Q4 2019 Earnings Call
In.
Please standby.
Ladies and gentlemen, thank you for standing by welcome.
2019, Q4 earnings call during the presentation, all participants will be.
Oh.
Afterwards, 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 on February 26, I would now like to turn the conference over to core.
Portfolio Officer in senior Vice President Investor Relations. Please go ahead.
Thank you.
We'd like to remind everyone is calling for the certain forward looking statements in the medium to 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 our most recent form 10-K filed.
These forward looking statements speak only as good data basketball.
Liberty broadband expressly disclaim any obligation.
Disseminate the updates or revisions to any forward looking.
Any change.
Liberty broadband expectations with regard there too or any change in events conditions or circumstances on which any such statements big.
It's called who will discuss certain non-GAAP financial measures, including adjusted.
Information regarding the comparable GAAP metrics, along with the required definitions and reconciliations including preliminary no scheduled 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.
Thank you coordinate and good afternoon to all of you out there on the call today speaking on the call Besides myself.
Liberty's, Chief Accounting Officer, Brian one way.
<unk> CFO.
During the Q1 I will be available to answer questions also related to.
So starting first with GE I Liberty.
As long as noted in the release, we had a solid operational core.
There were pluses and minuses on the regulatory fun front.
But overall the results.
Benefit in the fourth quarter, a $4 million as Brian will discuss further in a moment.
For the full year, despite a challenging business environment, there were stable consumer revenue.
James and data from sub growth and consumers moving up the stack.
Offset losses in video.
We also generated expense savings from operational efficiencies.
Focused on the core Alaska business.
James Sheehan Gee I continues work.
Average fiveg buildup.
We expect will be completed later.
Sure.
Turning to Lendingtree, which reported in Q4 results yesterday.
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.
Insurance is now 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 to raise call and 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.
I don't know were 900000.
Hawaiian sometime 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 deploying capital intensity and a disciplined capital deployment strategy.
Thank you to drive continued strong free cash flow.
Particularly on a per share basis.
Oh, we do expect cable Capex intensity in 2022 continued to decline from a 15% and 29 team.
With that let me turn over to Brian to further discuss financial.
Thank you Greg.
Corenergy Liberty had consolidated cash and cash equivalent to 570 million.
Include 61 million of cash.
Values the public equity securities the Jeep Liberty yesterday's close was 9.4 billion.
This includes our 2.8 billion dollar interest in charter.
5.7 billion dollar interest in Liberty broadband and a billion dollar interesting lendingtree.
At quarter end Liberty had total principal amount of data 3.2 billion, which includes a 1.3 million margin loan outstanding against its Liberty broadband shares the charter exchangeable debentures, and 1.4 billion of debt, including finance leases the tower obligations.
In the fourth quarter GC I Liberty increased borrowings under the Liberty broadband margin loans by 400 billion.
Proceeds were used to repay a portion of the GTR 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 about the amounts exclude the indemnification obligations preferred stock, which are separately identify some cash and debt pay one release.
Our 10-K as filed later you will notice that you guys running out you're a weakness and its internal controls over financial reporting.
What's your weakness resulted from an aggregation of issues identified Nike general controls over access to various system.
All issues in the fine an operation and business process control.
Our control issues persistence, we are working toward remediation are implementing various activities to strengthen the control environment going forward.
In process redesign enhanced training personnel development.
But the issues or not and external bridge did not result, and in any material my statements and our reported financial results.
Before I hand, it over piece are choosing has got more health care events that impacted you.
Hi, guys results in the fourth quarter that I'd like to walk through.
First in December 2019.
These job became aware of compliance issues on certain active unexpired RH d. contracts.
Because these issues, we had accrued a loss of approximately 17 million SG nine the fourth quarter.
We continue to work with the FCC does all this issue and you can find much more disclosure around us and our 10th.
Separately on February 19, twenties wanting the FCC issued an order, which granted one of GT eyes are agency customers appeal to reverse a previous funding that.
Which has resulted in a loss of approximately 21 million that we recognized in the first quarter 20 magazine.
This new LTC order led to the reversal in the fourth quarter over $21 million previously recognized.
We will evaluate the first quarter 2020 to determine what amount of revenue related to this contract for Lastline lots of 2019 and going forward into 2020, we can recognize.
She has continued wide service for all periods and this would be taken into account in our analysis.
At this point, we would expect to recognize all or the majority of this revenue barring new information from the FCC.
Loss accrual reserve reversal together resulted in another $4 million benefit did you guys adjusted OIBDA in fourth quarter.
$18 million negative.
With that I'll turn it over to pizza talking about you guys 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 business video revenue from a lack of political advertising revenue in a non election year.
Adjusted EBITDA was down 10 million or 4% for the year.
Excluding the are you seeing matters, Brian Nobody 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.
9 million or 15%, even without the benefit of the see matters Brian discussed.
This adjusted OIBDA improvement is 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 flock cable modem subscribers.
Finally had 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 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 side 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 non 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 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, we expect 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 to 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.
For the company and the capacity you have to either increased investments.
Repurchase stock or consider other usage.
He will take that 1% or once 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 the floor of all the art our treasurer.
And you see eye on rates under both the credit agreement and some public bond with respect to the credit agreement a we aren't has roughly a 5.1 times total leverage ratio using that metric on.
On the covenants, we are approximately five to have time versus 86 times covenants. Obviously, we've seen some fluctuations and then [laughter] punctuation isn't it and have leverage covenants due to the write off and then the reversals.
The RHP issues and we are working working towards reducing those covenants I mean calculations every time. Please note that the.
All right issues that were effective in first quarter 19 will begin to anniversary.
This quarter in first quarter sorry.
And that will improve these calculations going forward.
Well 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 probably at the levels.
We try and Deblum Cushing.
Particularly very at 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 that made that harder.
And just operating question in Alaska do you find that there's a greater sensitivity.
Natural resource pricing for example, like the oil market.
Yeah, we're it's on the speakers side or the consumer side of the cable seasons, just curious how to think about some of those sensitivities overtime.
Well, if I understand your question correctly.
You are basically asking.
How much the price of oil drive business activity in Alaska.
And I think there are people often from GE I signed it could certainly be more articulate but the answer is quite a lot.
Particularly with some lag on what projects can started what things get built out and what particularly in areas like.
Northern slope, what people do very much tied to where they think where oil has been where it will be.
Peter It's Ron you want to comment further.
She is wrong I'll just add it.
Substantial mahmud between like fluctuating <unk> declined.
Most little over the last bit comes to us.
Like being recycled.
So what oil prices.
It depends on the definitions.
We are.
You do you need continuity and.
Companies that are investing on the north slope.
Walter liking it likely.
Short little nations.
<unk>.
Well, obviously each day.
That makes a walk back through.
Three of ships cycle.
These results.
Thank you.
Next we'll hear from James Ratcliffe Evercore ISI.
Hi, Thanks for taking the questions that's true if I could.
There's a comment in the release that parents or impairment loss of 167 million relate to wireless licenses and can just talk about what drove that really assessment about long term wireless revenue and secondly, the oh on possible what do you broadband sides, the new house proxies coming up next may.
Right.
Looks like if I'm doing the math right.
Should be pretty close to its not over 25% by then anyway at least when she's got liberty's help but.
If you could just any thoughts with how you plan to approach that thanks.
James All I'll take the second question first and wet.
Oh, no Debbie among whose I think it's going to.
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 house is still want us involved but my guess is they do.
Given that they have been largely.
Holding their percentage constant and selling it in the marketplace, having things that would cause us to be either sellers or less involved but probably not be plus to them.
More importantly, I think you know John Malone in particular, the new house families kind of partnership for 30 years, it's been very successful and this is chartered 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 buyback 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 I Liberty broadband.
And lastly, there are things, we could certainly do including buying more stock in charter of directly we have tended to put our purchases at when delivering broadband because it trades at a discount.
But we could do things you've seen US do for example, as we get it tree.
Use a relatively collar purchased it has been answered that would not causes 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 hurdles so well, it's certainly something we pay attention to I think we've a lot of Ah.
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 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 devaluation process results.
Great. Thank you.
Our next question today will be from Zacks Silver B. Riley FBR.
Okay, Great picture and the question I know that there are a lot of moving pieces on the.
All right, you see and with that that plus or minus Ah you guys disclose today, but wondering if you could sort of directionally give us a sense of how that may impact OIBDA in 2020.
I think.
Spect are all else being equal that we should be receiving positive impacts that.
The contracts that were suspect we took a $17 million reserve on there is the potential we could end up with a larger reserve on that but I think we're comfortable we have the right reserve base in the facts and circumstances, we know.
Are.
You've seen that we reversed the 21, there's more roughly $3 million.
A quarter that we were undertaking that is sitting a store in our balance sheet for.
Of course, three quarters worth so there was 9 million more a there is sitting there into spend.
The variables round out our what reimbursement rate, we get from the FCC, where it gets 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 things that we are.
More likely than not to receive revenue rather than <unk>.
She's running 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.
Well Sunrise.
Yeah, so that that that's helpful. And then yeah <unk> more of a higher level I know just given.
The people the spreads decision recently.
Yeah horizontal merger would love to hear your take on.
Yeah, Greg or Rhonda whoever implications for M&A, a large scale M&A a charter.
This press it and what this decision opened the door for things that you may have not thought could have been possible before.
Ron do you want to add any comments or.
Well I think that was more targeted towards.
The charter to levels like T mobile.
It's your mobile deal is crazy for Juicy like why people don't luggage moving forward there and we get a lot of places from them. We will have access to additional spectrum. This comes to us through their merger, which.
Lastly, let me also.
Sure.
Correct.
Please.
Revenues working.
Well the juice you had expected it's.
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 not enormous.
Just because you know you have a stronger competitor.
But on the other had it may have meant that you know Alaska was slightly less competitive environment, maybe an opportunity for charter. So you weigh all those those two pieces hard to know for certain what does it say about you know what some other applications without.
Claiming to have complete pressed against by any means a the fact that the states were being 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.
That might 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.
Yes.
Next we'll hear from John Melo Suntrust.
[noise], Hey, if somebody Karim from Suntrust. Most my questions have been asked my answer 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 marketing along from what I'm, just trying to figure out years, whether it makes sense to pay down more debts with those types of loans, whether its revolver or about 67, there so 25.
Hi, it's horrible going again.
Claims that we pay a spread to LIBOR plus money.
Right.
[laughter] partially repeat.
I don't see facility, which is.
Yes.
Did that and the presence of this loan is his efforts Martin.
Some regulatory reasons.
[noise] understood. Thanks, Fred Thanks for the answer.
Yeah.
Final question money comes from Matthew Harrigan benchmark.
Well, thank you all policies routes and saying, but slightly and do all good question as last quarter.
Because the.
Surely have discounts.
There will be RJ.
You can't give them.
At a ruling from the IRS anymore is there anything in Washington, given all the uncertainty they would make it desirable to collapse watching both structure.
This year, particularly as the Alaskan. They also didn't show you know clearly better performance, although I know you probably couldn't even though necessarily completed regulatory review before.
If they wouldn't change in Washington nuclear wasn't trees, 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 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 that you I don't believe.
Right to be surprised that there would be significant FCC or do you go Jane type issues any trust I think most ccs would be largely route IRS as he seems to work through.
Thanks, Greg.
Thank you very much to everyone who was on the call. Thank you know our friends up in Anchorage, who 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.
Ladies and gentlemen that does conclude today's conference. Thank you all for your participation you may now disconnect.
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