Liberty Broadband Corp
NASDAQ:LBRDA
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Liberty Broadband Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Broadband 2020 Year-End Earnings Call. During the presentation, all parties will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, February 26.
I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead.
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 and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Form 10-K filed 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 and adjusted OIBDA margin. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one and two, can be found in the earnings press release issued today, which is available on Liberty Broadband's website.
Now I'd like to turn the call over to Greg Maffei, Liberty' President and CEO.
Thank you, Courtnee, and good morning to all of our listeners. Today speaking on the call, we will also have Liberty Broadband's Chief Accounting Officer and Principal Financial Officer, Brian Wendling. Also during Q&A, we will be available to answer questions related to Liberty TripAdvisor. Ron Duncan, CEO of GCI; and Pete Pounds, CFO of GCI, will also be available to answer questions.
Let me start by talking about Liberty Broadband itself. On December 18, earlier than expected, we completed the acquisition of GCI Liberty. During the period of November 1 to January 31, we repurchased 1.9 million shares of Liberty Broadband for $293 million. 1.8 million of the repurchases were completed after the December shareholder vote for the GCI Liberty merger
Since then, we've spent about $272 million on repurchases at an average price of about $155 a share. While you may note, the average repurchase price in LBRDK over this period is higher than yesterday's close, they represent an attractive look-through price to Charter of $528 per share versus yesterday's closing of $602, and we remain long-term bullish.
In the first quarter, we exceeded our 26% ownership cap in Charter and expect to sell into their buyback beginning in March and do so going forward on a monthly basis. Based on Charter's historic buyback cadence, we expect our share sales to Charter to generate cash well north of $2 billion for Liberty Broadband this year with about a 5.5% tax [indiscernible].
Our plan is to use this capital, plus the ample liquidity we have on hand already at Broadband, to attack the discount at Liberty Broadband and take advantage of it. With this in mind, our Board has increased the repurchase authorization at Liberty Broadband to approximately $2.5 billion.
Looking at Charter. In 2020, Broadband affirmed its place as one of the most important consumer and business services, and Charter added more Broadband subscribers in the first half of 2020 than in any calendar year since the Time Warner merger.
With operational efficiencies through increased self-installations, self-service platforms and online digital sales, the combination of these, combined with the mix shift -- continuing mix shift to Broadband, resulted in full year 2020 cable EBITDA margins exceeding 40% for the first time in the Company's history. And we had a small number of video subscribers in '20, a lone star in the current MVP market.
Mobile is also an exciting growth business for Charter with improving economics. Charter added 1.3 million lines during 2020 and is the fastest-growing wireless provider in its footprint. In fact, in several quarters, we were the fastest-growing wireless player in the nation. Free cash flow at Charter increased 50% for the year, and Charter repurchased over $12 billion of stock. So all in all, pretty good.
Finally, let's turn to Liberty TripAdvisor. TripAdvisor is well positioned for what we believe is the pent-up travel demand that continues to grow. To keep some of our investors stuck in colder climate thinking about the right things, check out the best beaches of 2021 Trip announced this week. It's led by Whitehaven Beach in Australia and Santa Maria Beach in Cuba, perhaps you'll soon be there.
Cost controls taken at Trip in 2020 have enabled operating leverage as revenue returns. We're also excited about TripAdvisor Plus, the first of its kind direct-to-consumer subscription offering in the travel space. Currently, in beta, we expect to roll it out in the U.S. in the first half of 2021. This provides travelers with compelling value through deals on hotels and experiences as well as giving access to perks and benefits, and this is just the beginning.
Over time, we envision adding more services, more benefits and VIP amenities in-destination travel benefit, airline perks, et cetera. The addressable market for TripAdvisor Plus is enormous. We continued to have over 400 million monthly unique visits at Trip in 2019, and converting even a small percentage of that traffic implies a meaningful long-term growth opportunity and recurring revenue stream for Trip.
And with that, let me turn it over to Brian to talk about the financials.
Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $1.4 billion, which includes $32 million of cash at GCI. After year-end, GCI received $174 million in payments from the government relating to RHC funding years '18 and '19. These payments allow GCI to pay down their line of credit by $180 million subsequent to year-end.
Value of our Charter investment at Liberty Broadband as of yesterday's close was $36 million. At quarter end, Liberty Broadband had a total principal amount of debt of $4.8 billion. Including the impact of the $180 million pay down on GCI's line of credit subsequent to quarter end, Liberty Broadband had principal amount of debt of $4.6 billion.
GCI's leverage, as defined in this credit agreement, was 3.5x, a meaningful de-levering from year-end 2019 when GCI's leverage was 5.1x. GCI has a substantial cushion under its maximum leverage covenant of 6x. Liberty Broadband has $300 million of undrawn large loan capacity, and GCI has approximately $420 million of undrawn borrowing capacity on its line of credit following the sale. These amounts exclude the indemnification obligation and preferred stock.
Now just a quick update on GCI. 2020 was a great year for the Company. For the full year, revenue grew 9%, and adjusted OIBDA grew 34% to [indiscernible] million, the Company's highest-ever adjusted OIBDA driven by data demand and lower costs associated with bad -- reduced bad debt and health care expenses, combined with previous cost-saving initiatives.
We also had $15 million of onetime items favorably impacting revenue for the year, the impact for the quarter was significant. There's additional discussion of GCI's results in our 10-K that will be filed later today. Fourth quarter experienced 12% revenue growth and 20% adjusted revenue growth.
Operationally, they added nearly 14,000 cable modem subscribers and built out Alaska's first 5G network [indiscernible]. Strategically, they sold the broadcast TV business and reduced their time and materials business to focus on their core competitive advantage, the Alaska network, which had a favorable impact to overall margins.
While there was definitely some favorable macro trends impacting the strength of 2020 number, there was solid performance by the team from top to bottom that generated those results in the midst of a truly trying time.
On RHC matters, we are currently working with the SEC on rates and payments for the funding year of 2021. In more positive news, we received a new order from the SEC in January that gives rate certainty to Alaska providers for funding years ending in June '22 and '23. We expect to have a shorter period between service delivery and cash collection going forward.
With that, I'll turn the call back over to Greg.
Thanks, Brian, and thank you to our listening audience for your continued interest in Liberty Broadband and Liberty TripAdvisor.
And operator, with that, I'd like to open the floor for questions.
[Operator Instructions] We'll go first to Michael Rollins with Citi.
I'm curious on Liberty Broadband. As you think about the assets in Liberty Broadband going forward, can you referenced the look-through price to Charter earlier in the discussion. Do you expect Liberty Broadband to just keep the assets it has and stay fairly simple? Or are you on the hunt for other assets or investments to place into Liberty Broadband?
Thank you for the question. I -- look, the easy money here in terms of what to do with the capital we receive from -- not with capital on our balance sheet but the capital we will receive through the purchase that Charter makes and the payments we get is to take advantage of the basically 10% to 15% differential between the after-tax proceeds we get and the discount to Charter that we have. That's the obvious place to put our capital.
Now to the degree we become more uncertain about the Charter buyback, effectively, we can decide at what pace we want to be a part of the Charter buyback by holding the cash and doing something different. But that's where -- given our belief to Charter and given the discount, that's what's attractive. Today, prices in the market in general are pretty full for other kinds of assets. If the world changes, we might change our view, but that's where we stand today.
And earlier last year, you talked, I believe, about being in discussions with Charter around how to handle this cap as you're approaching it. Can you share any thoughts on what you learned from that discussion? Why didn't you decide to enforce the cap versus maybe just why don't you hold on to the shares that you have? And is this the final decision? Or is it possible that in the future that the structure and the agreement might be revisited?
We did have discussions with an independent committee of the Board of Charter about increasing the cap. And frankly, the proposals that were put forward by them to Liberty Broadband, we didn't find as attractive as the alternative of just to purchase from our shares. Can't say that we won't revisit that, don't know what will come in the future.
But at the moment, we'll look to the alternatives of what was presented to us versus, as I said, the opportunity to get cash back, pay a 5.5% tax rate and buy what's been running about -- buy the stock back of Liberty Broadband, which has been running at about an 18.5% discount to Charter and thought that was a pretty attractive alternative.
We'll go next to James Ratcliffe with Evercore ISI.
On GCI, the with the wireless [indiscernible] you mentioned, should we be looking at 4Q as pretty much normalized when it comes to RHC funding/pricing going forward? And secondly, on Trip, talking about discount that's rolling out recently the -- that's taking it up to high 30s or thereabout, are there any tools available to take advantage of that and possibly use this capital to buy back, et cetera?
So I'll let -- do you want to comment on the GCI/RHC matter, Pete or Brian? Or... Operator, we seem to have some feedback on the line there.
Brian, do you want to comment in RHC? Or we'll let Pete or Ron add anything?
Yes. Just on the onetime items, there was one settlement for $6 million that came through in the fourth quarter. Otherwise, the results for the fourth quarter are pretty much normalized. I don't know, Pete, if there's anything you'd want to add on that?
No, that's it, Brian, particularly, nothing unusual with RHC that impacted the income statement there.
On Liberty Trip and the discount, it's a funny thing. It's highly volatile. And if you look at the B price and you combine the Bs and the A price, it's not clear it's as big a discount. Now how much float and liquidity there is in the Bs, I'll acknowledge that's a hard number to look at. There is not a ton of excess liquidity at Trip today, but we continue to think about ways to take advantage of any discounts we see when we see them.
We'll go next to Bentley Cross with TD Securities.
Two minor housekeeping questions. One, what's the right corporate overhead drag you're thinking about now of the combined companies? And then secondly, can you just flush out what the advertising impact was for GCI in the quarter?
Can you repeat the first question? I didn't hear you.
What's the right corporate overhead drag to think about now of the combined companies?
I give this one to Brian. Do you want to answer that?
Sure. Yes, I think it's slightly elevated in Q4 2020, as you see in the release, that's $7.3 million. So I would back off that a little bit, without giving specific guidance, but that could be an approximation to annualize to reduce that down a bit.
And then I have -- go ahead.
Maybe repeat the second question, just to make sure we all heard it as well.
Can you discuss the advertising impact for GCI with some political advertising in the quarter?
Ron or Pete, do you guys want to take a cut at that?
Yes, I'll grab that. Yes, we -- after the sale of the broadcast business, we've got relatively de minimis cable advertising revenue that goes on our cable TV programming there. And due to the political advertising, we got about a $3 million bump over and above what I would consider to be relatively de minimis revenue streams there.
We'll go next to Matthew Harrigan with Benchmark.
Firstly, it probably gets lost among Liberty's myriad earnings releases this morning, but the FCC just approved $50 broadband subsidies to lower-income homes, and it's actually $75 in tribal areas. Is that enough to tweak the '21 result for GCI up than the last given the material native population there? And then secondly, and I guess much more prominently, the C-band Auction 107 results, Comcast and Charter were not winners.
Not surprising, I guess, given those prices. Is that -- and I know you may have some core thing in your answer, but could there be some indication there that you might be more amenable with Charter than with Comcast, which is maybe you can't say definitively on actions, but would it make more sense to work with Verizon in terms of do you see a relationship on the small cell side with the advance of 5G. I know you've tested UNF before, but lots of moving pieces here of the auction results.
So Pete or Ron, do you guys want to talk about the potential impact in tribal areas of a $75 subsidy and the meaning it holds for GCI?
I'll take a quick cut at that. GCI is already a substantial lifeline provider on the voice side, and we have programs set up that we believe will be well positioned to morph fairly quickly into the broadband subsidy. As Greg implied there, all of Alaska is a tribal area, so the $75 subsidy applies state-wide.
So there's some upside to that, I believe, for GCI. But I think you also have to look at the fact that our broadband penetration is also exceedingly high, even more so after the pandemic effects from last year. So the upside is probably limited, although it will probably have a positive effect on further driving down the bad debt and supporting the income stream.
And as far as the C-band auctions and Charter, I think Liberty, like many observers, was stunned by the prices. Obviously, you're looking at sort of the mid-90s to high $90 billion when you include the cost of running the spectrum. And some of the amounts that each of the larger carriers, particularly Verizon but also T, paid were big numbers. I look and think our CBRS alternative that we did participate in, we spent about $500 million of Charter at the CBRS auction. It's very attractive with a cost per pop basis something like a 1/7 of the price or something like that.
The other point I'd make is we are really beneficiaries because of our recently renewed MVNO relationship with Verizon where we're going to get the benefit of whatever spending they have and they do there in terms of the MVNO we get. We get the latest and greatest that Verizon has. So I think it's a win all the way around for Charter to be perfectly honest, which is where we get owner economics where we choose in CBRS at a fraction of the price and we get rental economics on their upgraded network with a continuing downward stream based on what their retail prices are.
So -- and probably, frankly, stapling as much debt on some of those larger companies is probably going to cause them to look at less bigger and certain alternatives they might do to participate in some of the markets we're in. So I consider it a pretty good result for Charter.
But specifically, as far as advantages you have on the small cell side of powering and the access and all that, is that still something that it's a moving target? I know that -- I know Comcast has historically been reluctant to let Verizon mess with your network. Can you maybe expand, and I'm sure Charters is probably in the same place? But I take it that with the new agreement, that wasn't something that was specifically contemplated? Or is that just something that could work out in the future? Or is that just off the table for a while?
I think it's the point you make. We haven't rolled that out yet, our CBRS. We haven't really rolled out our owner economics anywhere yet. But down the road, one could imagine providing access to our network as well. We certainly do provide other places where we provide backhaul on the like for plenty of the larger mobile carriers, so I don't know why -- the last mile capacity as well.
We'll go next to [Michael Beamer with CLC Capital].
I have a couple of questions. Looking at Charter, it looks to me that with 53% homes passed, their penetration roughly is about 58% and the average monthly bill is around $111. What are you thinking in terms of the opportunity for the total penetration? And also, what do you think is the purchasing ability to fund the spending on cable relative to the average rent, which is approximately $900 to 1,000 a month across the U.S.? How are you thinking about that? And when you discuss that, please touch on the price increase that was announced at the end of last year by Charter. Did it go through? And what are your thoughts about inflation? Sorry, I know it's a lot, but I'd really appreciate your thoughts on this.
Yes. I'm also going to write the final chapter of the Bible when we're done here. But the -- look, I think if you ask Tom Rutledge, he would believe that, ultimately, we're going to have 2/3 of -- we'll grow our share up to 2/3 of the market or perhaps even more over time because we have the best network and in large parts of our market where we can provide better customer service at a relatively low-cost upgrade, and so we really are well positioned.
In general, yes, Charter has taken some price increases, and it really is hard to say because it's by plan where it rolls out across the nation. It's not a uniform, we turn the switch and everything goes up 3%. It really is when the customer's contract is and what kind of plan they're under and what new plans we offer. In general, if you looked at most analysis that I've seen, Charter has not been a price taker, we have been a share taker.
And I think the management team at Charter has done a great job of doing that where we've gained share largely faster than anyone else among the big cable players and do price as something that perhaps is available down the road but not something we need to work on today. We've got a better offering at lower price and continue to take share and leave that volume rather than price dial rather than the volume dial less turn than some of the others in the market.
As far as where it can go, we'll see. As you increasingly look in a world where people are going to have remote alternatives, whether it be for businesses or personal use, you will see increased demand for broadband and the value of the service is likely to rise. I don't have a number in my head at how -- never really looked at or thought about it against average rent, particularly because in a lot of cases, people own their homes.
It's not a rental property, or we have businesses, small businesses. So I don't necessarily think about it against rents. But I do think the product, as I started out, has shown increasing -- Broadband has shown increasing value to consumers and businesses alike in 2020, I don't expect that to dissipate much in the years ahead.
Can I just follow-up with [indiscernible]
Sure.
The recent success of the Liberty Media Acquisition Corp, clearly, you have excess capital in Liberty Broadband. And the free cash flow from the repurchase is going to obviously create a high-class problem for you. How are you thinking not just at Liberty Broadband but across your company? How do you think about the conflict of interest and attempting to essentially treat every shareholder properly because Liberty Media is its own entity?
Yes. So a couple of things, I think I talked about the first and primary opportunity we're pursuing today at Liberty Broadband. And given prices in the market and given the opportunity we see in front of us, that looks pretty attractive and our belief in the underlying value of Charter as Charter continues to shrink its equity, grow its cash flow, grow its revenue, grow its dividend. So we're pretty enthused about that.
Now each of the companies that has been spun from Liberty Media has specifically waived their conflict of interest. And in fact, we've been at this a long time and really haven't seen a lot of cases where that's been an issue. If we see something in e-commerce, that's probably likely to go to Curate. If we see something around motor sports, that's probably likely to go into Formula 1. And if we see something around music, that's probably likely to go into Liberty Sirius. There just seem to be natural homes.
Now in the case of the SPAC, Liberty Media did not waive its conflict. So any opportunities that the SPAC sees will first be offered delivery media. We created a position where John Malone is effectively not in the Liberty Media Acquisition management team, and he will be the one who gets to decide whether -- excuse me, not in the LMAC management team, and he'll be the one to decide whether it goes in Liberty Media.
But I think it's unlikely we're really going to see that as a practical matter because, again, if we see something in motor sports, unless it's too large a scale, it's likely to be Formula 1. If we see something that doesn't fit particularly well, it may very well be in the SPAC. So we've had this conflict in effect for years.
We've never really had an issue with shareholders about it because I think we're pretty -- we try to be transparent and explain our motives. And in general, we try to create purer plays among the entities we have and not have to diversify unless there was a really good reason. And in fact, one of the reasons we created the SPAC was to look at those diverse alternatives that may not fit so well in the portfolio that we have today.
Our last question comes from [indiscernible].
I have two quick ones. One, it looks like GCI moved from video sub from the business segment to the consumer segment. I was just wondering if that is correct and that explains some of the change in revenue. My second question has to do with the transfer of the GCI subsidiary that holds the Charter shares up to the parent. Can you give us more color on the reasoning and the implications for that change in the org structure?
I'll take the second one. As often is the case in Liberty, it was tax motivated, and that was our primary goal. And I'll let -- Pete, do you want to comment on any -- or Brian, do you want to comment on any changes in the video sub allocation or positioning?
Pete, you go for that.
Yes, I'll -- Yes, so when we sold the broadcast TV business, we elected to change the unit that took the revenue. It used to go into the GCI business revenue stream because broadcast we viewed as a bit more of a business play. Without the broadcast, it's just the video advertising revenue, and that seemed to follow more with the consumer revenue stream. So that's why, Michael, it moved from the business to the residential, and it's just the advertising revenue.
Yes, thank you. I think that's our last question. Thanks to the management teams, thanks to our employees, and thanks to all our listeners for their interest in Liberty Broadband and Liberty TripAdvisor.
We hope to speak with you next quarter, if not sooner.
This does conclude today's conference. We thank you for your participation.