Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Broadband Q1 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 is being recorded.
I would now like to turn the conference over to Courtney Chunt, Chief Portfolio Officer. Please go ahead.
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 ks 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 Trip Advisors' 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 note and schedules 12 can be found in the earnings press release issued today, which is available
Also during the Q and A, we will answer questions related to Liberty TripAdvisor. Ron Duncan, CEO of GCI and Pete Pounds, The CFO of GCI will also be available to answer questions. So turning now to Liberty Broadband. In March, Liberty Broadband began participating in Charter's buyback holding our fully diluted ownership at 26%. Through April, we had received nearly $1,000,000,000 of proceeds and we used these proceeds to repurchase 6,100,000 LBRDK shares from February through April at an average price per share of $152.30 per share.
We view this having meaningful value creation for our shareholders with the LBRD NAV discount running about 19% And allowing us to have a look through purchase price on charter of about $5.16 per share. While our quarterly repurchases may fluctuate due to Timing of cash received and etcetera, we expect that our LBRD repurchases to match or exceed The after tax proceeds we receive from sales of Charter shares on an annual basis. I would remind you in 2021, we expect Only 5% to 7% tax leakage on any Charter share sales due to some tax loss carryforwards. Looking now at Charter itself, we are approaching the 5 year mark of the purchase of Time Warner Cable and Bright House. The EV of Charter has gone up over $100,000,000,000 through this period and our total gain in Charter prior to The time in which we began selling into our buyback was nearly $30,000,000,000 and we're up over 4 times on our initial investment.
In Q1 at Charter, growth in data usage continued to grow. We added 2,000,000 Internet customers over the past year And the average Internet only customer is using 700 gig per month in the 1st part of the quarter, up nearly 20% And there are a sizable cohort of users using more than 1 terabyte per month. Charter continues to invest in its network During the Q1, residential revenue grew 5.8%, the Access level of growth in several years and the adjusted EBITDA grew 12.5%, that's up double digits for the 3rd consecutive quarter And margins expanded over 200 basis points year over year. Charter's mobile business continued to demonstrate strong growth. Revenues were up 90% year over year, we added 300,000 mobile lines.
We were especially impressed considering the general low level of sales activity in So, with that, let me turn over to TripAdvisor and Liberty TripAdvisor. And beginning first at Liberty Trip, At the corporate level, we completed the repurchase of 42% of Certare's preferred shares for $373,000,000 We note that 3% of the repurchase was actually completed after the quarter end. We funded that with the net proceeds of a new $330,000,000 Tripp And we delivered $92,000,000 in Tripp's stock to Certari's. Importantly, Certari's waived their put rights Under their preferred, eliminating any potential negative overhang on Ltrip and giving us a full year runway on that security for value creation potential. Sutaris has been a great partner over the past year.
We look forward to their continuing and ongoing involvement and Greg O'Hara's continuity on both the Trip and Ltrip Now turning to TripAdvisor itself. Trip continues to see rising demand for leisure travel on its platform, led by domestic travel, Particularly U. S. Domestic travel. We believe the U.
S. Can be a leading indicator for global travel As the vaccine rollout continues worldwide and other countries replicate the successes we have had here, in March, for example, U. S. Traffic on the site approached 80% of 2019 levels. Tripp continued to exhibit cost discipline in the Q1, TripAdvisor Plus, while Plus is still only in beta, it is already saving subscribers an average of more than $300 per booking, Much greater than the $99 subscription fee.
Tripp also opportunistically accessed the bond market in tandem with The LTRIP bond offering we did in March and they priced a $345,000,000 convertible note, up 37.5% at an attractive So, with that, let me turn over to Brian to discuss the financials in a little more detail.
Thank you, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $1,200,000,000 which includes $51,000,000 of cash at GCI. The value of our Charter investment in Liberty Broadband as of yesterday's close was $39,000,000,000 And at quarter end, Liberty Broadband had a total principal amount of debt of 4,600,000,000 GCI's strong results and the $180,000,000 revolver pay down in the current quarter led to meaningful delevering, With leverage as defined in GCI's credit agreement of 3.4x, GCI has substantial cushion under its maximum leverage covenant of 6.5x. Liberty Broadband has $300,000,000 of undrawn margin loan capacity and GCI has $422,000,000 of undrawn capacity on its line of credit. Note the above amounts exclude the indemnification obligation and the preferred stock.
Turning to GCI's results. GCI had a great Q1. Revenue grew 5% and adjusted OIBDA grew 11% to $96,000,000 the company's highest ever quarterly adjusted OIBDA, Driven by demand for data across the consumer and business divisions and lower costs associated with reduced bad debt and healthcare expenses combined with prior and Cost Savings Initiatives. Note that Q1 2020 included $9,000,000 of one time revenue related to services provided in 2019. Adjusting for this one time prior year benefit, revenue and adjusted OIBDA would have grown by 9% 24%, respectively.
Operationally, GCI added over 15,000 consumer revenue generating cable modem subscribers and 6,000 consumer Revenue generating wireless subscribers over the last year. On the rural healthcare front, we received $175,000,000 in payments during the quarter Related to the funding years ended June 30, 2019 2020, which we use to pay down our revolver. We continue to work with the FCC on rates and payments for the funding year ending sixthirtytwenty 21. As mentioned last quarter, we received a new FCC order in January That gives rate certainty to Alaska Providers for funding years ending in June 202223. And we expect to have a shorter period between service delivery cash collection going forward.
With that, I'll turn the call back over to Greg.
Thank you, Brian. 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 line for questions, please.
We start with our first question from James Ratcliffe, Evercore ISI. Please go ahead. Your line is open.
Thank you. I've got 2 for Ron and Pete on GCI and then Greg one for you on Liberty Trip. On GCI, can you talk about the potential tailwinds from the emergency broadband program? And also more generally, what Sort of the potential benefits and risks you see of increased government support for broadband infrastructure. And Greg, on Ltrip, the spread to me My math is 35% plus.
Any way to get cash to tackle that spread? And as Sutaraj gets a say in the recent history with margin loans has been, like, eventful, shall we say. But are there other structures or options you use? And how just broadly, how much of a priority is that Brad, for you. Thanks.
Do you want to Go in the order they were asked. Greg, do you want
to take your shot? Sure.
That sounds great, Ron. If you guys want to take a shot, that will be good.
All right.
It's sort
of a 2 part question. The first on the emergency broadband program, which will add in Alaska a $75 A month credit for any consumer of broadband who has some has in some way been impacted by COVID. Ordinarily, you would expect a very strong uptick from something like that. We're a participant in the Lifeline Wireline telephone program and we have a substantial number of customers for that. I'm a little cautious as to how much upside to expect from the broadband program in terms of new subscribers just because we've done so well In the last 15 months with the pandemic and added so many subscribers, ultimately, you hit a limit to how many are out there.
I Expect there will be a substantial number who use the program to their benefit. How many new subscribers that adds is hard to say. I will also throw in one caveat Truly substantial growth coming from that program and that's a generalized industry wide modem shortage. The chip problem has led to a shortage of modems. We have some capacity to continue expanding, but we won't get through Much more than the Q3, even at current growth rates, if we don't get delivery on some of Our pending modem orders and that's an industry wide problem.
With respect to the amount of money flowing into the industry under the potential New congressional acts, my concern is there's more money that can be absorbed by industry capacity. There simply isn't enough fiber components, cable and workforce available to deploy $100,000,000,000 nationwide at the pace that people seem to expect deployment, and I worry about expectations getting out in front of reality. Those amounts really should be Delivered, but I think we're a long way from knowing what the actual results are.
Ron, thank you. So on the Ltrip discount, as you know, there is relatively limited volume in Ltrip And it has fluctuated from being a premium at various times to a discount, and it was made more complicated by the structure we have and the uncertainty around Certaris. And if you go back and remember when Liberty Trip was spun away from Liberty Ventures, it actually had that margin loan. We twice We restructured it to try and manage our downside once through a variable forward and once through encouraging a large dividend to trip, both of which We pull it relatively bulletproof, and we have increased our upside in the potential at Trip After the restructuring was Certari's. So after clearing up that capital structure and aligning us with Trip more appropriately, We will look at alternatives on things we can do about cleaning up the discount, but I think a lot of it is going to be educating the market about how that alignment has improved and how We are better positioned going forward with that runway and the uncertainty removed.
Great. Thank you.
Our next question is from Bentley Cross, TD Securities. Your line is open. Please go ahead.
2, if I may. First for Greg. Charter participated a little bit more aggressively or maybe a lot more aggressively than most in the ADAS program. Wondering your thoughts on kind of what the difference in view was between Charter and the rest of the industry, what allows them to be a little more aggressive there? And then secondly on GCI, 2020 results and then this quarter again seem to be a lot better than what was originally contemplated in the merger docs.
Wondering your view on what have been the major puts and takes and what's the upside from here? Thank you.
So on RDOF, I think it's really a function of a couple of things. First, I think the Charter management team They've shown their ability to operate effectively in many of these rural markets and know how to drive their costs attractively in terms of their cost to connect, their cost And so, their opportunity to go after some of these was attractive. Secondly, the capital structure we have candidly allowed us to be more aggressive Because we had flexibility and extend the runway of growth and being rewarded for that as we've got a shareholder base which has seen our growth and understands it and appreciates it. All of those were very effective. 3rd, I think they kind of caught some of The RLEC competition napping, I do not think that people thought they would be as aggressive as they were.
They were able to, at attractive crisis, create new subscribers given the incentives provided under the RDoF program. So, all of those things, I think, create an opportunity. Some of that's still in flux. We'll see some of the other RDOF bidders and RDOF's Nominal winners are being challenged. We'll see how that plays out.
There may yet be more opportunity ahead. And we'll watch The opportunities with the Biden administration's proposed broadband incentives To see if there are more growth opportunities for Charter as we go forward.
I guess the second half of that is mine then. In terms of GCI's improved performance, I think there really are Two key components. The most important one long term is probably the improvement of the regulatory situation surrounding Rural healthcare environment up here and the fact that we're now able to get paid for the services that we are rendering To our rural healthcare customers and that we have a reasonably good degree of rate certainty going forward. That overhang And the first write offs that we had taken to accommodate the rate reductions and then the rate recoveries when they came back in Had a substantial impact in the turnaround between 2019 2020. We see that as a stable business Going forward with some continued growth and I feel very strongly that that's a good platform for us that will help to Continue to drive the business.
The second huge improvement and the turn from 2019 through 2021, of course, is on the consumer side With the growth in cable modems, and I think we have to be cautious to figure out how much of that is Pandemic related. Obviously, the pandemic drove a substantially increased demand for data volumes. It also reduced the vacancy rate and thus increased the household formation rate because people weren't being evicted or not being evicted from their apartments and it drove down our bad debt because people are paying for their cable modems. How all of that plays out Once the stimulus benefits and the stimulus protections phase out is harder to see. So it's difficult for me to call what The post pandemic impact on GCI will be, but we're cautious because hidden beneath the veil of The strong stimulus performance is a weak Alaska economy, so I'm a little cautious there.
I am bullish about continued growth of wireless Going forward, our 5 gs network in Alaska is vastly superior to all the other wireless networks up here, and that's what's being reflected And the wireless growth, so kind of a mixed bag
there. Yes. If I could add, I think Ron's underselling. While clearly stimulus, Improved regulatory, pandemic demand were all big factors. I think the GCI management team has done a good job of focusing the business, Expense reductions, exiting some non core businesses, focus on its broadband strengths and demand.
And as Ron did note, the improved wireless offering with the strongest network in Alaska also have created to a far better business up there, just Hardened, prepared to capitalize on the opportunities.
I'll talk about your comments. Thank you.
Our next question is from Mike Verrolin, Citi. Your line is open. Please go ahead.
Thanks and good morning. Two questions. First, is there an opportunity to revisit the ownership cap discussion with Charter. And does the cap being enforced at 26% influence how you view the structure of Liberty Broadband And whether or not you would just rather own Charter shares directly instead of through Liberty Broadband. And then also, just curious, you mentioned 5 gs.
If you could describe if you're seeing any new use cases from your customers In the early days of the 5 gs network. Thanks.
I'll let Ron touch on the 5 gs in a moment. On the 26% cap, we did have discussions. We were offered some alternatives to increase the cap. We looked at those as unattractive relative to repurchasing our own stock at a 19% discount. There's nothing to say we can't revisit Some of those discussions down the road.
But at the moment, we like paying a 5% to 7% tax repurchasing our own stock at 19% discounted underlying Charter. So, you ask why one should choose LBRD Over charter, I think that's exactly it. You're purchasing at a 19% discount to the underlying charter and You have the opportunity to see us accrete as Charter accretes its own share count or decreases its share count, We have the opportunity to add even more attractively on a more leveraged basis with a discounted share repurchase. So, We like Charter. We really like LBRD.
And on the 5 gs, in spite of the Industry hype, I think it's early to be seeing any material impact from new use cases. The Population of 5 gs devices relative to the overall wireless population is still less than 10%. I think most of our users are Using 5 gs as faster speed and it is blazingly faster speed as much as 10 times faster for some of our users. And that's the selling point today. We're not seeing dramatic new use cases evolve.
That doesn't mean that won't happen or it won't accelerate As we get a denser population of 5 gs devices, but in terms of what's driving our sales and what's driving the revenue, It's the speed and the network quality right now.
Thank you. Our last question is from Matthew Harrigan from Benchmark. Please go ahead. Your line is open.
Thank you. Ron already answered my 5 gs question. But on the relative buyback effect, Greg The point in the last call that I guess, amusingly, you're actually increasing the number of Charter shares owned per LBRDA shares As a result of the net effect of the buyback activity, does that disappear when you exhaust that NOL? I mean, are you still going to have That's very slight tax leakage moving forward for an intermediate period or is that just kind of a short term Thanks. And then apart from the very favorable Nastian math, is there anything in Washington from a tax or regulatory vantage point that could motivate you to get something done sooner rather than later.
I know everything's pretty nebulous. It's early in the administration, but You and John Malone have always been very savvy on that, to say the least.
Thank you for The question and the compliment. On the tax rate, we think it will tip up marginally in 2022, but it will still be very attractive
Relative to, certainly, the
current discount. When you do share repurchase, it's always you have 2 minds. One mind is take advantage of a low price And the second, mind, is to get your own stock up. We, for the moment, are happy to take advantage of that share price discount, the NAV discount, And take advantage of what we know will be a large flow of capital approaching $3,000,000,000 a year from Charter. So, I look at this as likely to be, As you said, a napkin value creator.
And we like napkin value creators because if they're pretty simple to understand, even we can get it. Hopefully, the market will get it too. So, we're enthused about continuing to value repurchase at this discounted value. And to the degree it shrinks, We can reevaluate and talk about other alternatives. But at the moment, we're going to lean in with all we got.
And then as far as
I have no idea what's going to happen to the Biden tax rates. It seems to be all in flux. I do not anticipate that we'll have a major impact overall on what we're doing, but there's certainly a lot of fog.
Thanks. Thanks, Greg.
Thank you. And with that, operator, I think we're done for today. Thank you again to all of the listeners. Thank you for interest in the Liberty Companies and we hope to speak with you next quarter again, if not sooner.
This concludes today's call. Thank you for your participation. You may now disconnect.