Alaska since Q3 2024.
• Balance sheet actions/liquidity: $300M proceeds from Charter share sales, redemption of $860M debentures, and GCI refinancing (new $450M revolver to 2030 and $300M TLA to 2031) with undrawn capacity of $292M; consolidated cash and restricted cash rose to $565M.

What Went Wrong

• Consumer pressure: Cable modem subscribers fell to 155.8K (-2.5% YoY) and wireless subs declined on prepaid/Lifeline; ACP expiration drove broadband churn.
• Service disruption: A second Quintillion undersea fiber failure (Jan 18) degraded consumer service; partial restoration via LEO satellite and rerouting, full repair expected late summer.
• Competitive encroachment: Starlink gained share in rural areas during fiber outages; management views urban risk as limited but expects satellite participation in future grant programs.

Transcript

Operator (participant)

Welcome to Liberty Broadband 2025 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. As a reminder, this conference will be recorded May 7th. I would now like to turn the call over to Shane Kleinstein, SVP Investor Relations. Please go ahead.

Shane Kleinstein (SVP of Investor Relations)

Thank you and good morning. 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 the most recent forms 10-K and 10-Q, filed by Liberty Broadband with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Broadband expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband's 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 our non-GAAP financial measures for Liberty Broadband, including adjusted EBITDA.

Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including schedules one and two, can be found in the earnings press release issued today, as well as earnings releases for prior periods, which are available on Liberty Broadband's website. Today, speaking on the call, we have Liberty Broadband's Chief Accounting Officer and Principal Financial Officer, Brian Wendling, Liberty's Executive Vice President and Treasurer, Ben Oren, Ron Duncan, CEO of GCI and CEO of GCI Liberty, following its spinoff from Liberty Broadband. Pete Pounds, CFO of GCI and members of Liberty Management, will be available to answer questions. Now I'd like to turn the call over to Brian Wendling.

Brian Wendling (Chief Accounting Officer)

Thank you, Shane, and good morning, everyone. Today, we will provide a brief update on the pending acquisition by Charter of Liberty Broadband before turning to the results of the GCI business and then opening up for Q&A. The acquisition of Liberty Broadband by Charter was approved by Liberty and Charter shareholders on February 26th. The transaction is expected to close on June 30, 2027, unless otherwise agreed. Liberty Broadband remains on track to complete the spinoff of the GCI business this summer. Yesterday, we filed the amended S-1, so we're working through the SEC process. Once the GCI spinoff is complete, we expect GCI Liberty Management, led by Ron Duncan with the support of our team, will conduct a separate earnings process, and we will no longer conduct a Liberty Broadband earnings conference call.

GCI Liberty plans to host a virtual investor event prior to the spinoff to provide additional information on the GCI business. If you are interested in joining, please reach out to the Liberty IR team. I am honored to turn the call over to Ben Oren to go through the balance sheet.

Ben Oren (EVP and Treasurer)

Thanks, Brian. At quarter-end, Liberty Broadband had consolidated cash and restricted cash of $565 million, which includes $149 million of cash and restricted cash at GCI. There were $338 million of restricted cash at Liberty Broadband as of quarter-end, representing proceeds from Charter share sales to be used towards debt service. Reminder that the exchange ratio is fixed in the Charter and Liberty Broadband transaction, essentially creating a lockbox structure between the two companies until transaction close. Tax-free proceeds from Charter share sales are going toward delevering at Liberty Broadband until transaction close as well. In March, at the request of Charter, Liberty Broadband issued a redemption notice for all of its 3.125% to ventures due 2054 for cash, which were either redeemed in April 2025 or exchanged and are expected to be cash settled in May 2025.

In March, GCI refinanced its senior credit facility with a $450 million revolver that matures in 2030 and a $300 million term loan A that matures in 2031. At quarter-end, GCI's leverage, as defined by its credit agreement, was 2.8 times, and GCI's credit facility had $292 million of undrawn capacity net of letters of credit. The value of our Charter investment, based on 44.2 million shares held as of May 1st and Charter's share price at yesterday's close, was $17.8 billion. At quarter-end, Liberty Broadband had a total principal amount of debt of $3.7 billion. Note this excludes preferred stock. I'll now turn the call over to Ron Duncan to walk through the operating results of GCI.

Ron Duncan (CEO)

Thanks, Ben. The first quarter of 2025 was GCI's best quarter ever, with revenue of $266 million and adjusted EBITDA of $111 million, up 9% and 23%, respectively, over the prior year. Adjusted EBITDA margin was 42%. Growth was driven primarily by data revenue and business, which benefited from the continued strong upgrade cycle in school and healthcare services in rural Alaska, which began in the third quarter of 2024. The first quarter included a $4 million benefit arising from the successful appeal of rates for services provided to certain healthcare customers in prior years. Over the last year, adjusted for the reclassification from GCI business, GCI consumer experienced a decline of 400 wireless subs and a decline of 5,000 cable modem customers. The decline in wireless was a result of postpaid growth being offset by losses in prepaid and lifeline.

The decline in cable modem subscribers relates primarily to the termination of the ACP program in 2024. Operating expenses declined during the quarter due to lower distribution costs for healthcare, education, and consumer customers, partially related to temporary cost savings from a fiber break on a third-party network where GCI uses capacity. On January 18th, the Quintillion fiber under the ice in the Beaufort Sea failed for the second time in three years. This disrupted traffic for GCI's consumer and enterprise customers. Working in cooperation with Quintillion, our networks have been partially restored through a combination of LEO satellite capacity and a rerouting of existing fiber and microwave connections. Most of our wholesale and enterprise services were restored quickly after the outage.

Consumer services have been partially restored, but consumers will unfortunately experience substantially degraded service until the Quintillion fiber break is repaired, which is expected to be late this summer. As Ben mentioned, GCI refinanced its credit facility this quarter, extending maturities at attractive rates. This provides us with good liquidity, and our next meaningful maturity is in October 2028 when the bonds come due. GCI spent $49 million on CapEx in the first quarter net of grant proceeds. Net CapEx for 2025 is expected to be $250 million related to investments in middle and last-mile connectivity in rural Alaska. Capital spending is elevated in 2025 and expected to remain elevated in 2026 as we fulfill build-out requirements under the Alaska Plan. Historically, CapEx has been 15%-20% of revenue, which we expect will be consistent in future years after Alaska Plan requirements are satisfied.

Turning to updates on Universal Service Fund matters, on March 26th, the Supreme Court heard oral arguments in the case challenging the constitutionality of the Universal Service Fund. We continue to believe the government, which is defending the fund, has a solid position. Additionally, we've been working with industry groups and legislators on potential legislative solutions that could be enacted in the event of an adverse ruling from the Supreme Court. We are preparing contingency plans to enable GCI to react to a range of potential Supreme Court rulings. I'll close today with an exciting update for our business and the customers we serve. On Tuesday, April 15th, GCI completed a major milestone in remote Alaska. We connected Bethel, the largest community in western Alaska, with fiber all the way from Anchorage. Fifteen years ago, Bethel was limited to 2G wireless and satellite-delivered data services.

More recently, the Bethel community had caps on wireless usage, and the fastest broadband speed was 10 megabits with a usage cap of 200 gigs a month. We expect to launch residential services this May, at which point Bethel residents will have access to a 5G wireless network and 2.5 gigabits unlimited broadband service under the same pricing plans as Anchorage. We believe this will be transformational for the community and is a major accomplishment in our 45-year effort to connect Alaska. I'm proud of the diligence, resilience, and hard work put in by so many at GCI to make this a reality. I look forward to speaking with many of you in the coming quarters once the spinoff of GCI Liberty takes place, if not sooner. We appreciate your interest in both Liberty Broadband and GCI, and with that, operator, we'll open the call up to questions.

Operator (participant)

Thank you. We'll now be conducting a Q&A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation code indicates your line has been requested to you. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Cushing Morrell with Evercore ISI.

Kutgun Maral (Analyst)

Great. Thanks for taking the questions. A few on GCI. First, a number of cable companies have or are in the process of somewhat reimagining their strategies, whether it's broadening the product portfolios or needing to shift some of their go-to-market and pricing strategies given growing competitive intensity. I know GCI is not a typical cable company and that the competitive dynamics in Alaska are a bit different than what we see in other markets. As investors dig into the GCI Liberty opportunity, maybe you could help us think about the business and whether you might see a need to shift the broader operating and pricing strategy, or is there really no need in the near future given the current momentum that you have and the outlook that you see ahead?

I think you asked this last quarter as well, but are you seeing any changes in consumer or business customer behaviors due to the ongoing macro uncertainty more broadly, or have trends remained relatively stable given the different profile of the Alaskan market and economy? Thank you.

Ron Duncan (CEO)

Okay. Let me take those in reverse order and deal with any changes in behavior. First, we're pretty much seeing a flat marketplace. We're seeing a little bit of competition from Starlink around the edges. I think that's probably our equivalent of the fixed wireless competition that the companies in the lower 48 are experiencing, but no real changes on the broadband front and slow but steady growth on the consumer wireless front. With respect to the broader strategy, it's important to remember how much of GCI is really enterprise services. Consumer services are the minority of the company's revenue, and the bulk of the company's revenue and EBITDA come from enterprise services provided to healthcare corporations and schools in rural Alaska and the largest enterprise customers in the state.

On the consumer market front, we are in tune with the rest of the industry, looking at ways to both differentiate and further solidify the customer proposition that's received by GCI. We've been very heavily focused, like lower 48 companies, on bundling wireless with broadband. We're a little different than the lower 48 in that we own our own wireless network. We're not an MVNO; we're an MNO. We are right now reevaluating our pricing and product mix to see what we could do to increase the stickiness for customers. We haven't experienced the level of competition that companies in the lower 48 have, and we're probably not as advanced as they are in terms of fully integrated packages of services that go beyond just the wireless and the broadband, but we're moving in that direction.

Kutgun Maral (Analyst)

That's very helpful. Thank you.

Shane Kleinstein (SVP of Investor Relations)

Thank you, Kutgun. With that, that is our one question for today. We thank you for your continued interest in Liberty Broadband and GCI Liberty, and we look forward to speaking with you more on GCI Liberty in the near future.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.