Earnings Call Transcript - LBRDA Q2 2023

Operator, Operator

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. 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, Vice President, Investor Relations

Thank you and good morning. Before we begin, we would 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, including preliminary notes in Schedules 1 and 2, 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. On the call today, we have Liberty Broadband’s Chief Accounting Officer and Principal Financial Officer, Brian Wendling; Ron Duncan, CEO of GCI; and Pete Pounds, CFO of GCI, who will also be available to answer questions. During the Q&A, we will also address questions related to Liberty TripAdvisor. Starting with Liberty Broadband, we remain below the 26% fully diluted ownership cap due to lighter buybacks and the annual issuance of equity awards at Charter. We have not engaged in any buyback sales since January. We plan to resume buybacks for LBRDA and K using most of our after-tax proceeds from Charter sales once their buyback resumes. Charter has reported strong operating results with 77,000 broadband net additions and 648,000 wireless net additions, benefiting from the Spectrum One conversion strategy. Charter now represents about 30% of all postpaid industry wireless net additions, while the cable sector accounts for approximately 47%. The rural expansion at Charter is progressing well, with 26,000 subsidized world subscribers added, which constitutes one-third of our total broadband net additions from subsidized world builds. We anticipate that the investments we've made and the easing of cost pressures in the latter half of 2023 will help accelerate growth. This year is an investment year, and we experienced modest financial growth in the quarter, as expected, due to that. There continues to be pressure in the Video Income System, affecting our top line but not significantly impacting EBITDA. Charter's management is executing effectively across all areas of its strategy, and we are satisfied with their progress. The employee retention initiatives they have implemented have proven to be successful, resulting in improved sales yields, retention, and customer service. We are on track to construct 300,000 rural passings in 2023, and our network evolution and physical upgrade plans are also on schedule, with 45% of our customers now receiving our advanced WiFi product. Moving on to TripAdvisor, we believe the long-term trends favoring travel experiences will benefit the business moving forward. Recent growth has been driven by the strength of experiences, with Viator revenue increasing by 59% year-over-year. We are concentrating on enhancing the brand awareness of Viator and creating a cost-efficient customer acquisition channel, which we believe can be achieved and will help increase profitability over time. We are also evaluating ways to better showcase the value of Viator. We are addressing challenges in metasearch while carefully managing costs. TripAdvisor has recently announced cost reductions, particularly aimed at the TripAdvisor core and corporate functions. We are investing in strategic initiatives to deepen engagement with travelers and diversify our monetization strategies. We are utilizing AI to enhance our trip planning tools built on proprietary data, and we are enriching our content offerings with both user-generated and editorial content, also leveraging AI. Additionally, we have other initiatives in progress to boost engagement and membership sign-ins. Now, I will turn it over to Brian for more 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 a 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 buybacks 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 would expect lower tax leakage on our future Charter sales this year compared to the previously estimated range of 7% to 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 modem 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 and we anticipate additional dividends will be paid this year. Year-to-date, Broadband has received $65 million in dividends from GCI. Leverage as defined in its credit agreement was 2.95 times as of quarter end and GCI has $397 million of undrawn capacity under its revolver. And then 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. And 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. And with that, I will turn the call back over to Greg.

Greg Maffei, President and CEO

Thank you, Brian. And 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. And with that, Operator, we would like to open the line for questions.

Operator, Operator

Thank you. Our first question comes from Michael Rollins with Citi. Please state your question.

Michael Rollins, Analyst

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 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 going to try and take advantage of it, and we believe with the cash flows that we are going to be generated from Charter to us, we will be able to repurchase shares at an attractive rate. Over the long-term, we will see how that narrows and when it becomes most logical, as it probably will at some point to combine Liberty Broadband with Charter, but we have no current plan or intent.

Michael Rollins, Analyst

Thanks.

Greg Maffei, President and CEO

Operator, I believe we have no more questions. So, with that, again, thanks to our listening audience. Appreciate your interest in Liberty Broadband and Liberty TripAdvisor. We hope to see you next quarter if not sooner. Thank you.

Operator, Operator

Thank you. All parties may disconnect.