GCI Liberty Reports Second Quarter 2018 Financial Results
Aug. 08, 2018
ENGLEWOOD, Colo.--(BUSINESS WIRE)--Aug 8, 2018--GCI Liberty, Inc. (“GCI Liberty”) (Nasdaq: GLIBA, GLIBP) today reported second quarter 2018 results. Highlights include (1):Completed reincorporation of GCI Liberty into Delaware on May 10 th, preferred stock dividend increased from 5% to 7% beginning July 16 th GCI (as defined below) operating income grew 41% and adjusted OIBDA (2) increased 3% GCI Consumer revenue grew 2% Consumer Data revenue up 11% and Wireless revenue up 3% as revenue from top tier unlimited wireless and data customers continued to growSequential Consumer Wireless growth of 4,400 subscribers GCI launched new billing system in early August
"GCI had a solid quarter while gaining operating efficiencies and expanding and improving coverage in Alaska," said Greg Maffei, GCI Liberty President and CEO. "During the quarter, we also raised $477 million of exchangeable senior debentures and reincorporated the company in Delaware."
On March 9, 2018, Liberty Interactive Corporation ("Liberty Interactive"), now known as Qurate Retail, Inc. ("Qurate Retail"), completed the series of transactions that effected the split-off of GCI Liberty, as described in more detail in GCI Liberty’s press release issued on March 9, 2018. 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. For accounting purposes herein, GCI is considered the acquired entity.
Discussion of Results
Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2018 to the same period in 2017.
Although GCI's results are only included in GCI Liberty's results beginning March 9, 2018, we believe discussion of the standalone results of GCI for all periods presented promotes a better understanding of the overall results of the business. The pro forma financial information presented herein 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. Additionally, the pro forma results include adjustments to the second quarter of 2017 for the impact of the new revenue recognition standard (ASC 606) to assist in the comparability of 2017 and 2018.
"This past week GCI launched a new billing platform that will transform the way we do business with customers," said GCI CEO, Ron Duncan. "Our entire company has been focused on the two-year project, and I’m pleased to report that the transition has gone smoothly. We know our customers will appreciate the new functionality that gives them better insight into their data usage, the ability to purchase more products and services online, and a simple, streamlined monthly bill.”
The following table provides GCI’s pro forma financial and operating results for the second quarter of 2017 and 2018.
Total revenue increased modestly in the second quarter, primarily driven by growth in GCI’s Consumer segment. Operating income and adjusted OIBDA (2) increased in the second quarter of 2018. Year over year comparability was affected by a $5 million rural health care (“RHC”) write off in the second quarter of 2017 which did not recur in the second quarter of 2018. Excluding this item, operating income remained relatively flat and adjusted OIBDA (2) decreased slightly on a year over year basis, driven by lower GCI Business revenue partially offset by continued customer migration from lower margin products to higher margin products.
GCI receives support from each of various Universal Service Fund ("USF") programs: high cost, low income, rural health care, and schools and libraries. The USF Rural Health Care Program (“RHC Program") subsidizes the rates for services provided to rural health care providers. On March 15, 2018, the Universal Service Administrative Co. ("USAC") announced that the funding request for the year that runs July 1, 2017 through June 30, 2018 (the "2017 funding year") exceeded the federal funding available for the RHC Program. On June 25, 2018, the FCC issued an order resulting in an increase of the annual RHC Program funding cap from $400 to $571 million and applied it to the 2017 funding year. As a result, funding is available to pay in full any approved funding for the 2017 funding year. The FCC also determined that it would annually adjust the RHC Program funding cap for inflation and carry-forward unused funds from past funding years for use in future funding years. Due to the ongoing USAC review of GCI's rural rates, which has caused a continuing delay of support payments for the 2017 funding year, GCI has maintained a total net reduction of approximately $6 million to the RHC receivable. GCI may need to further reduce the RHC Program support receivable as we continue to work with the FCC on the rate review.
GCI Consumer revenue increased in the second quarter to $109 million. Sequential subscriber changes from the first quarter to the second quarter meaningfully improved in 2018, compared to the same period in 2017. Improvements were led by wireless, where GCI grew 4,400 consumer subscribers in the second quarter of 2018 compared to 2,500 in the same period in 2017. The second quarter is traditionally a strong season for GCI in wireless, due to an inflow of workers and visitors into the state beginning in the late spring.
Revenue from GCI business was flat in the second quarter. Excluding the 2017 RHC write-off, revenue decreased primarily due to decreases in lower margin products such as voice, video and time and materials revenue.
Year to date, GCI has spent $66 million on capital expenditures, excluding capitalized interest. Capital expenditure spending was related to wireless network improvements, fiber and Hybrid Fiber Coax improvements and GCI's new billing system. GCI's capital expenditures for 2018 are expected to be approximately $170 million.
On March 9, 2018, the board of directors authorized a share repurchase program for $650 million of GCI Liberty Class A and Class B common stock, which was reapproved by the board on June 25, 2018 (following the reincorporation) with respect to GCI Liberty's Series A and Series B common stock. There were no repurchases of GCI Liberty common stock from May 1, 2018 through July 31, 2018.
The following financial information with respect to GCI Liberty's investments in equity securities and equity affiliates is intended to supplement GCI Liberty's consolidated statements of operations which are included in its Form 10-Q for the three months ended March 31, 2018 and June 30, 2018.
Cash and Debt
The following presentation is provided to separately identify cash and liquid investments and debt information.
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