Q4 2019 Earnings Call
[laughter].
Any.
Please standby.
Ladies and gentlemen, thank you for standing by welcome.
2019, Q4 earnings call during the presentation, all participants will be.
Oh.
We will conduct a question and answer session at that time. If you have a question. Please press star one on your telephone.
As a reminder, this conference is being recorded February 26, I would now like to turn the conference <unk> She's portfolio opposite senior Vice President Investor Relations. Please go ahead.
Thank you.
We'd like to remind everyone is calling for.
I mean at the private Securities Litigation Reform Act of 1995 actual results could differ materially.
Number of risks and uncertainties, including those mentioned in our most recent form 10-K filed.
These forward looking statements speak only as of this call.
Liberty broadband expressly disclaim any obligation.
Just have a name any updates or revisions to any forward looking.
Any change in Liberty.
Expectation with regard there too.
Any change in events conditions or circumstances on which any such statements based on today's call. We will discuss certain non-GAAP financial measure seems like an adjusted OIBDA.
Information regarding the comparable GAAP metrics, 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 Liberty Liberty, President and CEO great missing.
Thank you coordinate and good afternoon to all of you went out there on the call today speaking on the call. Besides myself will have.
Liberty's Chief Accounting Officer, Brian.
Gee I CFO Pete pounds.
During the June I will be available to answer questions also related to.
Okay.
So starting first with GE I would read as long as noted in the release, we had a solid operational core.
Pluses and minuses on the regulatory fun front.
Overall the resulted in a.
Benefited the fourth quarter, a $4 million as Brian will discuss further in a moment.
Full year, despite a challenging business environment, there were stable consumer revenue.
There were gains in data from sub growth and consumers moving up the Soc [noise] offset losses in video and voice.
We also generated expense savings from operational efficiencies and I'm focused on the core Alaska business.
Yes, Yes, Gee I continues work.
Anchorage Fiveg buildup.
Specialty completed later this year.
Turning to Lendingtree, which reported in Q4 results yesterday.
Got it over 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 and 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 calls tree issued 2020 guidance for another year of double digit revenue.
Gross.
Turning over to Liberty broadband it was a great here for charter.
He created over 1.1 million, new customer relationships and that added over 1.4 million Internet customers.
Got it over 900000.
Mobile wines and plan to begin offering fiveg in Q1.
For the full here.
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, well combined with declining capital intensity and a disciplined capital deployment strategy.
Thank you to drive continued strong free cash flow.
Particularly <unk> per share basis.
Oh, we do expect cable Capex intensity in 2022 continued to decline from 15% and 29 team.
So with that let me turn it over to Brian to further discuss financial.
Thank you, Greg a quarter and you see on Liberty had consolidated cash and cash equivalent to 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.
Point 7 billion dollar interest in Liberty broadband and a billion dollar interesting lendingtree.
At quarter end do you see I 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.
Her exchangeable debentures, and 1.4 billion up that.
Finance leases and power obligations.
In the fourth quarter G.I. Liberty increased borrowings under the Liberty broadband larger loan by 400 million.
Proceeds were used to repay a portion of the GCR senior credit facility and for general corporate purposes.
<unk> 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 in the cash and debt pay one really.
Our 10-K is filed later.
Notice that you guys running a general weakness in its internal controls over financial reporting.
Mr weakness, resulting from an aggregation of issues identified an I.T. Johnson controls over access the merits systems.
All issues in the fine and operation and business process control.
Our controller she's persistence, we are working toward remediation are implementing various activities to strengthen the control environment going forward.
And process redesign enhanced training personnel development.
But the issues were not an external bridge and did not result, and then in any material such statements that are important financial results.
Before I hand, it over piece, our two significant rule health care events that impacted you.
Yeah. Its results from the fourth quarter that I'd like to walk through.
First in December 29 scene.
John Kim 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 resolve this issue and you can find much more disclosure around this in our 10.
Separately on February 19.
2020, the FCC issued an order, which granted wanted GC eyes, Ari to see customers appeal to reverse the previous funding that.
Which has resulted in a loss of approximately 21 million that we recognize in the first quarter 29.
This new LTC order led to the reversal in the fourth quarter of the 21 million dollar previously recognized law.
We will evaluate in first quarter 2020 to determine what amount of revenue related to this contract for last nine months 2019, and going forward into 2020, we can recognize.
Yeah I has continued wide 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.
First of all together resulted in an that $4 million benefit to John's adjusted OIBDA in fourth quarter.
$18 million negative for the full year.
With that I'll turn it over to Pizza talk about use YOD 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%.
Merrily based on reduced to dismiss video revenue from a lack of political advertising revenue.
Election year.
Adjusted OIBDA was down 10 million or 4% for the year.
Excluding the already seen matter as Brian noted it would have increased 7 million or 3%.
Fourth quarter, we showed strong adjusted OIBDA year over year growth.
10 million or 21%.
Adjusted OIBDA would've been up 9 million or 15%, even without the benefit of the already 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. We finally got two great 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 up the 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 backhaul and roaming revenue.
The 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.
It's flat for the full year, that's the loss of revenue from the previously mentioned, our we'd 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 an awkward 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 questions.
Curious if you could Scott.
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 stock or consider other uses for the cap.
He will take down at the center or 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 this lower quality, our our treasurer.
As you see I'm rates under both the credit agreement and some public bond with respect to the credit agreement.
We are.
Roughly a 5.1 times total leverage ratio.
That metric on that on on covenants. We are approximately five have time versus 86 times covenant.
Obviously, we've seen some fluctuation I mean excuse me.
Fluctuations in next and leverage covenants due to the write offs and then the reversal.
The.
I see issues and we are working just working towards reducing those covenants I mean that calculations every time.
No that the.
Thank you see issues that were effective in first quarter 19 will begin to anniversary.
This quarter first quarter sorry.
And dabbled in proved to be calculation.
Well I think thank you Laura <unk> I think to know what did the right level given the fluctuations potentially in our regulatory matters, we have been conservative against what this might be and we're probably at the levels.
We try and double in Cushing.
Particularly at various times, we had incurrence issues were out of that now the want to make sure that we don't have those issues and the regulatory fluctuations that made a harder.
And just operating question in Alaska do you find that there's a greater sensitivity to natural resource pricing.
Like the oil marketing.
Well every time, a secret side or the consumer side of the cable systems, just curious how to think about some of those sensitivities overtime.
Well I buy I understand your question correctly.
You are basically asking.
How much that the price of oil drive business activity in Alaska.
I think there are people often from GE I side, you can 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.
So in areas like.
Northern slope, what people do very much tied to where they think where oil has been where it will be.
Peter as Ron you want to comment further.
Okay.
And it is substantial naturally between like fluctuate.
Decalogue launch that most loyal whether he wants to be comes to us.
But getting recycle state governments, so low oil prices.
Okay.
Definitions.
Hard.
Immediately and economy and.
The company is under investing on the north slope.
Walter Virginia Beach likely.
Short lived publications.
But there'll probably keep oil obviously, if it stays down three well pad three.
<unk> cycle.
These results.
Thank you.
Next up we'll hear from James Ratcliffe Evercore ISI.
Hi, Thanks for taking the question gets too if I could.
There's a comment in the release that parents.
Impairment loss of 167 million relate to wireless licenses and can you just talk about what drove that reassessment about long term wireless revenue and secondly, the oh on.
Absolutely broadband sides, the new house proxies coming up next may looks though like I'm doing math right, but she should be pretty close to if not over 25%.
And any way at least with TCR Liberty's help.
If you could just any thoughts on how you plan to approach that thanks sure James All I'll take the second question first than what.
Oh, no Debbie among whose I think it's going to be right. Brian is going to answer on the wireless question, but on the Liberty broadband question.
Thank you rightly noted that will proxy will expire like there are several.
Potential remedies to ensure that we don't have regulatory issues around the investment active 1940.
Potential remedies could first be extending the proxy.
I don't know whether the.
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 but probably not be a plus for them and more importantly, I think you know John Malone in particular in the new outstanding partnership for 30 years, it's been very successful and this is this charter investments 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.
Charter continues to buy back stock and could very well depending on the rate of their repurchases, we could very well end up over 25 on a row.
When you combine the monies that we have in the private both to come across from GE shy limited to Liberty broadband.
And lastly, there are things, we could certainly do including buying more stock and charter directly we have tended to put our purchases at least the liberty broadband because its right to the discount.
But we could do things you've seen US do for example, as we treat.
Use a relatively collared purchase.
And that would not causes to have a massive outlay of capital.
I would give us some upside in the stock and 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.
Wait 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 are required to look at all your various non amortizing intangible. So it's a standard process that we went through.
We won't disclose or go into 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 resulted in the impairment.
Great. Thank you.
Our next question today will be from Zacks Silver B. Riley FBR.
Okay, Great picture and the question I know that they're a lot of moving pieces on the.
All right you see they're both the that plus and minus Ah you guys disclosed today.
Wondering if you could sort of directionally give us a side so how that may impact Oh, It got I'm 20 Twond.
You know I think.
You would expect are all else being equal that we should be receiving positive impacts that weve.
The contracts that were suspect we took a $17 million or bottom. There is the potential we could end up with a larger reserve on that but I think we're comfortable we have the right reserving the facts and circumstances, we know.
Are you.
You've seen that we reversed the 21 theres more roughly $3 million.
A quarter that we were undertaking that is sitting a store our balance sheet for.
Of course recourse work, so there's 9 million more that sitting there into spends.
The variables round out our what reimbursement rate, we'd get from the FCC.
Yes, the same reimbursement rate that we received.
On the 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 <unk>.
Receipt revenue 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 them.
Yeah, so that that that's helpful. And then like more of a higher level I know just given.
The people that sprint decision recently.
Yeah horizontal merger would love to hear your take on.
Yeah, Greg, Iran nuclear whoever implications for M&A, a large scale M&A a charter.
This pressure that with this decision opened the door for things that you may have not thought would have been possible before.
Ron do you want to add any comments or.
Well I think that was more targeted towards the.
Chartered a level would see level.
The T mobile queensgate for Juicy couture People's all luggage roaming partner and we get a lot of Nike from them. We will have access to additional spectrum that comes to us through their merger was.
Over the last year and also.
Near term revenue effect to replace.
Yeah.
Yes, so the juice you asked this but.
<unk>.
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 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 other large scale deals.
The fact that people were very interested in seeing fiveg.
Rolled out.
And what that might need about other combinations and willingness to overlook potential detriment in the deal or 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.
Yeah. It makes sense. Thank you guys.
Yeah.
Next up we'll hear from John Melo Suntrust.
[noise] pay some of 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 $400 million of additional margin loans.
What's the if you could 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 pay down more gaps with those types of loans, whether its revolver or the 678, So 25.
Hi, its wearable all the I guess.
Right that we pay a spread to LIBOR plus 25.
Correct.
[laughter] partially refi.
LLC facility, which is now.
Yeah.
Did that and the presence of this load is is a principal art.
Regulatory reasons.
[noise] understood. Thanks, Fred Thanks for the answer.
Yeah.
Final question comes from Matthew Harrigan benchmark.
Well. Thank you all policies routes in the same but slightly and all good question as last quarter, but you still have to cool the.
Early customer discounts.
It'll be RJ.
Can't get a.
Letter ruling from the IRS would be more is there anything in Washington, given all the uncertainty they would make it desirable to collapse the Russian bowl structure.
This year, particularly as the Alaskan out seven shows you know clearly better performance, although I know you'd probably couldn't even though necessarily completed regulatory review before.
In terms of Washington, <unk>, if you want to change in Washington.
Did that you know, we clearly obviously have no planar 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 taking advantage of various discounts.
Consolidating some of our holdings in 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 Matthew 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 users would be largely around IRS FCC worked from.
Yes.
Thanks, Greg.
Thank you very much to everyone who was on the call. Thank you know our friends up in Anchorage, who for their comment. 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.
Ladies and gentlemen that does conclude today's conference. Thank you all for your participation you may now disconnect.
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