Q3 2019 Earnings Call
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Thank you very much all please your line on holder music for CNG I Liberty Q3 earnings call.
Thank you.
Due to a number of risks and uncertainties, including us.
And Form 10-K , and 10-Q filed with the FCC.
Forward looking statements speak only as of the data this call and you see our iridium Liberty broadband expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change and you see I liberty or Liberty broadband expectations are in there too or any change in events conditions or circumstances on which any such statements.
Great.
On today's call will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted OIBDA margin.
Permission regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary known and schedules wanting to can be found in the earnings press release issued today, which is available on our website I'd like to turn the call over to Liberty President and CEO Greg.
Thank you corn in good afternoon to all of you I'm alive.
Today speaking on the call we will have GCA liberties.
Principal financial Officer, Brian Wendling.
Gee I as CFO People's also during Q nave, we will be available to answer questions. If there aren't any related to liberty broadband so starting with GCI Liberty and GC eyes third quarter.
A series of solid results revenue and adjusted OIBDA grew as a team began to see benefits.
For two to change that they've made to focus on driving value in the core Alaska business.
[noise] continue to move customers up the stacked higher bandwidth data products and improve their wireless cable modem and video offerings.
Does that data revenue grew.
In part driven by higher sales to schools and libraries and healthcare customers.
And the Fiveg build out that we are underway with Ericsson in Anchorage is.
Moving with expected completion of mid 2020.
Looking now at Lendingtree and the third quarter results there.
They experienced record levels of revenue variable marketing margin and adjusted EBITDA.
Mortgage business continued to gain momentum and returned to growth.
And the insurance business continue to move forward in a good fashion.
They are the diversification in their portfolio has allowed the team to weather segment challenges, while continuing to invest in improving the marketing machine leading to increased guidance for the year.
Over at Liberty broadband charter had strong third quarter results continue to grow revenue and customer relationships as the team improves their consumer experience now offering minimum speeds of 200, Meg and 60% of the footprint and they launched advanced in home Wi Fi and Austin.
And we'll begin rolling out an additional markets in the fourth quarter.
We ended the quarter with almost 800000 spectrum mobile lines.
For the growth and to cut declining capital intensity led to a 124%.
Growth in cable free cash flow.
The two decreased Capex guidance for the year to below 7 billion and they expect Capex to continue decline in 2020.
In addition, they repurchased $3 billion of shares in the quarter.
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 is held directly at the TCR level.
The value of the public equity security the GCA Liberty as of todays lows 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, we see I Liberty had total principal amount of debt of 3 billion, which includes a $900 million margin loan outstanding against its liberty broadband shares.
The charter exchangeable debentures, and 1.6 billion of debt, including financing leases and finance leases as our obligations that GCA.
If you add 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 Cc I exceeded the incurrence based maximum leverage threshold in the terms of its senior notes. Therefore was unable to access additional funding under the revolving portion of the senior credit facility.
As noted in the 10-Q GTR now has the ability to access additional funding under the revolving Porsche and portion of the senior credit facility. So long as GC eyes in compliance with the senior credit facility covenants after giving effect to any additional borrowing.
Based on the current leverage of six times GCA has the ability to access 67 million under the revolver.
Our cash on hand at quarter end and availability under the revolver in the broad and the broadband margin loan were very comfortable with our liquidity position.
Now I'll turn it over to be.
Thanks, Brian .
Starting with our five ban fiveg upgrade in the second quarter, we announced our partnership with Ericsson to build the first Fiveg network in Alaska.
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 of the end of September .
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.
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 and 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 rollout 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 and our health care business.
These gains and data were partially offset by the closure of the lower 48 time and materials business last quarter and 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 acts improvements.
We expect to spend approximately 140 million in Capex in 2019.
Q4, 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.
Okay.
Thank you for that Pete.
We are as noted several time today, we have our Investor meeting next week, we look forward to seeing many of you there.
There is a linked to register for that at our home page. We appreciate your continued interest in GBCI 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 under telephone keypad and just make sure that your mute function has 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 Pete on the CPI side.
If you decide at some point toward the appeal sale on the our HCV customer. We're funding has been canceled how much how much 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 eroded choose actually sort of mentioned the operating performance of tree. The past you seem to regarded that more as a potential monetization source should we read anything into that about your views on that stake.
And third you've seen this the.
The Liberty broadband and okay.
By proxy the loop GCA 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 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 towers 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.
Okay.
And as far as the operating talking about the operating performance of three I think it's somewhat the reality that tree.
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 state was were $17 million now, it's well well well over $1 billion.
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 and GC I Liberty and the 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 puts or buying stock, which had been far more modest in the efforts a little bit like the situation so not quite as much in the situation at Sirius and Liberty, Sirius where the share repurchases of Syria.
No more aggressive than our Liberty series repurchases, 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. Thanks, triggering the question to what first one for Pete over the summer you mentioned the FCC pattern on some changes to the ARIKACE Ari our HCV reforms.
So it's too early to tell Directionally, what impact that would have him I'm curious if three months later, if you have any idea how that's going to break for you guys.
Hi, This is Tina pigeon GCA General counsel.
He is still early to tell there's a process that has to be undertaken by the.
The Universal service administrative company.
The idea.
Setting rates that a median.
Yes, one that we're looking very closely at but really that data has to be collected involve 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 had to ask two question Don repurchase and the same day, but.
On.
Hi.
It's been.
Since may that.
Buybacks have been pause there im 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.
There is 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 GBCI 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.
Stabilizes situation, but didnt necessarily 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 is going exists 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.
He described that there are opportunities for GBCI in charter to leverage each other ways for technology purchasing power as well as marketing best practices.
Second in the quarter itself for GC I did 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 it the first want to anyone from GC I would like to add please do.
I think there has been ongoing dialogue.
About.
When do you see 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 either 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 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 but I know 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 USA 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.
Yeah.
Our next question will come from Matthew Harrigan with benchmark.
Thank you have three questions. One your unique I guess im on the U.S. misos than being integral to fiveg filled with Ericsson in Anchorage have you drawn any surprises from that in terms of the applicability to the cable to palsy for Fiveg in small cells I mean, that's actually.
Area, where you could be the.
Structure, I guess to a number of other people.
Secondly on the 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.
Thirdly for Greg will have all the political medicine.
You got to increasingly nervous impossible.
Risks to telecom a 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 in them.
Greg cleanup on politics.
We're early in the process to really be able to demonstrate.
But if it's of combining Fiveg wireless network with the extensive hybrid fabrico ex plant that we have we'll know a lot more about how will that actually works by the first half of next year, but clearly our vision is to leverage the small cells of fiveg with the extensive.
Spectrum Holdings, we hub and the virtually unlimited back call that we're able to deployed throughout our communities all way down to the subscriber residents level. So we see a real synergy there in marrying the two on a production front. We also believe there are important synergies and tying those products together.
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, yes 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.
You do 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 the 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.
Okay.
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. This is a 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 and 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.
On the politics and Matt.
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 deal Jay was more of a problem or was less of a problem in the FCC was more we've now got a reverse 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 quick question for Greg on Liberty broadband just thoughts as we look forward to the expiration of the in advanced New House proxy is there anything to be done there should the buybacks take care of themselves. So that's huge your ownership issue.
And that's 25% threshold is a non issue holds together.
Yeah.
Don't know, it's a non issue I would point there probably three ways. It gets solved one.
Some sort of a renewal of that proxy.
Certainly.
Good relations between a particularly John Malone and 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 we've in the past used.
Relatively efficient ways to increase our ownership.
And.
Not take massive amounts of economic risk with collars or the like that could drive us over the 25 on a ROE so I.
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 to all of the listeners and questioners and as we said we hope to see many of you next week in New York, If not we'll speak again next quarter if not beforehand.
Three much operator.
And once again, ladies gentlemen that does conclude our call for today. Thank you for joining US you may now disconnect.