GCI Liberty (NASDAQ:GLIB.A) reported its first-quarter results after the market closed on May 9. A complex transaction that merged certain assets of Liberty Ventures Group with what was then known as General Communication and resulted in the split-off of GCI Liberty closed on March 9. Alaskan communications provider GCI Holdings is now the main source of revenue for GCI Liberty.
GCI's stand-alone results suffered from a weak Alaskan economy and cuts to a program that subsidizes services to rural healthcare providers. The company is successfully signing up consumers for higher-cost internet plans, but the rest of the business is losing subscribers. Here's what investors need to know about GCI Liberty's first-quarter results.
What happened with GCI Liberty this quarter?
GCI Liberty comprises GCI, the largest communications provider in Alaska; the website Evite; and interests in Charter Communications, Liberty Broadband Corp., and LendingTree.
GCI Liberty's first-quarter results include GCI's results starting on March 9. Here's a look at GCI's stand-alone results:
- GCI recorded first-quarter revenue of $216.4 million, down 4% year over year. Consumer revenue was up 0.5%, while business revenue tumbled 8%.
- Within the consumer segment, GCI wireless revenue was up 1%; data revenue was up 8%; video revenue was down 10%; and voice revenue was down 6%.
- The total number of consumer wireless lines in service dropped 1% year over year to 196,500.
- The number of consumer cable-modem subscribers fell 4% to 125,400, the number of video subscribers fell 11% to 93,900, and the number of consumer voice lines in service dropped 6% to 49,300.
- Within the business segment, wireless revenue fell 1%; data revenue fell 9%; video revenue fell 11%; and voice revenue fell 13%.
- GCI is now providing gigabit data speeds to 77% of Alaskans. The higher-margin top-tier internet plan is helping to offset losses in the low-margin video business, and the negative impact of the recession in Alaska.
- The decline in business revenue was due to a $6 million shortfall related to the Rural Health Care Program, which subsidizes the rates for services provided to rural healthcare providers, as well as a decline in equipment sales.
What management had to say
During the earnings call, GCI Liberty CEO Greg Maffei discussed expectations for the Alaskan economy:
The biggest challenge has been the state of the economy up there. However, we're beginning to see some green shoots in 2018, and we're hopeful to see job growth in 2019, partly influenced by the rising oil price. We're also, importantly, seeing positive signs related to fiscal policy from the state government up there.
GCI CFO Pete Pounds discussed the company's cost structure:
As I've mentioned before, we gained revenue and lost revenue in all the right places. High-margin revenue was generally higher and low-margin revenue was generally lower. In addition to the improved mix of revenues, we have real efficiencies in the business, and better procurement practices that are leading to an improved cost structure. We continue to make headway in simplifying our network and our processes, both of which lead to cost savings.
A combination of a tough economy in Alaska and a shortfall in the Rural Health Care Program knocked down GCI's revenue during the first quarter. The consumer internet business was a bright spot, growing by 8%, but that was more than offset by declines elsewhere. GCI's adjusted operating income before depreciation and amortization dropped 5% year over year, so the extra high-margin revenue from internet services wasn't enough to prevent a decline in the bottom line.
GCI returning to growth depends on the Alaskan economy turning around. The company sees some positive signs on that front, but the timing of a recovery is still up in the air.