Liberty TripAdvisor Holdings, Inc.
Q1 2020 Earnings Call Transcript

Published: 11 May 2020

[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. After afterwards we will conduct a question-and-answer session. As a reminder, this conference is being recorded as of February 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:]

Thank you. Before we begin, we'd like to remind everyone that 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 Form 10-K and Form 10-Q filed with the SEC. These forward-looking statements speak only as of the date of this call, and GCI Liberty, Liberty Broadband and Liberty TripAdvisor expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in GCI Liberty, Liberty Broadband or Liberty TripAdvisor's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for GCI Liberty, including adjusted OIBDA and adjusted OIBDA margin. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules 1 and 2 can be found in the earnings press release issued today, which is available on GCI Liberty's website. Now, I'd like to turn the call over to GCI Liberty's President and CEO, Greg Maffei.

[Greg Maffei:]

Thank you. Thank you, Courtnee. Good afternoon to all. Today, speaking on the call, 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. First, I hope you're all safe and healthy. I'd also like to thank all of our employees and management teams for their hard work and support through this COVID-19 crisis. So 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 and in particular they're offering three data plans and Wi-Fi 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.

[Brian Wendling:]

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 total principal amount of debt of $3.2 billion, which includes a $1.3 billion margin loan outstanding against its Liberty Broadband shares, which is 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.

[Peter Pounds:]

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 and are working with the Department of Early Education and Alaska Council of School Administrators to help students and teachers stay connected during the crisis.

[Greg Maffei:]

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

[Operator:]

Thank you. All right, we'll now take our first question from James Ratcliffe at Evercore ISI. Please go ahead.

[James Ratcliffe:]

All right. 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 that came down from 19 times to 20 times. 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 of dispensing and what other options you looked at? Thanks

[Greg Maffei:]

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

[Peter Pounds:]

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

[James Ratcliffe:]

Yes, sorry. The nonrevenue-generating wireless subs, which…

[Peter Pounds:]

Yes.

[James Ratcliffe:]

What customers and why were they down year-over-year?

[Peter Pounds:]

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

[James Ratcliffe:]

Right. And Greg, just on L-Trip and...

[Greg Maffei:]

On Certares, yes, we -- unfortunately, we really got caught in a continuous downdraft. We have seen where we had -- previously had when this company Liberty Trip was spun out, we had a full margin loan. We reduced that substantially with a variable price forward , we took the proceeds we received from the one-time dividend to Trip and paid down some of that margin loan and closed on the variable price forward and took the profits from the downs that we put part of that and paid down margin loan. Unfortunately, in the late March period with the downdrafts, we were hustling quickly to find alternatives to remove any margin loan capability or our margin loan exposure. We did talk to a number of private equity firms, and we chose Certares because we think that -- and we had previously had -- both we and Trip had discussions with Certares about other kinds of strategic partnerships. And we chose Certares because, really, we think that their expertise in travel, they have an extensive travel portfolio and the potential for them to be helpful and synergistic in building value at Trip and therefore Liberty Trip was highest. And they were also able to move quickly and we were able to come up with a structure that worked for the two of us.

[James Ratcliffe:]

Great. Thank you.

[Greg Maffei:]

Thank you.

[Operator:]

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

[Michael Rollins:]

Thanks and good afternoon. Two questions, if I could, please. The first one is that you mentioned about the 5G upgrades and the related benefits that you're getting on the 4G network. And 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, just 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:]

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

[Ronald Duncan:]

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 cellphones, both 4G and 5G, and what we're seeing is a doubling to tripling of the average throughput that people experience on their 4G phones. That 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. And 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.

[Peter Pounds:]

And 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 -- so puts against it by stock back. We have both stock back at both companies. We have issued puts at Liberty Broadband. All of those are opportunities that I think are attractive, and we'll use we believe the mispricing by the market trying to take advantage of it.

[Michael Rollins:]

Thank you.

[Operator:]

Right, we'll now take our next question from Bentley Cross at Citi. Please go ahead.

[Bentley Cross:]

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

[Greg Maffei:]

Well, we -- just to be clear, we could increase it probably at any time. We haven't drawn the full amount that's available to us. And 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 how the relative decline for the moment in video subs, the continued expansion of margins, the reduction of CapEx, the continued share reduction -- 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 at Liberty Broadband and GCI Liberty.

[Bentley Cross:]

Thank you.

[Operator:]

All right. We will now be taking our last question from Michael Kerrane at SunTrust. Please go ahead.

[Michael Kerrane:]

Hey, thanks for taking my question. There is 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 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:]

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. And the rubber will really meet the road next year with post July 2021 state budget, and we'll have more color on the long run price of oil by then, but I suspect there'll 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. But instead of coming out quite smartly from the recession that we've been in for the last two to three years, it looks now like it's likely to persist for another year until some things rationalize in the oil space

[Michael Kerrane:]

Thank you.

[Greg Maffei:]

Great. I think that's our last question. So, I want to thank all of our teams, as I said for the great work 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. and thank you very much. And with that, operator, I think we're done.

[Operator:]

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