GCI Liberty, Inc. (GLIBA) Earnings

Management highlights

- New Capital Allocation Framework & Shareholder Return * Liberty Capital announced a new capital allocation policy, including a plan to initiate a quarterly dividend starting in December 2026, with an annual aggregate payout of $60 million ($15 million per quarter). The dividend is expected to represent ~50% of 2027 full-year free cash flow, and a smaller share in 2028 as capital expenditures decline. * The company targets a long-term net leverage ratio of ~3x for GCI. Any residual free cash flow after funding operating needs, the dividend, and balance sheet targets will be allocated between attractive external investments and additional shareholder returns, including share repurchases, which are viewed as particularly attractive when shares trade at a meaningful discount to intrinsic fair value. - Network Expansion & Operational Progress * GCI has expanded 5G service to over 125 Alaskan communities, reaching ~83% of the state's population, with over 100 communities upgraded in 2026 alone. 5G upgrades replace legacy technology with a standardized platform that improves network performance, troubleshooting speed, operational visibility, and long-term operating efficiency. * GCI maintains a pragmatic approach to competition from Starlink: where Starlink competes for customers, GCI competes, but GCI also integrates Starlink technology into its own business managed solutions and uses Starlink's bonded gateway service as an additional resiliency layer for its network in multiple Alaskan communities. * Consumer wireless grew by 2,100 lines in the quarter, with 42% of broadband customers now taking GCI wireless service and 63% of postpaid wireless lines sold as part of converged service bundles, which management expects will drive higher long-term customer retention. Organic consumer broadband subscribers declined by 500 in the quarter, but this was more than offset by the acquisition of a small fixed broadband provider that added 5,400 net subscribers. - Quintillion Acquisition Update * The HSR waiting period for the Quintillion acquisition has expired, and FCC review remains ongoing. Management still expects the transaction to close in 2026, with a smooth and fast integration planned. * The acquisition will create a more resilient ringed network architecture with greater routing diversity, reducing outage exposure and improving restoration capabilities for critical Alaskan infrastructure serving communities, healthcare, public safety, government, and national security. * Management expects the transaction to be accretive to free cash flow in the first full year after closing, and will deliver 20 million in annual run-rate synergies within 24 months of closing, with roughly half of those synergies achieved in the first 12 months. Including run-rate synergies, Quintillion is expected to contribute $50-55 million in adjusted EBITDA in 2026.

Guidance

- Capital expenditure guidance for full-year 2026 is approximately $290 million (including $20 million carried over from 2025 due to normal course timing shifts). 2026 is expected to be the peak year of GCI's network investment cycle, with significant capital intensity declines in both 2027 and 2028, returning GCI to its historical capital intensity range and driving higher free cash flow generation. - GCI full-year 2026 operating performance is expected to be approximately stable year-over-year, with performance weighted toward the fourth quarter. - The dividend initiated in Q4 2026 is intended to serve as a durable baseline shareholder return, and management intends to grow the dividend over time.

Segment performance

Liberty Capital reported consolidated Q2 2026 total revenue of $261 million, flat year-over-year, and adjusted EBITDA of $96 million, an 11% year-over-year decline. GCI, Liberty Capital's primary operating subsidiary, has two reportable segments: 1. Consumer: Revenue declined 2% year-over-year, with the decline driven primarily by the planned shutdown of the legacy video business in Q3 2025, partially offset by wireless subscriber growth. Gross margin for the consumer segment increased to 71.8% in Q2 2026, due to lower direct costs from eliminated video programming expenses. 2. Business: Revenue increased 1% year-over-year, driven by growth in business data revenue from service upgrades for existing healthcare and education customers. Gross margin for the business segment decreased to 75.5%, primarily due to a $9 million year-over-year increase in distribution costs: $3 million of the increase stems from restored service on the Quintillion network (capacity that GCI uses for its own operations), with the remainder from higher circuit costs associated with upgraded customer services. The company also incurred $3 million in new public company costs in Q2 2026 that were not present in the prior year quarter.

Risks & headwinds

- Forward-looking results are subject to material uncertainty, and actual outcomes could differ materially due to a range of risks and uncertainties referenced in the company's recent 10-K and 10-Q filings with the FCC. - Starlink represents a viable competing broadband provider, and GCI faces ongoing competitive pressure from Starlink in the Alaska market. - The Quintillion acquisition is still pending FCC regulatory review, and there is inherent execution risk related to closing timing and integration of the acquired business. - GCI's operating leverage and margins are currently pressured by elevated distribution costs associated with network service upgrades and restored Quintillion network capacity.

Analyst Q&A

• Q: Analyst David Joyce asked two questions: First, what are the financial implications of the current wireless promotions (which drove better-than-expected subscriber growth) for revenue, specifically related to promotional pricing vs. regular rate implementation? Second, can management provide more detail on the recent small broadband acquisition that added 5,400 subscribers? /

  A: Management explained that the primary current promotion offers free wireless service for one year when customers add or upgrade a wired service, with additional legacy promotions also running. The majority of new wireless lines added this year will only begin generating revenue 12 months after activation, creating a one-year lag for revenue recognition from the new subscriber additions. The acquired business is a small fixed wireless provider that serves areas on the fringe of GCI's existing footprint, and the acquisition supports GCI's efforts to expand its service footprint and gain operational experience with fixed wireless technology.

• Q: Joyce followed up by asking if the elevated current expense levels are temporary or seasonal, and how much of the increased expense base is tied to ongoing service upgrades versus capital expenditure items. /

  A: Management clarified that the higher expense base has three key drivers: 1) The Quintillion fiber network break last year reduced GCI's distribution costs in the year-ago quarter, so the return to full service this year restored these costs that were not present in Q2 2025; 2) One-time contractor costs for special projects this quarter also added to expenses; 3) $3 million in new annual public company costs were incurred this quarter, which were not present in the prior year, and these costs will continue going forward.