GCI Liberty Inc (GLIBA) 2025 Q3 法說會逐字稿

Greetings. Welcome to the GCI Liberty 2025 Q3 earnings call. (Operator Instructions) As a reminder, this conference will be recorded today, November 5th.

I will now turn the call over to Shane Kleinstein, senior Vice President, Investor relations. Please go ahead.

Thank you. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1,995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the prospectus forming part of GCI Liberty's registration statement. The most recent forms 10, followed by GCI Liberty and Liberty Broadband with the SEC. These forward-looking statements speak only as of the date of this call, and GCI Liberty and Liberty Broadband expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in GCI Liberty or Liberty Broadband's expectations with regard thereto, or any change in events, conditions, or circumstances on which any such statement is based.

On today's call, we will discuss certain non-GAAP financial measures for GCA Liberty, including adjusted OITA margin, and free cash flow. Information regarding the required definitions, along with the comparable GAAP metrics and reconciliations, including Schedule One, can be found in the earnings press release issued today, which is available on GCI Liberty's website. Speaking on the. Today we have Ron Duncan, CEO of GCI Liberty, Brian Wendling, GCI Liberty's chief accounting and principal financial officer, and during Q&A we will answer questions related to Liberty Broadband. Members of both GCI Liberty and Liberty Broadband Management, and GCI Management will be available to answer questions.

With that, I'll turn the call over to Ron.

Good morning. GCI had a solid quarter building on an already strong year, and the business is performing largely in line with expectations. We are proud to say we are tracking towards a record adjusted Obita in 2025, a huge milestone for the company. Our consumer business continued to add wireless lines. Our business unit continues to deliver the benefits of last year's strong sales cycle. And we have streamlined to become a pure play connectivity provider following the exit of our video business this quarter.

As mentioned last quarter, our rural operations this year have been adversely impacted by an outage from a fiber break in the Arctic Ocean in January on a third-party network in which GCI uses capacity. In early September, our partner was able to repair the broken fiber. We moved quickly to restore our consumer wireless and internet customers, as well as business customers that had lost service. All customers are operational as of the end of the 3rd quarter.

Unfortunately, in early October, Typhoon Halong hit southwest Alaska with devastating consequences. Two villages, Kipnook and Quilinggo, were destroyed, with dozens of other villages very hard hit. While we do not expect any material impact on our business in the near term, we are still in the early days of assessing the longer-term plans for a rebuilding effort in the broader area, including the potential loss of locations served for clinics and schools.

We grew consumer wireless subscribers 2% year over year, ending the quarter with 207,500 subscribers. During the quarter, we added 500 consumer wireless lines. On the data side, we saw a 3% decline year over year, ending the quarter with 153,100 cable modem subscribers. During the quarter we lost 1,400 data subscribers. The decline of data subscribers over the past year is largely due to competition, including wireless substitution, as well as the aforementioned break on the third-party network in which GCI uses capacity.

During the 3rd quarter, we exited the video business. This will not have a significant impact on revenue or cost of sales, but will allow us to avoid future capital expenditures in a business with no margin and to focus on the core connectivity products that our consumers want most.

As I mentioned last last quarter, the adjusted Obea growth rates we reported in the first half of the year benefited from a series of non-recurring tailwinds with an expected deceleration in the back half of the year. We fully lapped the opsell cycle in schools, which began in the 3rd quarter of 2024. We also incurred additional SG&A spend in the 3rd quarter as compared to the prior year due to increased personnel expense, including higher healthcare costs and expenses related to accrued employee incentive payments.

We are proud of the progress both financially and operationally this year. We remain focused on improving our infrastructure to deliver high-quality service to our customers, furthering our rural expansion to bridge the digital divide, and increasing the efficiency of our businesses. I'll go into a bit more detail in several areas.

Starting with our network infrastructure, we are offering 2.5 gigabit broadband connectivity everywhere that has fiber middle mile, which covers an overwhelming majority of our customers. Material progress is being made in improving the broadband network in Anchorage as we are in the process of upgrading the core, reducing node sizes, and upgrading to 1.8 gigahertz. Our initial deployment is yielding positive results, and we plan to significantly scale the deployment of our hybrid fiber hybrid fiber coax network next year. All the work that we are doing is Dx is 4.0 or 4.0 capable, enabling speeds that are multiple times of that which we have today.

We will be rolling this out to other markets starting in 2026, allowing us to get to 5 gigabits and ultimately beyond.

We believe these changes will not only lead to higher speeds but also a network with fewer maintenance requirements. The strength of this offering positions us well against competitors today and into the future.

On wireless, our unlimited test drive promotion can continue to support subscriber growth in the 3rd quarter. As a reminder, this promotion offers our broadband customers an attractive discounted price to gain access to unlimited broadband and add a wireless line free of charge. We expect to roll out other new pricing and promotional offers next year to best maximize quality and value for our customers.

Through continued investment in our network, we believe we will be able to offer 5G wireless service to all of Alaska over the coming years.

We continue to bridge the digital divide in Alaska with our rural expansion. On the Alaska plan, we expect to complete the first phase and meet our buildout requirements in 2026 and increase wireless speeds in the communities we're serving. Additionally, the FCC's new Alaska Connect Fund will extend the Alaska plan and increase the amount of funding support which will aid in the deployment of 5G wireless throughout Alaska.

Turning the bead, GCI was provisionally awarded, subject to NTIA approval, 3 sub-grants totaling over $140 million. These sub-grants will support the buildout of infrastructure to and within communities in the Yukon costusaqui Delta and the expansion of GCI's Anchorage Local Access Network to 4 new networks, 4 new neighborhoods.

Any funding that GCI is ultimately awarded will offset our capital costs as we expand in unserved locations. Other items from a macro perspective, looking at the Alaska economy in mid October, the administration announced plans to open the Arctic National Wildlife Refuge to drilling. This increase in oil and gas activity along with the potential deployment of a gas pipeline could grow the Alaska economy and provide an opportunity for increased demand for our services. And finally, as we announced today, we intend to launch shortly a rights offering to raise approximately $300 million in proceeds. In the offering, all holders of our common stock would receive transferable rights to acquire shares of Glibk at a discount to the market. Our Chairman John Malone has stated his intention to fully support the offering by exercising his rights in full and oversubscribing for any remaining shares available. We intend to use the proceeds for general corporate purposes, including potential future M&A. We believe this is an attractive source of liquidity and will provide value to our shareholder base. We refer you to the related registration statement being filed later today for more details.

In summary, we continue to deliver high-quality service to the state of Alaska with both the breadth and caliber of our network. We believe the quality of our infrastructure and durability of our financial results will drive value for our customers, partners, and shareholders. With that, I'll turn it to Brian to discuss the financials in more detail.

Thanks, Ron, and good morning, everyone. At quarter end, GCI Liberty had consolidated cash equivalent and restricted cash of $137 million and total principal amount of debt of approximately $1 billion.

Quarter end, GCI's leverage is defined by its credit agreement was 2.3 times, and GCI's credit facility had $377 million of undrawn capacity net of letters of credit.

In the third quarter, $10 million of non-voting preferred stock of GCI Liberty was issued to Liberty Broadband and then sold by Liberty Broadband to third-party buyers. The GCI Liberty non-Voting Preferred Stock pays a 12% dividend with a redemption date in 2032.

During the quarter, we took a non-cash impairment charge on our indefinite live and tangible assets totaling $525 million. These intangibles were originally recorded as part of the 2020 acquisition of GCI Liberty by Liberty Broadband when cable multiples were much higher. As part of the spin and seeing the post-spin trading values, we reevaluated the recoverability of these intangibles during the third quarter. Impairment is included in operating loss but excluded from adjusted.

Now turning to GCI's operating results, GCI generated total revenue of $257 million, representing a 2% decrease in the third quarter.

Revenue declined primarily due to exiting the video business in the quarter. Adjusted to OI $92 million decreased 8%. The decline was driven by lower revenue and higher SG&A expense from increased personnel expense, including higher healthcare costs and growth in accrued employee incentive payments.

Partially offset by reduced operating expenses from lower distribution costs.

Consumer revenue declined 4% to $115 million. The majority of the decline was driven by a decline in video and data revenue, slightly offset by growth in consumer wireless.

Consumer wireless revenue increased 11% to $52 million benefiting from subscriber growth and an increase in federal wireless subsidiaries subsidies, excuse me. Consumer gross margin increased to 72.2%, driven by a decline in consumer direct costs resulting from decreases in video programming costs and temporary cost savings from the quintillion fiber break. As a reminder, the quintillion fiber break was fully restored in September.

Business revenue is flat at $142 million. We have now fully lapped the strong upgrade cycle starting in the third quarter of last year.

Business wireless revenue declined $1 million or 9%, driven by a slight decline in roaming revenue, and business gross margin increased to 78.2%, primarily due to temporary cost savings from the quintillion fiber break combined with data revenue growth.

Capital expenditures of grant proceeds totaled $52 million during the quarter. Year-to-date, GCI had approximately $152 million in net cap investment.

We now expect full year cap to be in the range of $225 million to $250 million with the lower end of the range driven by normal course timing shifts in planned CapEx projects. We still expect that 2026 will be our peak year for CapEx spend and that CapEx will step down meaningfully after 2026.

GCI generated $155 million in free cash flow on a trailing 12 month basis through the end of the third quarter. We believe presenting free cash flow on a trailing 12 month basis more accurately demonstrates our cash generation and liquidity profile by minimizing seasonal fluctuations, particularly around the timing of USF cash receipts.

And with that, I will turn the call back over to you, Ron.

Thank you, Brian. We appreciate your interest in GCI Liberty and look forward to continuing to update you on our progress. Before we open for Q&A, I want to take a moment to recognize and congratulate Shane Kleinstein, our head of investor relations, on her last earnings call with us. She has been instrumental in our investor relations function and has left an indelible mark on our company. On behalf of the entire GCI Liberty team, thank you, Shane, and we wish you the best in your future endeavors. We will have a new head of investor relations joining us and look forward to sharing that update in the future. In the meantime, we encourage you to please continue to reach out to the rest of the IR team or email us at investor@GCIliberty.com with questions. With that, we'll open the call up for Q&A.

(Operator Instructions) Mr. Duncan, it seems we have no questions at this time. I'll turn the floor back to you.

Okay, well, thank you all very much for your participation this morning and as stated previously, we are available for questions through the IR team and the website.

Everyone have a good day thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

Thank you for your participation.