Liberty Broadband - Q2 2023

Transcript

Operator (participant)

Welcome to the Liberty Broadband 2023 Q2 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 August 4th. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.

Shane Kleinstein (VP 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 and Liberty TripAdvisor with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Broadband and Liberty TripAdvisor expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband or Liberty TripAdvisor'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 certain non-GAAP financial measures for Liberty Broadband, including adjusted EBITDA. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note in 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. Now I'd like to introduce Greg Maffei, Liberty's President and CEO.

Greg Maffei (President and CEO)

Thank you, Shane. Good morning. Today, speaking on the call, we will have Liberty Broadband's 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. During the Q&A, we will be available to answer questions related to Liberty TripAdvisor. Starting with Liberty Broadband, we remain under the 26% fully diluted ownership cap due to lighter buybacks and their annual issuance of equity awards at Charter. We have not sold into the buyback since January. We do plan to resume LBRDA and K buybacks, using substantially all of our after-tax proceeds from Charter sales once they resume their buyback. Charter, looking at it, strong operating results, 77,000 broadband net adds and 648,000 wireless net adds benefiting from the conversion strategy of Spectrum One.

Charter is now about 30% of all the postpaid industry, wireless net adds. Cable in total is about 47%. The rural expansion is going well at Charter, pacing with 26,000 subsidized rural subscribers added. That was one-third of our total broadband net adds coming from these subsidized rural builds. We do expect progress on the investments we've made and easing cost pressures in the back half of 2023 to really re-accelerate growth. 2023 is an investment year. We did see modest financial growth in the quarter as expected due to that. There remains pressure in the video ecosystem, which is impacting our top line, not impacting EBITDA as much. Charter management is executing well on all pillars of its strategy. We are pleased with their progress.

The employee retention initiatives they've undertaken have proved successful with better sales yields, retention, and customer service. We're on track for 300,000 rural passings constructed in 2023, and the network evolution and physical upgrade plans are on track as well. 45% of our customers are now receiving our advanced Wi-Fi product. Turning to TripAdvisor. We believe the long-term trends in travel experiences will benefit the business and will continue. Recent growth has continued to be led by strength of experiences. Viator revenue is up 59% year-over-year. We are focused on growing the brand awareness for Viator and building a cost-efficient customer acquisition channel, which we believe is entirely doable and will continue to increase profitability over time. We continue to evaluate ways to better highlight the value of Viator.

We are working through the challenges in metasearch while carefully managing costs. TripAdvisor announced cost reductions recently, most recently targeted at the TripAdvisor core and corporate functions. We are investing in strategic initiatives to build deeper engagement with travelers and diversify our monetization schemes. We are leveraging AI. We have upgraded our Trip planning tools built on Trips, proprietary data using AI, and we are augmenting our content offering with both user-generated plus editorial content, leveraging that AI as well. We have other initiatives underway to drive increased engagement and membership sign-ins. With that, I'll turn it over to Brian for the details.

Brian Wendling (Chief Accounting Officer and Principal Financial Officer)

Thank you, Greg. Let's take a quick look at Broadband's balance sheet. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $81 million, which includes $60 million of cash at GCI. As of the end of the day yesterday, the value of our Charter investment was $19.9 billion, and at quarter end, Liberty Broadband had total principal amount of debt of $3.8 billion. Note that this excludes the preferred stock and remaining indemnification obligation to Qurate. As Greg mentioned, we have not sold into Charter's buyback since January. We do expect to resume share sales to Charter at some point this year to maintain our fully diluted ownership of 26% for our stockholders' agreement.

However, due to less buyback activity, we, we would expect lower tax leakage on our future Charter sales this year compared to the previously estimated range of 7%-9%. Taking a quick look at GCI. GCI had a solid second quarter. Revenue and adjusted OIBDA were up $7 million and $2 million, respectively. Revenue growth was driven by continued strength in data sales, particularly to RHC and school customers. This was partially offset by continued declines in our video business, which impacts revenue, but does not have a meaningful impact on margin or free cash flow. Adjusted OIBDA grew less than revenue due to inflationary pressures, primarily in labor and personnel-related expenses. Over the last year, GCI has added 5,700 revenue-generating wireless subscribers and 4,000 revenue-generating cable modems, customers.

Solid performance has allowed GCI to continue making distributions up to Liberty Broadband. Subsequent to quarter-end, GCI paid a $25 million dividend to Liberty Broadband using cash on hand. We anticipate additional dividends will be paid this year. A year to date, Liberty Broadband has received $65 million in dividends from GCI. Leverage, as defined in its credit agreement, was 2.95x as of quarter end. GCI has $397 million of undrawn capacity under its revolver. Just a quick update on two litigation settlement matters. During the second quarter, GCI paid the previously accrued $41 million settlement to the FCC and DOJ, resolving that long-standing inquiry regarding the RHC program. Additionally, during the second quarter, Liberty Broadband paid the previously accrued $38 million settlement related to a 2015 lawsuit.

More information on both these matters is available in our 10-Q, which will be filed shortly. With that, I'll turn the call back over to Greg.

Greg Maffei (President and CEO)

Thank you, Brian. To our listening audience, we appreciate your continued interest in Liberty Broadband and Liberty TripAdvisor. Our annual Investor Day will be Thursday, November 9th, in New York City. Please save the date. Additional details will be provided soon. We hope to see many of you there. With that, operator, we'd like to open the line for questions.

Operator (participant)

Thank you. At this time, we'll conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. 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. Our first question comes from Michael Rollins with Citi. Please state your question.

Michael Rollins (Managing Director)

Thanks, and good morning. Just curious on the Liberty Broadband side, any new perspectives on the opportunity for Liberty Broadband to close, some of the NAV discount relative to the value of the Charter stake and GCI... the other assets, GCI and the other assets that you own?

Greg Maffei (President and CEO)

Yeah, thank you for the question. Look, we are always interested in trying to maintain the smallest discount possible, but when presented with the discount, we are gonna try and take advantage of it, and we believe with the cash flows that we are gonna be generating from Charter to us, we will be able to repurchase shares at an attractive rate. Over the long term, we'll see how that narrows and when becomes most logical, as it probably will at some point, to combine Liberty Broadband and Charter, but we hav

e no current plan or intent.

Michael Rollins (Managing Director)

Thanks.

Greg Maffei (President and CEO)

Operator, I believe we have no more questions. With that, again, thanks to our listening audience. Appreciate your interest in Liberty Broadband and Liberty TripAdvisor. We hope to see you again.