Q4 2019 Earnings Call
Yeah.
Please standby.
Ladies and gentlemen, thank you for standing by welcome.
2019, Q4 earnings call during the presentation, all participants will be.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press star one on your telephone.
This conference is being recorded February 26, I would now like to turn the conference <unk> Chief portfolio opposite Senior Vice President of Investor Relations. Please go ahead.
Thank you.
We'd like to remind everyone just calling from certain before.
I mean do the private Securities Litigation Reform Act of 1995 actual events or results.
Due to a number of risks and uncertainties.
He knows mentioned in our most recent form 10-K.
These forward looking statements.
This call.
Liberty broadband expressly disclaim any obligation.
Just to name any updates or revisions to any forward looking.
[noise] any change in Liberty.
Expectations with regard there too.
Any change in events conditions or circumstances, which any such statements things on todays call. It will discuss certain non-GAAP financial measures, including adjusted OIBDA.
Information regarding the comparable job not direct along with the required definitions and reconciliations including preliminary note unscheduled why didn't you can be found in the 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, Greg nothing.
Thank you coordinate and good afternoon to all of you out there on the call today's speaking on the call. Besides myself will have.
Liberty's Chief Accounting Officer, Brian.
She she died CFO Pete pounds.
During the Q1 I will be available to answer questions also related to.
So starting first with GE I literally as long as noted in the release, we had a solid operational.
There were pluses and minuses on the regulatory fun front.
Overall the resulted in a.
Benefit in the fourth quarter, a $4 million as Brian will discuss further.
For the full year, despite a challenging business environment, there were stable consumer revenue.
No were gains in data from sub growth and consumers moving up the stack.
Losses in video and voice.
We also generated expense savings from operational efficiencies and a focus on the core Alaska.
JCR Gee I continues work.
Anchorage Fiveg buildup.
Specialty completed later this year.
Turning to Lendingtree, what's important into Q4 results yesterday.
There were 3.6 million users to my Lendingtree during 2019, bringing the total number of customers to 14.3 million.
Let me treat continues to diversify its business effectively.
Your answer about the largest business in grew 37% pro forma versus Q4 last year.
The home and consumer segments also grew double digits over the prior year.
Yesterday as I noted on they had the earnings call and tree issued 2020 guidance for another year of double digit revenue adjusted gross.
Turning over to Liberty broadband it was a great here for charter.
He created over 1.1 million, new customer relationships and not added over 1.4 million Internet customers.
I don't know were 900000 multiple wives and plan to begin offering fiveg in Q1.
For the full year.
Cable adjusted EBITDA grew 6.6%, despite it being a non political advertising year.
And cable free cash flow grew by over 100%.
We expect the cable EBITDA growth combined with declining capital intensity in a disciplined capital deployment strategy.
You need a drive continued strong free cash flow.
Particular per share basis.
Oh, we do expect cable Capex intensity in 2022 continued to decline from the 15% and 29 team.
So with that let me turn it over to Brian to further discuss financial.
Thank you Greg.
Current BTI Liberty had consolidated cash cash equivalents, a 570 million.
Well, it's 61 million of cash.
Valued the public equity securities the Jeep Liberty yesterday's close was 9.4 billion.
Which includes our 2.8 billion dollar interest in charter.
5.7 billion dollar interest in Liberty broadband.
Turning to our interest in Lendingtree.
At quarter end use Liberty had told principal amount of debt of 3.2 billion, which includes a 1.3 billion margin loan outstanding against its Liberty broadband shares the charter exchangeable debentures, and 1.4 billion, a bad including finance leases and power obligations.
[music].
In the fourth quarter Jeep Liberty increased borrowings under the Liberty broadband large alone by 400 million.
Proceeds were used to repay a portion of the GTR senior credit facility and for general corporate purposes.
Do you see on leverage at quarter end as defined in its credit agreement was 5.1 times compared to a maximum allowable leverage of 6.5 times.
Note that the above amounts exclude the indemnification obligation that preferred stock, which are separately identified some cash and that they want to release.
Our 10-K is filed later.
I was that you guys running a general weakness in its internal controls over financial reporting.
Mr weakness, resulting from an aggregation of issues identified Nike general controls over access the merits system.
All the issues in the design and operational business process control.
Our control issues persistence, we are working toward remediation are implementing various activities to strengthen the control environment going for.
Putting process redesign enhanced training and personal involvement.
We know that the issues were not an external breach and did not result man it in any material much statements and our reported financial results.
Before I hand, it over these are two significant rule health care events that impacted you are just yods results in the fourth quarter that I'd like to walk through.
First in December 2019.
Your job became aware of compliance issues I'm certain active unexpired Archie contracts.
Because of these issues, we had accrued a loss of approximately 17 million S. You name it work order.
Continue to work with the FCC does all this issue and you can find much more disclosure around us and our tech.
Separately on February 19.
2020, the FTC issued an order, which granted one of GC eyes, Ari to see customers appeal.
Versus previous funding the though.
Which has resulted in a loss of approximately 21 million that we recognized in the first quarter 29.
This new as you were wasn't the reversal in the fourth quarter over $21 million previously right.
We will evaluate in the first quarter 2020 to determine what amount of revenue related to this contract last line loss of 2019 and going forward into 2020, we can recognize.
Yeah I has continued to provide service for all periods and this will be taken into account more analysis.
At this point, we would expect to recognize all or the majority of this revenue barring new information from the FCC.
The loss accrual reserve reversal together resulted in an that 4 million dollar benefit did you guys adjusted to women in the fourth quarter.
$17 million negative.
With that I'll turn it over to Pizza talk about your operating results in more detail.
Thank you Brian.
Revenue was down in the full year 2019, as compared to 2018, primarily due to reductions in consumer video and voice as well as business wireless and video revenues.
When comparing the fourth quarter results 2019, Q4 revenue was down 1% primarily based on reduced dismiss video revenue from a lack of political advertising revenue.
An election year.
Adjusted OIBDA was down 10 million or 4% for the year.
Excluding the our we'd see matter as Brian noted it would have increased 7 million for 3%.
For the fourth quarter, we showed strong adjusted OIBDA year over year growth.
13 million or 21%.
Adjusted OIBDA would've been up 9 million or 15% even without the benefit of the are you see matters Brian discussed.
This adjusted OIBDA improvement, it's mostly due to our focus on cost efficiencies.
Moving on to consumer we're just starting to see signs of life on the Alaskan economy. After a few years of flat cable modem subscribers.
Finally got to break quarters in a row sequential cable modem subscriber growth.
In the fourth quarter, we grew 2400 didn't get subscribers and continued to new customers and product stack, which helped us reach 85% and 6% growth rate in consumer data revenue on a quarterly and annual basis, respectively.
Consumer wireless revenue was up slightly due to increased handset sales.
We continue to make our Anchorage five band Fiveg upgrades, which we expect to complete this summer.
On the business, our revenue was down slightly in the fourth quarter and full year losses in wireless voice and video offsetting good performance in business data.
The decline in wireless was due to lower back call them roaming revenue.
Video losses were due to not election year advertising revenue declines.
On the data side revenue increased in the fourth quarter due to additional services provided to our healthcare and education customers and was flat for the full year. That's the loss of revenue from the previously mentioned already see customer offset these additional services.
For the year, we invested approximately 133 million in capital expenditures.
Expenditures were primarily for improvements to our wireless fiber and co wax networks.
Back to spend a similar amount in 2020.
I'll now hand, the call back over to Greg.
Thank you, Brian and thank you Pete we have a scheduled our 2020 investor meeting for Thursday November 19th in New York. So please mark your calendars.
As always we appreciate your continued interest in GCR Liberty and we look forward to chatting with you next quarter if not before.
And with that operator, I'd like to open up for questions.
Thank you, Sir ladies and gentlemen, once again, it's star one if you have a question. My first question comes from Michael Rollins.
Hi, Thanks for taking my question.
Curious if you could discuss.
Yeah I level.
What's the most appropriate target leverage ratio.
He said the company and the capacity you have to either increase investments.
Purchase stop or consider other uses for the capital.
He will take that at the time for why did you talk about where we are in terms of leverage both in the constraints. We currently have at the G.I. level given covenants.
Sure on this lower ball the art our treasurer.
Oh Gee I on rates on your part of the credit agreement and some public bond with respect to the credit agreement.
We are.
Roughly a 5.1 times total leverage ratio using that metric on on the bonds covenants. We are approximately five have time versus 86 times covenants.
Obviously, we've seen some fluctuation and then [laughter] fluctuations in that and leverage covenants due to the write off and then the reversal.
The.
Right you see issues and we are working just working towards reducing those covenants.
Calculations over time, please note that the.
Thank you see issues that were affected in first quarter 19 will begin to anniversary.
This quarter first quarter sorry.
And that will improve these calculations.
I think thank you Laura <unk> I think to know what did the right level given the.
Fluctuations potentially a regulatory matters.
We have been conservative against what this might be and we're probably at the levels.
We try and those little cushion.
Typically three times, we had incurrence issues were out of that now but want to make sure that we don't have those issues and the regulatory fluctuations of beta harder.
And just operating question in Alaska do you find that there's a greater sensitivity to natural resource pricing for example, like the oil market.
Yeah, we're talking to these new side.
Sumer side of the cable systems, just curious how to think about some of those sensitivities overtime.
Well, if I understand your question correctly.
You're basically asking.
How much that the price of oil drive business activity in Alaska.
And I think there are people often from GE <unk> certainly be more articulate but the answer is quite a lot.
Particularly with some lag on what projects get started what things get built out and what typically in areas like.
Northern slope, what people do very much tied to where they think where oil has been where it where it will be.
Peter and Brian you want to comment further.
Well I'll just add it.
Substantial demand for between like fluctuating Wild places and deploying getting watch that most little will be lucky comes to us.
Being recycled by the state government, so we'll want to approaches.
Correct.
Definitions.
Immediately economy and.
The company actually getting on the north slope.
Really long term horizon, which likely.
<unk>.
Sure.
Issues.
But there'll probably keep oil obviously it stays down worried.
And she's whats readership cycle.
She was result.
Thank you.
Next up we'll hear from James Ratcliffe Evercore ISI.
Hi, Thanks for taking the questions two if I could just.
Just a comment in the release that parents Uh huh impairment loss of 167 million relate to wireless licenses and can just talk about what drove that reassessment about long term wireless revenue.
And secondly, the Oh on.
Oh, absolutely broadband side, he knew house proxies coming up next may.
It looks like something math right. So it should be pretty close to its not over 25% by then anyway at least when she's got liberty's help but.
You could just any thoughts about how you plan to approach that thanks sure James All I'll take the second question first of all that.
Jimmy among whose I think it's kind of right, Brian it's going to answer on the wireless question well at Liberty broadband question.
I think you rightly note.
That will proxy will expire.
There are several.
Potential remedies to ensure that we don't have regulatory issues around the investment active 1940 a.
Potential remedies could first be extending the proxy.
I don't know, whether they do I still want us involved but my guess is they do.
Given that they have been largely.
Holding their percentage constant and selling into the marketplace, having things that would cause us to be either sellers or less involved would probably not be a plus for them.
More importantly, I think you know John Malone in particular, the newest families out a partnership for 30 years. That's been very successful in this is chartered vessel has worked out well for both parties. So I suspect they might be willing to extend that we've not really talk about that.
Secondly, as you rightly no the [noise].
Charter continued to buyback stock and could very well depending on the rate. If there were purchases, we could very well end up over 25 on a row.
When you combine.
The monies that we have in the probably the both to come across from GE shy at Liberty to Liberty broadband.
And lastly, there are things, we can certainly do including buying more stock in charter directly we have tended to put our purchases of linked to liberty broadband because its rights at a discount.
But we could do things than you've seen US do for example, as we treat.
Use a relatively collared purchase it has been asked that would not cause us to have a massive outlay of capital.
I would give us some upside in the stock when some downside protection Bose.
And get us over the 25 hurdle, so well, it's certainly something we pay attention to I think we have a lot of Ah.
Ways to solve any regulatory issues related to that may arise.
And then on the wireless impairment question, you know as required by GAAP that at the end of each year you your part and look at all your various non amortizing intangible. So it's a standard process that we went through.
We won't disclose are going to too many of the details on the various variables that drive that valuation but.
There was increased uncertainty.
Related to certain customers that flow through the evaluation process result.
Great. Thank you.
Our next question today will be from Zacks Silver B. Riley FBR.
Okay, Great ethics, you're going to question I know that they're a lot of moving pieces on the.
Our H.C., there, but that that plus and minus Ah you guys disclosed today, but wondering if you could sort of directionally give us a sense of how that may impact OIBDA and 20 Twond.
I think up.
You would expect are all else being equal that we should be receiving positive impacts that.
The contracts that were suspect we took the $17 million reserve on their into potential we could end up with a larger reserve on that but I think we're comfortable we have right reserve base in the facts and circumstances, we know.
You've seen that we reversed the 21, there is more roughly $3 million.
On a quarter that we were undertaking that is sitting stored on our balance sheet for.
Recourse three quarters worth so there's 9 billion more.
That is sitting there into spends.
The variables around that or what reimbursement rate, we get from the FCC. If we were again.
Same reimbursement rate that we received.
17 revenues, we would recognize all of that money. So on the margin today you'd have to think that we are.
More likely than not to receive revenue rather than.
Receipt rubbing off the balance sheet from those FCC issues, rather than we're not in current new issues I don't know if anyone else, Brian Ron or Pete wants to add to my answer there.
I will summarize.
Yeah, so that that that's helpful.
And then like more of a higher level one just given.
The people that sprint decision recently.
<unk> dollar merger would love to hear your take on.
Yeah, Greg or Ron whoever implications for M&A, a large scale M&A a charter.
Precedents, what this decision to open the door for things that you may have not thought would have been possible before.
Ron do you want to add any comments or.
I think that was more targeted toward the.
Sure the level look to mobile.
T mobile deal was quite good for juice Whiteboard T Mobile's, our luggage roaming partner and we get a lot of.
We will have access to additional spectrum that comes to us.
Merger, which.
Lastly, let me also.
Sure.
To replace.
And you should work due principally to juicy as expected.
Oh interesting.
Looking at the larger issues about what what it might mean for charter.
You know I think on the margin it was probably a slight negative.
No I know warm as I'm, just because you know you have a stronger competitor.
But on the other hand, it may have meant that you know a less capitalized slightly less competitive environment, maybe an opportunity for charter. So you weigh all those.
It was two piece, it's hard to know for certain what does it say about whereas some other applications without.
Claiming to have complete prescient by any means.
The fact of the states would be back is probably a positive for imagining rather large scale deals.
The fact that people were very interested in seeing fiveg.
Rolled out.
And what that might mean about other combinations and willingness to overlook potential detriments in the dealer potential problems with the deal in pursuit of all of enabling fiveg.
My Portend things that we could do otherwise, but I'm not sure. It's a massive you know impact one way or another we'll see does a stronger timo is a stronger timo real threat I think that's the biggest issue.
Yes, it makes sense. Thank you guys.
Yeah.
Next up we'll hear from John Melo Suntrust.
[noise] Hey, this is my Karim from Suntrust. Most of my questions have been asked and answered but I just wanted to ask your mom if I could get more color on the $400 million over just a margin loans.
What's the you can remind me like what's the rate that you get on those marching along I'm, what I'm, just trying to figure out to whether it makes sense to two down more debts with those types of loans, whether its revolver or about 67 ex the 25.
Hi, It's wonderful day again.
Claims that we pay a spread to LIBOR plus 25.
Correct.
[laughter], partially recently.
Hi.
LLC facility, which is.
Yeah, we did that and the presence of this loan is is up for some art.
Regulatory reasons.
[noise] understood. Thanks, Fred Thanks for the answer.
Final question comes from Matthew Harrigan benchmark.
Well. Thank you all policies routes in the same a slightly Adele good question as last quarter.
Because the.
Fairly customer discounts.
There will be already.
You can't get a.
Letter ruling from IRS anymore is there anything in Washington, given all the uncertainty that would make a desirable to collapse. The Russians all structure this year, particularly as as the Alaskan elsewhere that shows you know clearly better performance ordinarily you probably couldn't even though necessarily completed regulatory review before.
If there were some change in Washington, <unk>, if there wasn't trees in Washington.
Did that you know, we clearly obviously have no plan our intent on that but we have certainly read that others have suggested it.
And you know saw the logic for that might be just reducing overhead or taking advantage of various discounts.
Consolidating some of our holdings in the one spot.
That would obviously be subject to some issues around tax.
Some issues around probably investment company.
I do not believe.
And the way you're sort of suggesting that you I don't believe.
Always ready to be surprised that there would be significant FCC or do you go Jane type issues any trust I think most teachers would be largely route IRS FCC worked for.
Okay.
That's great.
Thank you very much to everyone who was on the call. Thank you know our friends up in Anchorage, who for their comments. Thank you everyone here in Colorado, and we as I said, we look forward to speaking with you all again next quarter if not sooner.
Right.
Gentlemen that does conclude today's conference. Thank you all for your participation you may now disconnect.
[noise] Oh I'm [noise].
[noise].