Earnings Call Transcript - LBRDA Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the GCI Liberty 2020 Q1 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded as of April 26, 2020. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer and Senior Vice President of Investor Relations. Please go ahead, ma'am.

Courtnee Chun, Chief Portfolio Officer

Thank you. Before we begin, we'd like to remind everyone, this call includes certain forward-looking statements within the meaning of the 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 forms 10-K filed with the SEC.

Greg Maffei, CEO

Thank you, Courtnee. Good afternoon to all. Speaking on the call today, we will have GCI Liberty's Chief Accounting Officer and Principal Financial Officer, Brian Wendling; GCI's CFO, Pete Pounds, will also be available during the Q&A to answer questions related to Liberty Broadband and Liberty TripAdvisor. I hope you're all safe and healthy. I would also like to thank all of our employees and management teams for their hard work and support through this COVID-19 crisis. Let me begin by turning to GCI Liberty. At GCI, the team has been very focused on keeping Alaskans connected during the pandemic. Their strong network has withstood substantial increases in network traffic. They have been providing free entry-level data plans for new customers and free upgrades for existing customers. In particular, they are offering three data plans and WiFi equipment for K-12 students and teachers. Part of that is that they are participating in the FCC's Keep Americans Connected Pledge with other carriers across the nation. GCI's business model, and the cable business model in general, has proved resilient, and the first quarter results were excellent. As part of those results, they also announced the official launch of their first 5G service in Anchorage. You'll hear more about that from Pete Pounds and some of the results in a minute. Turning to LendingTree, they reported solid first-quarter results on Tuesday. They launched the SBA lending marketplace to match small businesses in need with lenders to facilitate access to funds under the PPP program. They announced a $1 million donation through the LendingTree Foundation for pandemic relief.

Brian Wendling, Chief Accounting Officer and Principal Financial Officer

Thanks, Greg. We'll spend a minute talking about GCI Liberty's liquidity position here. At quarter-end, GCI Liberty had consolidated cash and cash equivalents of $569 million. This includes $82 million of cash that's held at the GCI operating level. The value of the public equity securities at GCI Liberty, as of today's close, was $8.8 billion, which includes our $2.7 billion interest in Charter, $5.3 billion interest in Liberty Broadband, and an $800 million interest in LendingTree, all up nicely since quarter-end. At quarter-end, GCI Liberty had a total principal amount of debt of $3.2 billion, which includes a $1.3 billion margin loan outstanding against its Liberty Broadband shares, fully drawn, the Charter exchangeable debentures, and $1.4 billion of debt, including finance leases and tower obligations at GCI. GCI's leverage at quarter-end, as defined in its credit agreement, was 4.4 times compared to a maximum allowable leverage of 6.5 times. GCI has $267 million of undrawn available capacity on its revolver as of the end of the quarter. Note that the above amounts exclude the indemnification obligation and preferred stock at GCI Liberty. With that, I'll turn the call over to Pete to talk about GCI's operating results.

Pete Pounds, CFO

Thanks, Brian. Starting with the COVID-19 update, as Greg mentioned, we're committed to keeping Alaskans connected during this time. We have a number of offers out there to both new and existing customers for our data service. We are working with the Department of Early Education and Alaska Council of School Administrators to help students and teachers stay connected during the crisis. Along with other carriers throughout the country, we are also participating in the Keep Americans Connected Pledge, which includes opening up our WiFi hotspots for public use, suspending disconnects, and waiving late fees for residential customers and small businesses who have been impacted by COVID-19. The Alaska state economy has been impacted by both the COVID-19 crisis and the depressed oil market. In the last six weeks, we've had 70,000 jobless claims in a state with a workforce of just over 400,000. Small businesses and companies in the oil and tourism industries have seen significant damage. While we did not see a meaningful slowdown in revenues or collections in the first quarter, this is the area that concerns me most this year.

Greg Maffei, CEO

Great. Thanks to both Brian and Pete, and to our listening audience. We appreciate your continued interest in GCI Liberty, Broadband, and Liberty TripAdvisor. And with that, operator, I'd like to open the line for questions.

Operator, Operator

Thank you. We'll now take our first question from James Ratcliffe at Evercore ISI. Please go ahead.

James Ratcliffe, Analyst

Thanks for taking the question. One on GCI and one on L-Trip if I could. On the GCI front, I understand you have the free cable modem subscribers. It looks like they highlight the non-revenue generation came down from 2019 to 2020. What are those? And why did they drop year-on-year? And Greg on the L-Trip front, can you just give us some context around why you chose that route dispensing and what other options you looked at? Thanks.

Greg Maffei, CEO

Sure. Why don't you go ahead and start? You can have that, Pete.

Pete Pounds, CFO

Yes. So, the question was on data subs year-over-year? It was breaking up a little on our side.

James Ratcliffe, Analyst

Yes, the non-revenue generating wireless subscribers were down year-over-year.

Pete Pounds, CFO

Yes. So we have had promotions, much like the rest of the industry, to get mobile broadband, such as the sticks that you put in your laptops or iPads, and we were giving them away on a promotional basis. When those started to cost customers money, they did start to disconnect those. So it's a loss of subscriber count, but it's not a revenue hit. Does that help, James?

James Ratcliffe, Analyst

Yes. And Greg just on L-Trip and context...

Greg Maffei, CEO

On Certares, we unfortunately got caught in a continuous decline. When Liberty Trip was spun out, we had a full margin loan. We significantly reduced that with a variable price forward. As the stocks were spun out, we took the proceeds from the one-time dividend to Trip, paid down part of the margin loan, closed on the variable price forward, and realized profits from the declines.

James Ratcliffe, Analyst

Thank you.

Operator, Operator

We'll now take our next question from Michael Rollins at Citi. Please go ahead.

Michael Rollins, Analyst

Thanks and good afternoon. Two questions if I could, please. The first one is that you mentioned the 5G upgrades and the related benefits that you're getting on the 4G network. Is there a way you would frame the incremental revenue opportunities relative to the current wireless space of revenue from these upgrades as you look at monetizing that and becoming more competitive? And then just secondly, any thoughts on how you look at the current market volatility and what it's meant for the NAV discounts for GCI Liberty and for Liberty Broadband?

Greg Maffei, CEO

I'll let Pete or Ron start on the first.

Ron Duncan, Analyst

I'll take a stab at the 4G 5G piece. Basically, by implementing a full five-band radio in concert with the upgrade to the 5G new radio, we very substantially expanded the total bandwidth available to all cell phones, both 4G and 5G. What we're seeing is a doubling to tripling of the average throughput that people experience on their 4G phones. This moves us from the back of the pack in the marketplace in terms of network performance to the front of the pack, even if you only have a 4G device. We think it will both reduce churn and help us gradually gain share in the marketplace. So it's a substantial improvement in our competitive position.

Pete Pounds, CFO

If you look at the NAV discounts, they certainly for a period blew out and expanded dramatically in the liquidity crisis towards the end of March. They've gradually tightened in most cases, but still are trading at some discounts. Look, I think over the long term, as we stabilize the business, that's an opportunity for GCI Liberty and frankly Liberty Broadband to take advantage of that discount and either put stock back or we have both stock buyback at both companies. We have issued puts at Liberty Broadband. All of those are opportunities that I think are attractive, and we'll look to use the mispricing by the market trying to take advantage of it.

Michael Rollins, Analyst

Thank you.

Operator, Operator

We'll now take our next question from an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Just following on with the last question. I mean, given the strength in Charter price, how willing would you be to increase the size of the margin loan at Liberty Broadband when that comes due?

Greg Maffei, CEO

To be clear, we could increase it probably at any time. We haven't drawn the full amount that's available to us. As you rightly point out, the margin balance is low in terms of – compared to the size of our charter investment at Liberty Broadband. That having been said, we're cautious in this environment around margin loans. We saw volatility across our portfolio on margin loans both at Live Nation and at Liberty Trip as we just discussed. So we're cautious on that, but we'll pay attention and look for the right time to take advantage of that. We are very confident in Charter's results. Charter is, we believe, very well positioned in the market. You look at how broadband subs are growing, you look at the relative decline for the moment in video subs, the continued expansion of margins, the reduction of CapEx, and the continued share count reduction, which is all driving free cash flow per share dramatically. We remain quite optimistic on Charter. So we'll look to try and take advantage of it at Liberty Broadband and GCI Liberty.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

We'll now be taking our last question from Michael Kerrane at SunTrust. Please go ahead.

Michael Kerrane, Analyst

Thanks for taking my question. A question for Ron Duncan about Alaska. It sounds like you guys are providing a great service for Alaskans who are stuck at home impacted by COVID. But as far as the economy goes, last time the price of oil declined, there was a lot of talk about austerity programs at the state government level and the reduction in spending and potential cancellation of state-funded projects that might exacerbate impacts on the economy. I just was wondering if you could comment on what the state government's position is right now as it relates to dealing with the lower price of oil.

Ronald Duncan, Analyst

Thanks. The state obviously gets caught in the double whammy both between the economic impact of the COVID shutdown and the very low price of oil. The good news is that it's a longer-term impact, and we're unlikely to see the bulk of it until next year. It will take the oil industry a little while to spin down. The state legislature recessed and went home having approved the budget for the current fiscal year, which runs through July of 2021. The rubber will really meet the road next year with a post-July 2021 state budget, and we'll have more color on the long-run price of oil by then, but I suspect there will be some further cutbacks. We've already done a lot of cutting back and pulled in a lot. So it won't be as bad as it would have been had this happened to us two years ago. Instead of coming out quite smartly from the recession that we've been in for the last two or three years, it looks now like it's likely to persist for another year until some things rationalize in the oil space.

Greg Maffei, CEO

Great. I think that's our last question. So, I want to thank all of our teams for the great work they're doing through the COVID crisis and thank all of you for participating in today's call. Hopefully, we'll speak to you safely next quarter if not before. Thank you very much. And with that operator, I think we're done.

Operator, Operator

Yes. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.