GCI Liberty Reports Third Quarter 2019 Financial Results

Montag, 11.11.19 22:15
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ENGLEWOOD, Colo. –

GCI Liberty, Inc. (“GCI Liberty”) (Nasdaq: GLIBA, GLIBP) today reported third quarter 2019 results. Headlines include(1):

  • GCI(2) total revenue grew 3% compared to the third quarter 2018
    • GCI Consumer revenue grew 5%, with Consumer data revenue up 8%
    • GCI Business revenue flat
  • GCI operating income down $1 million, Adjusted OIBDA(3) up 5%

“We are starting to see the benefits of improvements in efficiencies and new products that we mentioned during the second quarter,” said GCI CEO, Ron Duncan. “We are making good progress on our 5G deployment and expect our Anchorage project, which covers an area approximately the size of Rhode Island, to be completed in 2020. Our customers are already starting to see significant benefits from that upgrade and we look forward to having one of the first 5G-NR compliant networks in the nation - certainly the northernmost.”

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months ended September 30, 2019 to pro forma financial information for the same period in 2018.

The pro forma financial information presented herein for the three months ended September 30, 2018 was prepared assuming the acquisition took place on January 1, 2017. The pro forma financial information is presented for illustrative purposes only and does not represent what the results of operations of GCI would have been had the acquisition occurred at that time. GCI's pro forma operating results include acquisition accounting adjustments primarily related to revenue, depreciation, amortization, stock compensation and the exclusion of transaction related costs. The pro forma results have also been adjusted for the FCC's Rural Health Care decision.

GCI

GCI receives support from various Universal Service Fund ("USF") programs: high cost, low income, rural health care, and schools and libraries, and also contributes into the USF. The USF Rural Health Care ("RHC") Program subsidizes the rates for services provided to rural health care providers. In November 2017, the Universal Service Administrative Co. ("USAC") requested further information to support GCI's rural rates charged to a number of its RHC Program customers for the year that runs July 1, 2017 through June 30, 2018 (the "2017 Funding Year"). On October 10, 2018, the Federal Communications Commission ("FCC") staff notified GCI of their decision to reduce RHC support payments to GCI for the 2017 Funding Year by $27.8 million, an approximate 26% reduction, and to apply the same cost methodology to subsequent funding years. Pro forma financials for the third quarter of 2018 reflect this reduction. GCI filed an appeal to the FCC staff decision on November 9, 2018 and a supplemental appeal on January 29, 2019. GCI will continue to pursue this appeal and expects to reduce future RHC Program revenue by a similar rate until a final resolution is reached with the FCC.

Separately, on November 30, 2018, GCI received multiple notices from USAC denying requested funding from an RHC customer (the "Customer") for the 2017 Funding Year. In November 2017, USAC requested information from the Customer related to bidding process documentation for two separate service contracts they have with GCI. The Customer responded, but USAC denied the funding based on the determination that bids previously received were not submitted with the original funding request and/or that bidding information submitted was related to the wrong bidding year. The Customer filed an appeal with USAC on January 29, 2019 and made a supplemental filing on March 12, 2019.

On May 6, 2019, USAC denied the appeal. As a result of the denial, in the first quarter GCI recorded a reserve of $21 million and an associated bad debt expense representing the portion of revenue for the Customer that would have otherwise been subsidized by the RHC Program recognized from July 1, 2017 through March 31, 2019. GCI will not recognize RHC revenue to the extent services continue to be provided to the Customer, which has historically approximated $12 million per year, until an adequate level of clarity is reached on the matter and the applicable revenue recognition criteria are met. Thus, GCI did not recognize revenue for the services provided to the Customer for the three months ended September 30, 2019. The Customer appealed the decision on July 5, 2019, but resolution and timing of the appeal are unknown at this time.

The following table provides GCI’s operating metrics and pro forma financial results for the third quarter of 2018 and 2019.

(amounts in thousands, except operating metrics)

 

 

3Q18

 

 

3Q19

 

% Change

GCI Consolidated Financial Metrics

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

Consumer

 

$

105,377

 

 

$

110,322

 

 

5

%

Business

 

 

110,259

 

 

 

110,706

 

 

%

Total Revenue

 

$

215,636

 

 

$

221,028

 

 

3

%

 

 

 

 

 

 

 

 

 

Operating Income

 

$

4,643

 

 

$

3,663

 

 

(21

)%

Operating Income Margin (%)

 

 

2.2

 

%

 

1.7

%

(50

)bps

 

 

 

 

 

 

 

 

 

Adjusted OIBDA(1)

 

$

68,391

 

 

$

71,960

 

 

5

%

Adjusted OIBDA Margin(1) (%)

 

 

31.7

 

%

 

32.6

%

90

bps

 

 

 

 

 

 

 

 

 

GCI Consumer

 

 

 

 

 

 

 

 

Financial Metrics

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

Wireless

 

$

38,552

 

 

$

41,929

 

 

9

%

Data

 

 

39,652

 

 

 

42,920

 

 

8

%

Video

 

 

22,276

 

 

 

21,198

 

 

(5

)%

Voice

 

 

4,897

 

 

 

4,275

 

 

(13

)%

Total Revenue

 

$

105,377

 

 

$

110,322

 

 

5

%

Operating Metrics

 

 

 

 

 

 

 

 

Wireless Lines in Service(2)

 

 

197,800

 

 

 

188,400

 

 

(5

)%

Data - Cable Modem Subscribers(3)

 

 

125,300

 

 

 

124,600

 

 

(1

)%

Video

 

 

 

 

 

 

 

 

Basic Subscribers(4)

 

 

90,300

 

 

 

82,200

 

 

(9

)%

Homes Passed

 

 

253,400

 

 

 

253,400

 

 

%

Voice - Total Access Lines in Service(5)

 

 

45,800

 

 

 

40,800

 

 

(11

)%

 

 

 

 

 

 

 

 

 

GCI Business

 

 

 

 

 

 

 

 

Financial Metrics

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

Wireless

 

$

24,392

 

 

$

24,393

 

 

%

Data

 

 

69,592

 

 

 

70,813

 

 

2

%

Video

 

 

4,927

 

 

 

4,115

 

 

(16

)%

Voice

 

 

11,348

 

 

 

11,385

 

 

%

Total Revenue

 

$

110,259

 

 

$

110,706

 

 

%

Operating Metrics

 

 

 

 

 

 

 

 

Wireless Lines in Service(2)

 

 

22,000

 

 

 

21,100

 

 

(4

)%

Data - Cable Modem Subscribers(3)

 

 

9,200

 

 

 

9,000

 

 

(2

)%

Voice - Total Access Lines in Service(5)

 

 

36,600

 

 

 

34,800

 

 

(5

)%

  1. See reconciling schedule 1.
  2. A wireless line in service is defined as a revenue generating wireless device.
  3. A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entity purchases multiple cable modem service access points, each access point is counted as a subscriber.
  4. A basic subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of the number of outlets purchased.
  5. A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network.

GCI revenue increased during the third quarter driven by an increase in Consumer revenue. Operating income decreased primarily due to higher depreciation and amortization expense. Adjusted OIBDA increased due to the growth in revenue and operational efficiencies, which reduced selling, general and administrative expenses.

GCI Consumer

Consumer revenue was up 5% due to increases in wireless and data revenue. Data revenue grew as subscribers continued to move to higher bandwidth products. Growth in wireless revenue was driven by the free month of service given in the third quarter of 2018 to certain customers due to the billing system conversion. During the transition to the new system, GCI moved all monthly recurring fees from bill in arrears to bill in advance. To ease the transition for existing customers, GCI chose to forgive one month of service fees for those customers who would have otherwise received an invoice for two months of service. The wireless and data revenue increases were partially offset by declines in voice and video revenue.

GCI Business

Business revenue was flat in the quarter with growth in data offsetting declines in video. Data revenue increased primarily due to higher sales to health care customers. Video revenue declined due to lower political advertising revenue.

Capital Expenditures

Year to date, GCI has spent $97 million on capital expenditures, excluding capitalized interest and insurance payments received to cover the costs of the 2018 earthquake. Capital expenditure spending was related primarily to improvements to data and wireless networks. GCI's capital expenditures for 2019 are expected to be approximately $140 million.

Share Repurchases

GCI Liberty did not repurchase shares from August 1, 2019 through October 31, 2019. The total remaining repurchase authorization for GCI Liberty is approximately $494 million.

FOOTNOTES

  1. GCI Liberty’s President and CEO, Greg Maffei, will discuss these headlines and other matters on GCI Liberty's earnings conference call which will begin at 5:00 p.m. (E.S.T.) on November 11, 2019. For information regarding how to access the call, please see “Important Notice” later in this document.
  2. GCI Liberty’s principal asset is GCI Holdings, LLC (“GCI” or “GCI Holdings”), Alaska's largest communications provider. Other assets include its interests in Charter Communications, Inc. ("Charter") and Liberty Broadband Corporation, as well as its interest in LendingTree and subsidiary Evite.
  3. For a definition of Adjusted OIBDA and Adjusted OIBDA margin and applicable reconciliations, see the accompanying schedules.

GCI LIBERTY GAAP FINANCIAL METRICS

(amounts in thousands)

 

 

3Q18(1)

 

 

3Q19

Revenue

 

 

 

 

 

 

GCI Holdings

 

$

205,047

 

 

$

221,028

 

Corporate and other

 

 

5,099

 

 

 

6,016

 

Total GCI Liberty Revenue

 

$

210,146

 

 

$

227,044

 

 

 

 

 

 

 

 

Operating Income

 

 

 

 

 

 

GCI Holdings

 

$

(8,859

Quelle: Business Wire