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GCI Liberty Hit by Regulatory Setbacks

By Timothy Green – May 13, 2019 at 3:00PM

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The company's Alaskan telecom saw profits plummet thanks to a bad debt expense.

GCI Liberty (GLIBA) reported its first-quarter results after the market closed on May 9. GCI, the Alaska telecommunications company that accounts for essentially all of GCI Liberty's revenue, suffered from regulatory setbacks that led to a big tumble in profitability. Revenue was down slightly, with declines in both the consumer and business segments.

GCI Liberty results: The raw numbers

GCI Liberty is comprised of Alaska telecommunications company GCI, as well as interests in a few other businesses. The company was formed last year in a complex transaction, and GCI's results only began to be included in GCI Liberty's results last March. This makes year-over-year comparisons for GCI Liberty meaningless.

Here are the stand-alone results for GCI, which now accounts for essentially all of GCI Liberty's revenue:

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$213.2 million

$215.1 million

(0.9%)

Operating income

($24.0 million)

$3.8 million

N/A

Adjusted OIBDA*

$44.5 million

$67.8 million

(34.4%)

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

What happened with GCI Liberty this quarter?

  • GCI's consumer segment generated revenue of $106.6 million, down 1.1% year over year. The business segment produced revenue of $106.6 million, down 0.6% year over year.
  • Within the consumer segment, wireless revenue was down 3% to $39.9 million, data revenue was up 5% to $41.2 million, video revenue was down 6% to $21.0 million, and voice revenue was down 15% to $4.5 million.
  • The number of consumer wireless lines in service dropped 4% to 188,700, while the number of consumer cable modem subscribers was down slightly to 124,800.
  • Within the business segment, wireless revenue was down 4% to $22.8 million, data revenue was up 1% to $69.0 million, video revenue was up 4% to $3.8 million, and voice revenue was down 4% to $11.0 million.
  • The number of business wireless lines in service fell 5% to 20,900, while the number of business cable modem subscribers slumped 2% to 9,000.
  • On May 6, an appeal related to requested funding from a USF Rural Health Care program customer was denied by USAC. As a result, GCI took a reserve of $21 million and an associated bad debt expense that reduced operating income and adjusted OIBDA.
  • GCI Liberty spent about $4 million on share repurchases between Feb. 1 and April 30. The company has $494 million remaining on its share repurchase authorization.
  • The fair value of GCI Liberty's public holdings, which includes Charter, Liberty Broadband, and LendingTree, was $6.99 billion at the end of the quarter, up from $5.36 billion at the end of 2018.
A view of Anchorage, Alaska, with snowcapped mountains in the background.

Anchorage, Alaska. Image source: Getty Images.

What management had to say

During the earnings call, GCI CFO Peter Pounds talked about new products that the company hopes will improve results:

As I noted earlier, we are now able to put new products in the market after a significant restriction from doing so while we implemented our new billing system. On April 1, we launched our new wireless prepaid unlimited plan which has been instrumental in stemming losses to nationwide wireless providers. We have refreshes to our Cable TV and Cable Modem product coming online over the next several months.

Pounds also gave an update on the Alaskan economy:

... the first quarter of 2019 was a challenging one, but we're starting to see some momentum. The April issue of the Anchorage employment report is showing that on a preliminary basis we saw slight job growth during the quarter. This was the positive change in the economy that we had been anticipating.

Looking forward

GCI's bottom line was hit by charges related to the failed appeal mentioned above, and the company won't record revenue of approximately $1 million per month until there's greater certainty about collectability. On top of that, the Federal Communications Commission reduced RHC support payments to GCI by 26% late last year. The company is appealing that decision.

An improved Alaskan economy would help offset some of that pain, and the company does see some signs of life in that area. But this tough regulatory environment is taking a toll on GCI's results, and it will continue to do so in future quarters.

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

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