Liberty Capital Corporation (GLIBA) Q3 2026 Earnings Report, Transcript and Summary

Welcome to the Liberty Capital 26 Third Quarter Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference will be recorded November 5. I would now like to turn the call over to Hooper Stevens, Senior Vice President, Investor Relations. Please go ahead.

Thank you, everybody for joining us on today's earnings call. This call will include certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. Events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K and 10-Q filed by Liberty Capital with the SEC. Forward looking statements speak only as of the date of this call and Liberty Capital expressly disclaims any obligation or undertaking to disseminate updates or revisions to any forward looking statements contained herein to reflect any change in our 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 Liberty Capital, including adjusted OIBDA, adjusted OIBDA margin and free cash flow. Information regarding the required definitions along with the comparable GAAP and reconciliations are on Schedule 1 and can be found in Liberty Capital's earnings press release issued today which is available on our IR website. Speaking on today's call will be Ronald A. Duncan, the CEO of Liberty Capital, and Brian J. Wendling, Liberty Capital's chief accounting and principal financial officers. Additional members of Liberty Capital and GCI management will be available to answer questions. I will now hand the call over to Ronald.

Thank you, Hooper, and good morning. This was a quarter of execution at Liberty Capital. GCI delivered its strongest quarterly results of the year. We made progress towards closing the Quintillion acquisition. And in October, we retired our 2028 senior notes pushing our nearest maturity out to 2030. Today, we also formally rolled out our capital return policy including declaring our first quarterly dividend and our inaugural $100 million share repurchase authorization. Starting with the quarterly results. Liberty Capital generated revenue of $267 million up 4% and adjusted OIBDA of $101 million up 10% with adjusted EBITDA margin expanding 200 basis points to 37.8%. Both businesses grew revenue and gross margin dollars. Over the trailing 12 months free cash flow was $37 million reflecting the peak capital spending year we have discussed. Brian will cover the financial results in greater detail. Turning to the consumer business, consumer revenue grew 3% led by wireless, where revenue grew 4% on more lines in service and higher handset sales. Consumer wireless lines ended the quarter at 202 thousand up 1% year over year and we added 1.4 thousand postpaid consumer wireless lines sequentially. Convergence remains a cornerstone of retention. 43% of broadband customers now take wireless service from us, and 64% of postpaid wireless lines sold in the quarter were part of the converged relationship. Broadband subscribers were 155 thousand down 900 sequentially. On the business side, revenue grew 5% driven by data revenue from service upgrades with existing healthcare and education customers. Business gross margin was 78.5% up 30 basis points as revenue growth outpaced the higher distribution costs we have been absorbing from restored service on the Quintillion network. Our operating priorities are unchanged. Invest in network quality, complete our Alaska plan commitments, drive convergence, and extend high quality connectivity across Alaska. 5G service is now live in approximately 150 communities reaching more than 80% of the state's population. Year to date, we have invested $2 million net of grant proceeds principally in the rural wireless and statewide data networks with the year over year increase driven by hybrid fiber coaxial upgrades in urban Alaska. We continue to expect $290 million of net capital expenditures in 2026, our peak year, followed by meaningful declines in 2027 and 2028 as GCI returns to its historical capital intensity range. Regarding Starlink, we remain confident in our competitive position supported by the strength of our services and our unique position as the only converged operator in Alaska. We believe we are well positioned relative to Starlink from a bandwidth speed, network reliability, and customer service perspective. On the wireless front, we do not believe DISH can be a viable competitor unless they build out or buy a terrestrial network that challenge would be particularly daunting in Alaska. Finally, capital returns. We announced today that our Board of Directors declared the company's first quarterly dividend under our new policy. $3.75 per share of GCI Group common stock for approximately $15 million per quarter. The dividend provides a durable baseline return through normal business and investment cycles, and we intend to grow it over time. Today, we also announced a new share buyback authorization of $100 million and we intend to be in the market opportunistically as our free cash flow inflects in 2027. Share repurchases can supplement cash returned to our shareholders via the dividend in a way that accretes value while also maintaining significant capital for growth investments. We remain excited to deploy capital towards growth opportunities. We do not identify sufficiently attractive higher return uses, we would expect to return additional cash to shareholders. Lastly, to touch on the regulatory environment, Alaska's economy could be poised for long overdue growth. Supported by renewed momentum in oil and gas development. Conditions around the potential development of a gas line continue to improve and we are increasingly optimistic that the project could ultimately move forward which together with broader energy investment could drive meaningful economic growth and increase demand for our services. In closing, the pieces we described last quarter are now in place. GCI's best quarter of the year, the 2028 maturity addressed and the dividend declared. With capital intensity declining from here and Quintillion contributing we expect GCI's cash generation to expand meaningfully beginning in 2027 and Liberty Capital is positioned to allocate it with discipline. With that, I will turn the call over to Brian for more financial details.

Thanks, Ronald, and good morning, everyone. I will start with some balance sheet discussion. At the end of the third quarter, Liberty Capital had consolidated cash equivalents and restricted cash of $417 million, including $103 million of cash and cash equivalents and restricted cash at GCI. Total principal amount of debt at Liberty Capital was approximately $1.1 billion. At quarter end, Liberty Capital's consolidated net leverage was 2.1 times. Which incorporates cash at the parent level as well as the non voting preferred stock. At quarter end, GCI's net leverage as defined in its credit agreement was 2.7 times. Additionally, GCI's credit facility had $383 million of undrawn net of letters of credit. During the third quarter, we repurchased $147 million principal amount of our 2028 senior notes. And subsequent to quarter end, we retired approximately $453 million aggregate principal amount of the 28 senior notes. Which represented all the outstanding senior notes. This was done using $300 million of additional financing capacity raised in October and revolver borrowings. This was done at a fair while relative to pricing in the public markets. And with these balance sheet actions, our nearest maturities have now been extended out to 2030. Pro forma for these financings and the retirement, net leverage is effectively unchanged. And the undrawn capacity is at $228 million. Flipping to GCI's results, for the third quarter GCI generated total revenue of $267 million, a 4% increase as compared to the prior year. And adjusted OIBDA of $101 million, which was a 10% increase year over year. Consumer revenue increased 3% during the third quarter largely driven by growth in wireless. And consumer gross margin decreased 20 basis points to 72%. During the quarter, as growth in wireless was offset by an increase in wireless handset costs. Business revenue increased 5% during the third quarter driven by growth in business data revenue from service upgrades with existing healthcare and education customers. Business gross margin increased 30 basis points to 78.5%, as revenue growth was partially offset by an increase in distribution costs for healthcare and education customers and restored service on the Quintilion network. Capital expenditures net of grant proceeds totaled $77 million during the quarter. We expect 2026 CapEx of approximately $290 million, which includes $20 million that was carried over from 2025 due to normal course timing shifts As Ron mentioned, we expect 2026 to represent our peak year of CapEx spend. Liberty Capital generated $37 million in free cash flow for the trailing 12 months through the end of the third quarter, a decline year over year. This was largely driven by the increase in CapEx as discussed net of grant proceeds and then ordinary course working capital swings. With that, I will turn the call back over to Ronald.

Thank you, Brian. We appreciate your interest in Liberty Capital Corp. And look forward to continuing to update you on our progress. And with that, we will open the call for Q&A.

Thank you. We will now be conducting a question-and-answer session. Thank you. And the first question is from the line of David Joyce with Seaport Research Partners. Please proceed with your questions.

Thank you. A couple of questions, please. First, could you update us on your outlook for Quintillion since that will be closing soon in terms of their revenue and EBITDA contribution? And, kind of, conceptually what that does for your network? And do you have a kind of a sense of what this buy does for you economically versus a build for the network redundancy? And then I will have some follow ups.

Okay. Thank you for going 1 at a time. that is easier for me to remember. We expect to close Quintillion very soon and the results will be as previously discussed. it is something on the approximate $50 million increase to our EBITDA and a substantial improvement in the redundancy and quality of our network. We will be closing earlier than originally anticipated which will mean that we will be taking over some of their capital expenditures for projects that they have not completed that was built into our deal that will reduce the purchase price. Net, the cash flows from the transaction will be as we originally expected. And by the middle of next year, all of the upgrade projects should be complete and we should be in a position to start turning on the material redundancy in our network, which will allow us to provide both higher bandwidth and more reliable services to our customers. We are excited about the closing. We are excited to put that transaction behind us and start implementing on the network front, and we think it will be excellent for both us and our customers. And that $50 million of EBITDA is net of what your stand-alone GCI relationship was with them before the deal? That will include some foregone payments that we are making to them today that will no longer make once we own them obviously and revenues from other customers on the network. Combined with substantially reduced operating costs for the Quintillion network as the synergies are realized.

Okay. Secondly, on the buybacks, good to see the holistic capital returns are in place. Is there a read through to what M and A opportunities you have been seeing or have not been as intrigued in? Or does this not mean-- not distinct from the opportunities that could still be out there since you have the tax attributes that you would be looking to monetize?

We continue to pursue growth opportunities We believe that with the possible turning in the Alaska economy and the construction of a gas line that some related opportunities may arise out of that. We are also looking at other potential opportunities in higher growth segments the capital return through stock repurchases is conditional both on how much capital we might deploy to growth opportunities and the acceleration of the free cash flow in the business. We would prefer to continue to grow the company by investing in new opportunities not related to our core business but if we are unable to find those in a reasonable timeframe as the free cash flow builds up, we would direct more to share repurchases Share repurchases would also be driven by opportunistic situations relating to the current stock price.

Okay. And then finally, you did discuss the Starlink and I was just wondering with them starting to launch higher capacity, satellites for their broadband service. When do you expect those would have some impact on the Alaskan market? I know Starlink is also a you will have a. You also have a relationship there to kind of off-hand your remote customers when they are not on your network. But I was just wondering what you. What their new technology would be doing.

it is hard to predict when those Starlink version threes would be in the polar orbit. and available to serve Alaska. They need to successfully complete the development of the Starship first, which involves successfully landing the second stage before they can get to the launch cadence necessary to populate version 3 satellites We do not know how they will prioritize limited launch resources between Starlink version 3 in space data centers, other government contracts, direct to device satellites, of which are separate vehicles requiring separate launches My guess is it will be a year or more before we see any version 3 satellites in the Alaska constellation. But there is an awful lot of uncertainty in that depending on when they get the launch sequence up to where it needs to be and how they allocate scarce launches. It could be substantially longer than that. All right. Thank you very much, Ronald. Thanks, David.

David, thank you for the good questions. And everyone else for listening in on today's call. We will look forward to more dialogue in the coming days and weeks. With that, we will conclude. Thank you.

Thank you for your participation, ladies and gentlemen. You may now disconnect your lines at this time. Have a wonderful day.