Liberty Broadband Corporation (NASDAQ:LBRDA) discussed its first-quarter 2024 performance and future strategies in its earnings call, led by CEO Greg Maffei. The company highlighted its plans to resume sales into Charter's buyback program and concentrate on debt reduction.
Despite a loss of 72,000 Charter subscribers, Liberty Broadband reported solid EBITDA growth and remains confident in its continued growth throughout the year. The mobile segment showed strength with a significant increase in mobile service revenue. Moreover, Liberty Broadband is exploring strategic alternatives for Liberty TripAdvisor (NASDAQ:TRIP) and is considering share repurchases and potential spin-offs to address the discount in its net asset value.
Key Takeaways
- Liberty Broadband expects to participate again in Charter's buyback program in the summer.
- The company is prioritizing debt reduction in the short term.
- Charter's subscriber base declined by 72,000, attributed to competition and other factors.
- Despite the subscriber loss, Liberty Broadband experienced strong EBITDA growth and is optimistic about maintaining this trend.
- The mobile segment is performing well, with over 8 million lines and a 38% increase in mobile service revenue.
- Discussions about strategic alternatives for Liberty TripAdvisor are ongoing and constructive.
- Liberty Broadband is considering share repurchases and potential spin-offs to reduce the net asset value discount.
Company Outlook
- Liberty Broadband is confident in achieving EBITDA growth throughout the year.
- The company is actively exploring options to fully value its stock, including a potential combination with GCI and Charter.
Bearish Highlights
- Charter Communications (NASDAQ:CHTR) experienced a net loss of 72,000 subscribers in Q1 2024, indicating challenges in retaining its customer base amid competition.
Bullish Highlights
- Charter's mobile segment continues to exhibit robust growth, with a substantial increase in mobile service revenue.
- Liberty Broadband remains optimistic about Charter's ability to gain market share and the future success of its mobile business.
Misses
- The company has slowed its pace of share repurchases due to Charter's own buyback activities.
Q&A Highlights
- Maffei discussed the potential for acquiring other cable companies, stating that while it's not currently a primary focus, opportunities through Charter could be beneficial due to synergies.
- Negotiations with the Special Committee regarding Liberty TripAdvisor have been productive, with an emphasis on fair treatment for all shareholders.
- Maffei expressed gratitude to the audience and anticipation for the next quarter's earnings call.
In summary, Liberty Broadband is navigating a period of both challenges and opportunities. The company is taking strategic steps to enhance shareholder value and strengthen its market position, despite facing subscriber losses and market competition.
With a focus on debt reduction, share repurchases, and potential strategic acquisitions, Liberty Broadband aims to maintain its growth trajectory and capitalize on the strong performance of its mobile segment.
InvestingPro Insights
Liberty Broadband Corporation's (LBRDK) first-quarter performance has been a mixed bag, with challenges in subscriber retention offset by strong EBITDA growth and mobile revenue. To provide a clearer picture of the company's financial health and market position, here are some key insights from InvestingPro:
InvestingPro Data highlights the company's market capitalization at $7.48 billion, with a price-to-earnings (P/E) ratio of 8.86, indicating that the stock may be undervalued compared to earnings. The gross profit margin stands at an impressive 75.03% for the last twelve months as of Q1 2023, showcasing the company's ability to maintain profitability despite market fluctuations. Moreover, Liberty Broadband's return on assets is 4.47%, reflecting efficient use of its assets to generate earnings.
InvestingPro Tips suggest that Liberty Broadband's liquid assets exceed short-term obligations, which is a positive sign for the company's liquidity and financial stability. Moreover, analysts predict the company will be profitable this year, supporting the optimistic outlook shared by CEO Greg Maffei during the earnings call.
For investors considering a deeper dive into Liberty Broadband's financials and future potential, InvestingPro offers additional tips and insights. There are 7 more InvestingPro Tips available for LBRDK at https://www.investing.com/pro/LBRDK. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes comprehensive analysis and real-time data to inform your investment decisions.
Full transcript - Liberty Broadband Srs C (LBRDK) Q1 2024:
Operator: Welcome to the Liberty Broadband 2024 Q1 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference will be recorded, May 08, 2024. I would now like to turn the call over to Clare Adams, Senior Manager Investor Relations. Please go ahead.
Clare Adams: 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 the required definitions and reconciliations, including preliminary note and 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 turn the call over to Greg Maffei, Liberty's President and CEO.
Greg Maffei: Thank you, Clare, and good morning to all. Today speaking on the call, we will have also Liberty Broadband's Chief Accounting Officer and Principal Financial (NASDAQ:PFG) 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 also be available to answer questions related to Liberty TripAdvisor. So, beginning with Liberty Broadband, similar to last year, early in the year, we remain under the 26% fully diluted ownership cap largely due to Charter's annual compensation grants. We do expect to resume sales into Charter's buyback this summer and we also expect that the majority of proceeds, which have historically gone to LBRD purchases will continue somewhere going in the future. We will evaluate the best use as we receive proceeds. But I do expect in the near term, we will have a greater focus on debt reduction. So, you might see some of us have a reduced pace of buyback in the near term. Looking at Charter itself, Internet ads have been challenged across the industry with lower growth across the board in the first quarter. Charter experienced a 72,000-subscriber net loss, largely from continued elevated competition, early headwinds from the upcoming ACP expiration and reduced move activity given, among other things, historically high interest rates mortgage rates. The churn does remain at historically low levels and the company did experience solid EBITDA growth at 2.8% in the first quarter. We are comfortable management can achieve EBITDA growth throughout the year while investing in the business and despite facing industry pressures. And they'll achieve that largely due to expense management, which is working quite well. Mobile, bright spot continues to perform nicely. Our Charters surpassed 8 million total mobile lines and mobile service revenue accelerated 38% versus the prior year. We're quite pleased with the Spectrum 1 performance and we're seeing improving mobile EBITDA as the promotional lines continue to roll off and the business achieves economies of scale. The Anytime upgrade program is going to expand our market opportunity and we do see increased stickiness with customers' Internet churn is down versus the prior year. As many of you know, unfortunately the ACP program was not renewed. In light of that Charter is offering a range of options to retain ACP customers including Spectrum Internet Assist Program, the Internet one Spectrum Internet Assist Program, the Internet 100 product and a retention offer of free mobile for one year. Looking briefly at the balance sheet at Charter, we do expect leverage will move toward the midpoint of the 4 to 4.5 leverage target while maintaining the buyback this year. Turning briefly to Liberty Trip. Many of you may have seen that we filed a 13D this morning, which outlined deceased transaction discussions with third parties. We do continue to discuss strategic alternatives with TripAdvisor's Special Committee. We will not be able to comment further on this unless definitive documents are executed or discussions terminate. Looking at TripAdvisor itself, TripAdvisor had a good start to the first quarter, but it did also offer more muted guidance on its call this morning. Traveling experiences remain high priorities for consumers despite geopolitical activity and inflationary pressures. At Brand TripAdvisor, Hotel Meta (NASDAQ:META) performance was driven by sustained pricing strength, offset by lower click volumes. Trip's AI tool is continuing to scale very well and the addition of bookable experiences embedded in Itineraries is generating 50% higher average revenue per user. Viator itself saw record app downloads, conversion growth and app bookings. So with that, I'll turn it over to Brian to discuss the financials.
Brian Wendling: Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $108 million which includes $70 million of cash. At GCI, the value of our Charter investment based on our shares held as of May 1 and Charter share price at yesterday's close was $12.3 billion. At quarter end, Liberty Broadband had a total principal amount of debt of $3.8 billion. Note this excludes the preferred stock. Looking quickly at GCI. GCI's revenue and adjusted OIBDA were flat in the first quarter. Growth in data revenue in both Business and Consumer side was offset by declines in other revenue. The decline in the other revenue was primarily driven by declines in video revenue. We note though that the video business does not generate meaning -- does not meaningfully impact margins or free cash flow. Over the last year, adjusted for the reclassification from GCI Business, GCI Consumers added 3,500 revenue generated wireless subs and saw a small decline of 200 cable modem customers. GCI paid down its revolver by $60 million during the quarter using strong cash from operations. At quarter end, leverage is defined by its credit agreement was 2.8 times and GCI's credit facility had $457 million of undrawn capacity, net of letters to credit. Subsequent to quarter end, GCI distributed $150 million to Liberty Broadband funded with cash on hand and drawing under its revolver. These proceeds were used to pay down the Charter Margin Loan and were therefore net debt neutral to Liberty Broadband. Proforma for the dividend payment, GCI's leverage was just under 3.2 times with $327 million of undrawn capacity under its revolver, net of letters of credit. And with that, I'll turn the call back over to Greg.
Greg Maffei: Thanks, Brian. And to the listening audience, we appreciate your continued interest in Liberty Broadband and Liberty TripAdvisor. And with that operator, I'd like to open the call for questions.
Operator: [Operator Instructions] Our first question today comes from Ben Swinburne of Morgan Stanley. Please proceed with your question.
Ben Swinburne: Thanks. Hello again. Greg, couple of questions on Charter. Yesterday, there was a bipartisan group of senators introduced some an ACP Extension Act in the Senate, obviously. I don't know if you -- you didn't mention anything in your prepared remarks on this front. I'm curious if you have any if there's any ray of hope here that there might be a kick save last minute on ACP. And then similarly on Charter, you could probably make an argument, I don't know if you would agree, probably not, given the Liberty lens that maybe deleveraging would be better for the equity value than buying back stock here. I'm just curious what your position is on that when you think about interest rates and kind of what the credit markets look like right now relative to the stock price and the company's free cash flow generation? Thanks a lot.
Greg Maffei: I have to say I only just heard a little bit about the [technical difficulty] Senate on the ACP extension. Don't know much to comment beyond it. I think there's always hope, but there is certainly a -- while there is some consensus both among Republicans and Democrats for extending it. There also seems to be many procedural issues that are why it might get tied up and therefore we can't certainly count on it. On the leverage question, I think, Ben, you may have noticed that both our comments said in the near term we expect to use more of the cash flow we get from Charter through buybacks to reduce our debt at Liberty Broadband. And I think you may have heard also that Charter expect to take its leverage level down from the closer to 4.5 to the middle of that 4 to 4.5 range. So, I think they've heard you at least to the degree that -- while I think the company can support these levels of debt, both companies are we feel just to show the marketplace that we're responsive in the higher cost of interest, we're going to do some work both sides to reduce the overall leverage.
Operator: The next question comes from Jeffrey Wlodarczak of Pivotal Research Group. Please proceed with your question.
Jeffrey Wlodarczak: Good morning again. I'll also focus on Charter. Charter's EBITDA valuation is about as cheap as it's ever been. It's a discount to the telcos or most of the telcos. Just wanted to get your thoughts, Greg, on the idea that maybe Charter should think about slowing down its footprint expansion and freeing up cash to do larger share repurchases? And then assuming ACP does happen, how successful do you think Charter is going to be with the tools that it has in not seeing some sort of ARPU hit in the second and third and keeping most of those subs? Thanks.
Greg Maffei: Thanks for the question, Jeff. I think on the question of slowdown, look, these are attractive opportunities that they have under B [ph] and other programs, but they are being more thoughtful about them given the alternatives and given the general move towards the market wishing to see free cash flow versus line extension. So, I think there are Chris and team have rightly had a very thoughtful balanced approach. On ACP, I think there are a bunch of programs which are attractive, and we should be able to do things to mitigate the loss. I do not think they anticipate big declines in ASP or average revenue per customer, given what we have and how many customers we have and what those programs are likely to achieve.
Operator: The next question comes from Barton Crockett of Rosenblatt Securities. Please proceed with your question.
Barton Crockett: Okay. Thanks for taking the question. I also wanted to ask you, Greg, what are thoughts on a cable question, which is the growth of mobile seems to be kind of the bright spot in the industry right now with some headwinds on broadband and Pay-TV at the moment. And there's certainly been some great arguments put up by Charter about the success of some of the buy one get one free programs and the conversion on that. So, Greg, I'm just wondering from your perspective, given that mobile is a great growth story, but it's still pretty small, not material, not really moving the needle in terms of investor sentiment, do you think that there is an opportunity to invest more in mobile to move quicker to make it more material to pursue that future where your cable companies are the dominant kind of mobile providers like they were with plain old-fashioned telephone in years past. Do you think there's scope to do that? Just your thoughts there would be interesting.
Greg Maffei: Thanks for the question, Barton. Look, I think you're right to note that mobile has been the bright spot and Charter really has been the most aggressive pursuer of that in the space among the cable companies. So, I'm not sure how much more they can put their foot on the gas. I think just in general there's reduced activity coming into stores, all of that. It's just there's been slower process. So, they're probably getting as much out of mobile as they can right now. And they are continuing to push that product hard and I do see future success. I remain quite bullish on their growth in mobile and how long they'll be able to continue to take share.
Barton Crockett: Okay. And then if I could switch gears and just ask on Liberty Broadband, given kind of the depressed valuations for cable assets all over the place, is there an opportunity for Liberty Broadband to look at rolling up other cable companies, generally is there some opportunity there? Is that door really closed on that thought at this moment?
Greg Maffei: Yes, Barton, I don't think the door is closed, but in general given the synergies that Charter has, I think in most cases we'd be better off trying to pursue it through with Charter or through Charter than doing it directly. But you can't say never. There could be one that makes more sense for us for one reason or another or Charter's appetite is less likely. But in general, I think we're quite aligned that it's an attractive opportunity, but there aren't an enormous number that are available now that would be appealing even given Charter synergies.
Operator: The next question is from Michael Rollins (NYSE:ROL) of Citi. Please proceed with your question.
Michael Rollins: Thanks, and good morning. Just on Liberty Broadband, another question regarding just the broader NAV discount that you're currently assessing. What do you think the factors are that are driving that discount? And can you discuss the way the Board is prioritizing the possibility of shrinking that discount and the methods that you want to use to do that?
Greg Maffei: Yes, I think we've talked about how these discounts have risen in the past. There are fewer -- it appears there are fewer funds which arbitrage the opportunity. There's more higher cost to borrow and some of those things. We've talked about all that. We're really not the key market participants to judge, but that's what we hear. On what we're doing, generally what we do is we take advantage of the discount by doing share repurchase, at the discounted number. And we find that attractive. Obviously, that slowed a little bit with the pace of Charter's buyback itself and that's our primary fuel for doing incremental buyback, but we do get free cash flow at GCI also. The ultimate mitigation of that usually comes in the form of what we've done with LSXM and SXM or what we did with Liberty Expedia (NASDAQ:EXPE) and Expedia or what we did with Almedia and DIRECTV where we eventually somehow spin and combine [ph] or if it's already spun combine our Holdco with the OpCo and end up with a fully valued stock. So that's the ultimate resolution. And in the interim, the primary means is share repurchase to try and take advantage of it.
Michael Rollins: And in terms of that resolution, is there a significant amount of OpEx synergy or other considerations in the case of Liberty Broadband that investors should be mindful of?
Greg Maffei: Liberty Broadband has an event has some corporate overhead, which would be eliminated in any kind of a transaction. And there I suspect would be synergies between GCI and Charter and GCI's ability to do more effective purchases of programming, more effective purchases of any network elements that would probably be more efficient than GCI can do on a standalone basis. So yes, there are probably some synergies there.
Operator: Our last question today comes from Jeffrey Bronchick of Cove Street Capital. Please proceed with your question.
Jeffrey Bronchick: Good morning, Greg. How are you? I'm going to talk about Trip. And my quick question would be to you is, do you think have the negotiations taken up, what I call a paramount like situation where really the interest is in buying the Liberty Trip for Control and that's meeting resistance from taking out all shareholders or is that not relevant?
Greg Maffei: I don't know enough about Paramount what's going on or not going on there. I only read what I read. So, I can't make the analogy or not. I can say is we had productive discussions with the Special Committee. We continue to have those discussions. And I don't think there is tension about any kind of a Liberty Trip premium versus Trip. I don't think we've seen that tension in the discussions and am afraid, I really can't comment further than that.
Jeffrey Bronchick: All right. Paramount, we're obviously someone would like to buy the Redstone stake and not have to offer all other shareholders anything would be my reference. Thank you.
Greg Maffei: In general, I mean, just to I'll will add one last point. We have worked hard to try and make sure that we treat all shareholders fairly and not disadvantaged. And I certainly haven't sought some big premium from my B position. We've thought to try and make this the best possible transaction for all shareholders.
Greg Maffei: With that operator, I think we're done. And thank you to our listening audience once again and thank you for your interest in Liberty Broadband and Liberty Trip. And we look forward to speaking with you again next quarter, if not sooner.
Operator: This concludes today's conference call. [Operator Closing Remarks].
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