Earnings Call Transcript - LBRDA Q3 2024

Operator, Operator

Welcome to the Liberty Broadband 2024 Q3 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference will be recorded today, November 7, 2024. I would now like to turn the call over to Shane Kleinstein, SVP, Investor Relations. Please go ahead.

Shane Kleinstein, SVP, 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 OIBDA. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, can be found in the earnings press release issued today as well as earnings releases for prior periods, which are available on Liberty's website. Now I'd like to turn the call over to Greg Maffei, Liberty's President and CEO.

Greg Maffei, President and CEO

Good morning, and thank you, Shane. Today speaking on the call, we will have Liberty Broadband's Chief Accounting 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 be available to answer questions related to Liberty TripAdvisor. So beginning with Liberty Broadband, you may recall, we filed a 13D with the SEC on the 23rd of September. It noted that Liberty Broadband and Charter were discussing a proposed all-stock transaction. The combination would rationalize the dual corporate structure, provide enhanced trading liquidity, and provide clarity to both sets of shareholders with regard to the certainty of a future transaction and continue our strong partnership with Charter in the interim. Additional updates on any potential transaction will only be provided if and when the definitive terms are agreed upon. I would note that the LBRD NAV discount has tightened considerably and since that filing is now in the mid-teens. Given ongoing discussions between Charter and Liberty Broadband, Charter did pause its buyback, which resulted in a limited amount of proceeds to Liberty Broadband from Charter sales during the period. Looking now at Charter, Charter experienced strong subscriber results and accelerating financial growth in the third quarter. They experienced a 110,000 broadband net loss, which would have been growth absent the impact of ACP. I think Charter is managing its ACP disruption well and anticipate October will be the last month of meaningful impact. Charter also experienced revenue growth of 1.6% and adjusted EBITDA growth of 3.6% during the quarter. They benefit from prior cost actions and the strong political ad cycle. I would note that residential ARPU was up 1.8%, which is an acceleration versus the recent trend. Mobile continued to perform very well with 545,000 mobile net adds, which puts their base over 9 million lines. ARPU was growing in mobile due to the uptake of the Unlimited Plus tier, plus it was driven by the Anytime Upgrade program. Free cash flow was $1.6 billion, which was up 48% over the prior year, and net leverage was 4.22x, slightly below the revised target. All of these were driven by high free cash flow generation and limited share repurchase activity. Turning briefly to LTRIP, discussions are progressing with Trip and their special committee. We remain focused on the rationalization of our capital structure. As Trip mentioned on their call, they did not repurchase shares this quarter given the ongoing discussions with LTRIP. We will provide an update on this transaction only when such discussions reach a definitive conclusion, and we are limited in what we can comment on at this time. Given discussions, TripAdvisor has also elected not to present at Liberty's Investor Day. I will, on that day, make some remarks on the business since the Trip team will not be in attendance. But looking at TripAdvisor itself now, the brand TripAdvisor saw positive growth from some of its prior strategy work. MAUs returned to year-over-year growth year-to-date. The direct channel monthly active users were up 30% versus the prior year. This reflects Trip's ongoing efforts to increase engagement with an updated app experience and engaging product features, such as unique travel content, AI-powered review summaries, and hotel booking directly in the app. Looking at this next segment, Viator continues to balance growth in investment versus profit contribution. Adjusted EBITDA was $30 million in the quarter, an 11% margin, which was solid growth outside of search, and they continue to see stronger repeat bookings. Turning briefly to TheFork, it had the best financial performance they had on record with revenue up 17%, adjusted EBITDA of $5 million, which achieved a 10% margin, the highest they've ever achieved. They've had success adding B2B partnerships with Mastercard as well as a prior announcement with Vodafone. Trip has a robust liquidity picture. As of the end of the third quarter, they had approximately $1.1 billion of cash and just under $500 million of unborrowed revolver capacity. And with that, I'll turn it over to Brian briefly to discuss the financials.

Brian Wendling, Chief Accounting and Principal Financial Officer

Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $168 million, which includes $47 million of cash at GCI. The value of our Charter investment based on our shares held as of November 1 and Charter share price at yesterday's close was $18.6 billion. At quarter end, Liberty Broadband had a total principal amount of debt of $3.7 billion, noting that this excludes preferred stock. Looking quickly at GCI's results for the third quarter, revenue was up nicely at a $22 million increase over the prior year, driven by continued strength in data revenue. Business data revenue benefited from a strong upgrade cycle in school and healthcare corporations in rural Alaska. Adjusted OIBDA increased to $11 million, in line with the increased revenue, partially offset by some higher operating costs and SG&A expenses. Over the last year, adjusted for the reclassification from GCI business, GCI consumers saw a decline of 1,800 revenue-generating wireless subscribers. Cable modem subscribers declined by 3,800, with 3,400 of these losses driven by the expiration of the ACP program. At quarter end, GCI's leverage was 3.1x with sufficient cushion relative to the 6.5x maximum leverage covenant threshold stipulated in the credit facility. They had $367 million of undrawn capacity under their revolver, net of letters of credit. And with that, I will turn the call back over to Greg.

Greg Maffei, President and CEO

Thanks, Brian. To our listening audience, we look forward to seeing you on Thursday, November 14, for our Annual Investor Meeting. You can tune in virtually or join us in person at our new location, Jazz at Lincoln Center. If you plan to attend in person, please make sure to register by Monday, November 11, as there will not be on-site registration. The link to register can be found on our website. John Malone and I will be hosting our annual Q&A session. If you'd like to submit questions in advance, you can email [email protected]. We appreciate your continued interest in Liberty Broadband and Liberty TripAdvisor. And operator, with that, I'd like to open the line for questions.

Operator, Operator

Our first questions come from the line of Ben Swinburne with Morgan Stanley.

Ben Swinburne, Analyst

Greg, regarding the Charter approach or proposals, my question is about the timing. We're seeing some rationalization in the Liberty universe, but could you take a moment to explain the reasoning behind moving forward with discussions on this? Additionally, what needs to occur from a process standpoint for Charter to re-enter the market for buying back stock, as this would affect Liberty and its capacity to fund its own buybacks? Lastly, I'm not sure if Ron can address this, but should we consider anything from a regulatory perspective concerning the change of control in Alaska that differs from typical cable or telecom acquisitions?

Greg Maffei, President and CEO

Thanks, Ben. I'll start. Why now? We have proposed a structure that would be beneficial for both Charter and Liberty Broadband, allowing us to tighten the discount and eliminate the dual corporate structure over time while still providing support and partnership until the closing. It seems like this was a good time for both parties to create a solution that addresses our mutual interests. Regarding the buyback, I believe they would be able to begin their buybacks again either upon announcing a signed deal or if they cannot reach a deal. Ron, would you like to add anything about the regulatory situation in Alaska? I know you have a unique regulator that needs to approve this.

Ron Duncan, CEO, GCI

We do, and it actually makes it fairly simple up here. Our franchises and our certificates come from a single state agency. They're not municipally based. Alaska regulatory approval, if there was a change of control, would be small in comparison to the normal stuff we'd have to go through at the federal level or the FCC, so not a significant issue on the state side.

Ben Swinburne, Analyst

Anything, Ron, on the transfer? I actually don't know if you guys have FCC licenses, I apologize. But from a wireless point of view, anything we should be thinking about there?

Ron Duncan, CEO, GCI

We have wireless. We have microwave. We have cable landing licenses. We are flush with FCC stuff. So there would be a normal FCC process in several different segments of the FCC.

Operator, Operator

Our next questions come from the line of Kutgun Maral with Evercore ISI.

Kutgun Maral, Analyst

Two quick ones on the charter negotiations. And then, since I assume you can't share much more, a separate follow-up, if I could. So on the negotiations, I wanted to see if you could help us think about where GCI fits into those discussions. Is there a realistic scenario where GCI is not included in a potential transaction? Or is that unlikely given what might be a desire to potentially avoid complications around, I don't know, maybe taxes or having a separate drawn-out process with another third party? And relatedly, there's been some confusion around the mid-2027 close timeline that both companies referenced. Is there any more context you could provide on that timeline? And assuming GCI is included in the deal, is there any reason why that date can't be moved up? And then I have a follow-up.

Greg Maffei, President and CEO

I can't comment on the proposals since they have differing views of GCI, and I will hold off until there's a public resolution. Regarding the timing, it has been explained in some correspondence. The delayed timing was to account for the regulatory process, allow Liberty Broadband some time to reduce debt, and to maintain the partnership for a while, knowing that they will eventually come together, but we're in a supportive role.

Kutgun Maral, Analyst

Understood. I appreciate that. And maybe switching gears a bit to a topic where you might be able to speak a little bit more on. Greg, we've seen a number of announcements and targets over the last few months, the announcement from the telcos around their fiber and fixed wireless ambitions. I assume you'll share a lot more of your views next week, but anything you could touch on in terms of how you see the broadband market and competitive dynamics evolving in the coming years and where Charter sits within that as arguably one of the most attractive players on convergence?

Greg Maffei, President and CEO

Yes, Kutgun, you mentioned an important point regarding convergence. Charter is aggressively pursuing its mobile offerings, including Spectrum One and similar services, to integrate broadband, video, and mobile into a unified network. This converged network is a key goal for Charter, allowing them to leverage the strength of their infrastructure. Their upgrade program, which facilitates symmetric broadband speeds, is a crucial element of this strategy. It capitalizes on the advantages of their coax and fiber networks. Current market trends indicate a decline in the growth of fixed wireless access, with more consumers opting for fixed plans. Charter is confident, as are we, that their approach, especially following the high split upgrade, will serve as a strong competitive advantage and offer an appealing option for consumers.

Operator, Operator

Our last questions will come from the line of Barton Crockett with Rosenblatt Securities.

Barton Crockett, Analyst

I was curious about your thoughts on just antitrust in a Republican administration. Do you think if there was a relaxation of views on antitrust, would that open opportunities that would be meaningful for M&A around Charter, do you think? Or do you think you could already do what you want to do, so that doesn't really matter?

Greg Maffei, President and CEO

Yes, regarding Charter as a potential acquirer, there are not many significant targets available. Most could likely be pursued even within the current regulatory framework. As for larger mergers, it's still early to determine what might be permitted. However, the idea of further convergence to create national networks could provide a competitive advantage and would be intriguing. Additionally, the possibility of more combinations that reflect this converged network could also be interesting. It seems likely that a new regulatory environment might be more permissive towards this, but it’s difficult to be certain. I believe we have finished the questions. Thank you to our audience for their interest in Liberty Broadband and Liberty TripAdvisor. We look forward to seeing some of you in person and others virtually next week. Until then, take care.

Operator, Operator

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.