Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the GC Liberty 2019 third quarter earnings call.

During the presentation all parties will be in listen only mode. Afterwards, we will conduct a question and answer session.

Time, if you have a question. Please press star one on your telephone as a reminder, this conference is being recorded today November 11, 2019, I would now like to turn the conference over to coordinate she portfolio officer and senior Vice President Investor Relations. Please go ahead.

Thank you before we begin we'd like to remind everyone calling.

Indeed, when doesn't need to fight.

The format of 1995 actual events or results could differ materially number first time certainties.

Our most recent forms 10-K in 10-Q filed with the FCC.

Forward looking statements speak only as of the date of this call and you see on Liberty broadband expressly disclaim any obligation or undertaking to disseminate any update.

Any forward looking statement contained herein to reflect any changes.

Pretty broad band expectations are never to you or any change in events conditions or circumstances, which any such statements.

On today's call. This has got certain non-GAAP financial measures.

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Information regarding the comparable GAAP metrics, along with required definitions and reconciliation, including preliminary known and schedules one and you can be found in earnings press release issued today, which is available on our website now I'd like to turn the call over to Liberty President and CEO .

Thank you coordination good afternoon told you on the line.

Today speaking on the call we will have.

Do you see I liberties.

Principal financial officer, Brian when like.

Gee I CFO Pete pounds also direct you name, we will be available to answer questions. If they're already related to Liberty broadband starting would you see I Liberty and <unk> third quarter.

A series of solid results revenue and adjusted OIBDA grew as a team began to see benefits.

She did changes they made to focus on driving value.

The core Alaska.

We continue to move customers stacked higher bandwidth data products and improve their wireless cable modem and video offerings.

Did that data revenue grew.

Part driven by higher sales to schools and libraries and health care customers.

And the Fiveg build out that we are underway with Ericsson in Anchorage.

Moving with expected completion of mid 2020.

Looking now at Lendingtree and the third quarter results there.

Experienced record levels of revenue.

Variable marketing margin and adjusted EBITDA.

Mortgage business continued to gain momentum in returned to growth.

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That's continued move forward in a good fashion.

The diversification in their portfolio has allowed the team to weather segment challenges, while continuing to invest in improving the marketing machine at leading to increased guidance for the year.

Oh, we're at Liberty broadband charter had strong third quarter results.

Did you grow revenue and customer relationships as the team improves their consumer experience.

Now offering minimum speeds of 200, Meg and 60% of print.

And they launched advanced in home Wi Fi and Austin.

I'll begin rolling out and additional markets in.

We ended the quarter with almost 800000 spectrum mobile lines.

The gross Endicott declining capital intensity led to 124%.

Growth in cable free cash flow.

The decrease capex guidance for the year to below 7 billion.

Back to Capex to continue declining 2020.

In addition, they repurchased $3 billion of shares in the core.

With that let me turn over to Brian to discuss the financials in more detail. Thanks, Greg.

At quarter end, you see I Liberty has consolidated cash and cash equivalents of 410 million, which includes 82 million of cash to tell directly and she's yellow.

The value of the public equity securities the GCR Liberty as of today to close was 8.7 billion, which includes our 2.5 billion interest in charter 5 billion interest in Liberty broadband and a 1.2 billion interest in Lendingtree.

At quarter end, you see I Liberty had total principal amount of debt of 3 billion, which includes the 900 million dollar margin loan outstanding against this liberty broadband shares.

Harder exchangeable debentures, and 1.6 billion of debt, including financing leases and finance leases and tower obligations that she's yet.

<unk> leverage as defined in its credit agreement was six times at quarter end compared to a maximum allowable leverage of 6.5 times.

As discussed in previous quarters T.I. exceeded the encouraged based maximum leverage threshold in terms of in senior notes. Therefore was unable to access additional funding under the revolving portion of the senior credit facility.

As noted in the 10-Q Gee I now has the ability to access additional funding under the revolving for sure in portion of the senior credit facility. So long as GC eyes in compliance with the senior credit facility covenants after giving effect any additional borrowing.

Based on the current leverage of six times GC I had the ability to access 67 million under the revolver.

Our cash on hand at quarter end and availability under the revolver and the broad and the broadband margin long, we're very comfortable with our liquidity position.

Now I'll turn it over to be.

Thanks, Brian .

Starting with our five band Fiveg upgrade in the second quarter, we announced our partnership with Ericsson to build the first Fiveg network in Alaska.

That network is currently being built and the Capex for this year is included in our 2019 guidance.

We expect the anchorage build to be completed in mid 2020.

In the meantime customers are already starting to see improvements as each new site gets turned on.

Onto an update of the Alaska State economy.

The oil and tourism industries are going well in 2019.

However, we are still facing challenges in the economy as protracted state government debates around permanent fund dividends and a large budget cuts have reduced confidence in the state economy.

Overall jobs in Anchorage are up 400 from the prior year as at the end of September .

A small but helpful gain.

With regard to the outstanding our H.C. matters, we continue to pursue open appeals with the FCC, but don't have any color at this time on the timing or resolution of those appeals.

[noise] third quarter operating results were strong as we began to see the benefits of product enhancements and operating efficiency initiatives.

Revenue for the quarter increased 3% on a year over year basis due to increases in consumer data and wireless.

Adjusted OIBDA was up 5% on a year over year basis due to improvements in both revenue and SGN a expenses.

Last quarter, we noted that we were able to roll out a number of product changes after being unable to do that for quite some time during the billing system conversion.

New launches include enhancement to our prepaid wireless postpaid wireless video and cable modem products.

Those changes were significant in driving the revenue improvements in the quarter.

We also mentioned efficiencies on the expense side that we made during the second quarter in order to narrow our focus towards the core Alaska business.

Those changes also led to the significant expense reductions in the third quarter.

Consumer.

Consumer revenue was up 5% with increases in data and wireless being partially offset by declines in video and voice.

The wireless growth was driven by lapping the 2018 billing conversion, where we credited one month of service for many of our customer accounts as we move them from billing in arrears to billing in advance.

The data growth was due to higher arpus as our customers increasingly upgraded to our premium packages.

This quarter. We also added a net 500, new consumer data customers and we're pleased with the sequential increase.

Business.

Business revenues were flat for the quarter.

We continue to see declines in the video business, but we are seeing gains in the data business due to up sales in our health care business.

These gains in data were partially offset by the closure of the lower 48 time in materials business last quarter.

The ongoing headwind of the our HC customer that was denied funding earlier this year.

Finally.

Capex.

For the year, we've invested 97 million in capital expenditures.

Expenditures were primarily for wireless network improvements fiber and hybrid fiber co wax improvements.

We expect to spend approximately 140 million in Capex in 2019.

You for Capex is generally elevated as we push to complete projects before the ground freezes at the end of the year.

Now I'll turn it over to Greg.

Thank you for that Pete.

We are as noted several times today, we have our investor meeting next week.

We look forward to seeing many of you there.

There is a link to register for that at our home page. We appreciate your continued interest in G.I. Liberty and with that operator, I'd like to open up for questions.

Wonderful. Thank you Sir and another quick reminder, ladies and gentlemen, if you do have any questions. Please join the queue by pressing star one on your telephone keypad and just make sure that your mute function is turned off so we can receive that signal.

First we will hear from James Ratcliffe with Evercore ISI.

Great. Thanks for taking the question three if I could first of all piece on the odd that you see I side.

If you decide at some point toward the appeal sale on the our HCV customer where funding has been canceled.

Opex associated with providing that service to that customer and how much benefit could you see on that.

Secondly, Greg this is I guess, the second call on the road they choose actually sorry mentioned the operating performance of tree nut pass Youve seen disregarded I'm or the potential monetization source should we read anything into that about your views on that stake and third you know you've seen us the what the Liberty broadband and Hey, you know by products.

Do you see I liberty spreads versus charter move out pretty substantially in the math last month or six weeks any thoughts on what might be driving that thanks.

Thank you want to go first.

Sure.

So first on the question of Opex savings potentially due to the a the customer.

That did not get funded for our H.C. really the significant cost there is the massive capital expenditure to build the network and secondarily. It is to maintain that network that is a network that will stay in place. There's no there's no earth stations or microwave tower.

That will be turned down as a part of that and so I would not expect to see meaningful reduction of SGN, a if those circuits were turned down.

[noise] and as far as the operating talking about the operating performance Trey I think it somewhat the reality that trade.

Or.

Not only because it's now inside a smaller entity.

Liberty.

But also more importantly, it's grown so much in value I think we discussed at the bottom when we inherited and they all nine recession I think our statements were $17 million now, it's well well well over a billion dollars.

Credit to the team there.

So its importance both because of their own efforts and where it sits or more or more noticeable they're going to be at our investor day.

We certainly have no plans to use it as a source of capital, we're happy being a major shareholder at tree and enjoying the benefits.

And as far as the spread between charter in G.I. Liberty.

Like I really don't know why that has moved out so much I think it probably relates to.

Just the pace at which charter has been buying back stock relative to the.

Modest tow dips that we've done either with selling Pulitzer buying stock, which had been far more modest and the efforts a little bit like the situation, but not quite as much at the situation in serious and Liberty Sirius where share repurchases of Syria.

No more aggressive that are lumpy series for purchases, but I don't have any great insights.

Great. Thank you.

All right and moving on will you will hear question from Zacks Silver with B. Riley FBR.

Okay, great. Thank triggering the question.

First one for Pete over the summer.

The FCC heading out some changes to the Archie our HCV reforms.

So it's too early to tell Directionally, what impact that would have and I'm curious three months later, if you have any idea how that's going to break for you guys.

Hi, This is Tina pigeon GC ice general counsel and it is still early to tell there's a process that has to be undertaken by.

The Universal service administrative company.

The idea of setting rates that immediate and.

And one that we're looking very closely at but really that data has to be collected a involves some additional decisions that have to be made in the details.

Before I think anyone would know what the outcome of that.

Of that new processes going today.

Great. Thank you Sina and then for Greg hate asking two questions on repurchasing the same day, but.

Uh huh.

Hi, I'm you know, it's been I guess since may that debt.

Buybacks have been pause there I'm, just curious as to whats driving that.

And how should we think about buybacks going forward.

Certainly, we'll look at buybacks and the prior caller noted.

As a spread there between the.

Value, what we think GC eyes words in the underlying charter et cetera.

The.

I think that pauses been somewhat related to.

The.

Where our financing sits at GC I and the fact that we've been restricted from some of the access to some of those flows in our lines. We've had we did some refinancings.

Which.

Stabilize the situation, but didnt definitely give us access to the incremental lines and free cash flow being generated so we're being probably cautious on that front.

Even with the discounts there this is.

One where that opportunity probably going exist for little while so we'll see how where are we able to take advantage of in the future.

Got it thank you very much.

And next question will come from Michael Rollins with Citi.

Hi, good afternoon, two questions first.

Described it there are opportunities for GE charter to leverage each other ways for technology purchasing power as well as marketing best practices.

Second in the quarter itself for T. I get the increase in the U.S. Saks factor for Passthrough charges had any impact on the revenues across segments. Thanks.

So I'll take it caught at the first one at anyone from GC I would like to add please do.

You know I think there has been ongoing dialogue.

About a win.

I, probably more with GCI has issues or where they're headed or what technologies. They want to utilize they've been trying to leverage expertise at charter and experienced because in many cases given charter scale. You did are done more work on it or they may have done earlier work on it and that dialogue has gone on several topics.

I expect that is going to continue on the other hand, you know charter.

Well there friendly they not clear why they would extend or have the ability to extend discounts on purchasing or something like that they don't have a common ownership. They have some common parentage, they're not commonly owned in the same way right.

So that's more of a friendly relationship I think one than a contractual or a ownership relationship which generates those kind of benefit.

No if anybody from GC I would like to comment further.

No nothing further on that one Greg I would note on the question on the U.S. that contribution factor changes those those happen typically on a quarterly basis and none of that would have risen to the level of.

Any changes of note on the publicly filed information.

Thank you.

Your next question will come from Matthew Harrigan with benchmark.

Thank you all three questions one.

Yeah, I guess im on the U.S. and misos than being.

Integral to fiveg filled with Ericsson in Anchorage, and Youve drawn any surprises from that in terms of the applicability to the cable to palsy, you know for Fiveg in small cells I mean, that's actually.

Area, where you could be the.

Dr. I guess through a number of other people.

Secondly on that seasonality last year. Your revenues were up in Q4, but your expenses were up significantly more without apply this year as well or just some noise in the numbers and then I guess thirdly for Greg will evolve a political madsen well are you getting.

Increasingly nervous impossible.

Yes, Thats all combo regulation over over a longer period of time. Thank you.

Well this is Ron Doug and I guess I'll take the first piece on Fiveg.

Greg cleanup on politics.

We're early in the process to really be able to demonstrate.

If it's of combining Fiveg wireless network with the extensive hybrid fiber go ex plant that we have we'll know a lot more about how well that actually works by.

First half of next year, but clearly our vision is to leverage the small cells of fiveg with the extensive spectrum holdings that we have and the virtually unlimited back call that we're able to deployed throughout our communities all way down to the subscriber residential level. So we see a real synergy.

There.

Marrying the two on a production front. We also believe there are important synergies and tying those products together from a consumer perspective, but in terms of whether we're ready to teach that class I'd say, we have to see how it plays out in the first off for next year.

Did you want to deal with seasonality yeah on seasonality I would say that historically, we've been very seasonal on the revenues, but that has declined fairly significantly over the last few years. So the revenue side I wouldn't expect much seasonality there the expenses.

To see a little bit of seasonality and expenses with Q4 in Q1 being a little bit.

Heavier on expenses than Q2, and three Q4 last year, probably had a little more of the onetime or unusual stuff than normal, but we're not giving guidance on what those numbers are other than note that you are correct. There is some seasonal higher numbers and expenses in the fourth quarter there.

And I'll comment.

First but rather than discussing the politics I'll comment on.

I mentioned a minute ago than many cases charter is done more work on a topic just because of their scale isn't the case, where because of the fiveg installation I think theres a lot, but certainly we at liberty can earn learn and perhaps they can learn a charter as well. So obviously, we watch what's happening with fiveg with great interest.

And having a installation our own will be a very powerful learning.

Learning zone.

The politics.

As always risks around politics, that's just the way it is I'm not sure how many actionable items, we have because of that but we certainly watch the all of them with interest.

In general.

What would've guessed that the.

In a time when the D.O.J. was more of a problem or was less of a problem in the FCC was more we've now got it reversed so who knows where this logo.

Thanks, Greg Ron.

And we will move on to our final question from TD Securities We have Bentley Cross.

Hi, Good question, Greg on Liberty broadband just thoughts as we look forward to the expiration of the and advanced New House proxy is there anything to be done there should the buybacks take care of themselves. So that use your ownership issue.

And that 25% threshold is a non issue holds together.

Yeah I.

Don't know, it's a non issue I would point there probably three ways it gets solved.

One.

I'm, sorry for renewal of that proxy.

Certainly Ah.

Good relations between a particularly John Malone.

The new houses.

Commonality there.

Secondly, as you rightly no charter continues to repurchase and that alone may drive us over the 25% and third you know weve in the past used.

Relatively efficient ways to increase our ownership.

And you know not take massive amounts of economic risk collars or the like that can drive us over the 25 on a ROE so I.

Can't say Theres no risk, but it's not one that keeps me up at night by any means.

Thank you.

Thank you.

So thank you know all of the listeners and questioners and as we said we hope to see many of you next week in New York.

Not will speak again next quarter, if not beforehand, thanks very much operator.

And once again, ladies and gentlemen that does conclude our call for today. Thank you for joining US you may now disconnect.