GCI Liberty Suffers Revenue and Profit Declines

GCI Liberty (NASDAQ: GLIBA) reported its second-quarter results after the market closed on Aug. 8. GCI, the Alaska telecommunications company that's the primary business of GCI Liberty, continued to feel pain from lower payments from government support programs. One silver lining: The value of GCI Liberty's stakes in publicly traded companies surged in the second quarter.

GCI Liberty results: The raw numbers

Metric Q2 2019 Q2 2018 Year-Over-Year Change
Revenue $217.6 million $233.5 million (6.8%)
Operating income ($16.3 million) ($0.6 million) N/A
Adjusted OIBDA* $60.6 million $71.7 million (15.5%)

Data source: GCI Liberty . *Operating income before depreciation and amortization.

What happened with GCI Liberty this quarter?

GCI Liberty consists of Alaska telecommunications company GCI, as well as interests in a few other businesses. The vast majority of GCI Liberty's revenue comes from GCI.

  • GCI produced total revenue of $211 million, down 3.4% year over year.
  • GCI's consumer segment generated revenue of $107 million, down 2% year over year. The business segment generated revenue of $104.0 million, down 5% year over year.
  • Consumer revenue declined from subscriber losses and a decrease in support from the Universal Service Program for High Cost Areas. Business revenue declined because of decreases in revenue from the Rural Health Care program.
  • Within the consumer segment, wireless revenue was down 5% to $39.9 million, data revenue was up 6% to $41.5 million, video revenue was down 5% to $21.0 million, and voice revenue was down 16% to $4.5 million.
  • The number of consumer wireless lines in service, or revenue generating wireless devices, dropped 5% year over year to 191,200.
  • The number of consumer cable modem subscribers fell 1% year over year to 214,100, the number of consumer basic video subscribers declined 8% to 84,100, and the number of consumer voice lines in service tumbled 12% to 42,200.
  • Within the business segment, wireless revenue was down 3% to $23.7 million, data revenue was down 8% to $64.6 million, video revenue was up 14% to $4 million, and voice revenue was up 2% to $11.7 million.
  • The number of business wireless lines in service was down 3% to 21,400, the number of business cable modem subscribers was down 2% to 9,000, and the number of business voice lines in service was down 4% to 35,600.
  • GCI Liberty didn't repurchase any shares between May 1 and July 31. It has a remaining share repurchase authorization of $494 million.
  • The fair value of GCI Liberty's public holdings, which includes stakes in Charter, Liberty Broadband, and LendingTree, was $8 billion at the end of the second quarter, up from $6.99 billion at the end of the first quarter.
Anchorage, Alaska.

Anchorage, Alaska. Image source: Getty Images.

What management had to say

During the earnings call, GCI CFO Pete Pounds commented on the RHC program:

[W]e continue to pursue open appeals with the FCC. But we don't have any color at this time on the timing or resolution of those appeals, I'd like to note that the FCC made a decision on August 1st to change how RHC support will be calculated starting in the 2021 funding year. It is too early at this time to determine what the effect of this will be.

Pounds also updated investors on the Alaskan economy: "On the state economy, the Alaskan government has had and continues to have significant challenges getting to a state budget this year. The impasse at the capital has had a cooling effect on the economy, although the oil and tourism industries continue to perform well."

Looking forward

GCI continues to be negatively affected by the reduction in RHC payments. The company will not recognize about $12 million of revenue per year related to the program until "an adequate level of clarity is reached on the matter and the applicable revenue recognition criteria are met."

A combination of lower revenue from support programs and continued weakness in the Alaskan economy drove down revenue and profits for GCI in the second quarter. New product launches since April have improved customer value and revenues, and the company plans to launch more new products later this year. But it will be tough to overcome the headwinds facing the business.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends GCI Liberty. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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