General Communication Inc. Grows Revenue While Earnings Slump

By Markets Fool.com

Source: Ian D. Keating via Flickr

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Alaskan telecommunications company General Communication reported its fourth quarter results on March 2. The company managed to grow revenue, but costs associated with its acquisition of a wireless business drove down profitability. Here's what investors need to know about the results.

The raw numbers

Q4 2015

Q4 2014

YoY Growth

Sales

$241.3 million

$228.8 million

5.5%

Adjusted EBITDA

$70.5 million

$70.7 million

(0.2%)

Net income

($8.9 million)

$5.8 million

N/A

Source: General Communication Q4 earnings report

What happened with General Communication this quarter?
The company operates both wireless and wireline businesses in Alaska:

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  • Wireless revenue declined by 3% year-over-year to $60 million. Wholesale wireless sales slumped 16% to $21 million; roaming and backhaul revenue jumped 13% to $26 million; and USF support revenue declined 7% to $13 million. The company pointed to changes in revenue allocation between segments after the closing of the AWN transaction, where Alaska Communications sold its wireless business to General, as the main reason for the decline.
  • Wireless adjusted EBITDA was $39 million during the quarter, up 18% year-over-year.
  • Wireline revenue rose 8% year-over-year to $181 million. Consumer wireline revenue jumped 17% to $89 million; business services revenue slumped 11% to $52 million; and managed broadband revenue grew 24% to $40 million.
  • Wireline adjusted EBITDA declined 8% year-over-year to $32 million.
  • SG&A expenses rose 12% year-over-year to $89 million, due to one-time AWN transition costs, recurring costs associated with supporting acquired wireless subscribers, and increased spending on IT.

General Communication also provided guidance for 2016.

  • Revenue is expected to be in a range of $930 million to $980 million, down 2% at the midpoint.
  • Adjusted EBITDA is expected to be in a range of $295 million to $325 million, down from $330 million in 2015. The decline is due to new roaming and backhaul agreements, as well as a planned migration to a new billing platform.
  • Capital expenditures are expected to be approximately $210 million, or $150 million net of tower sale proceeds.

What management had to say
A large portion of General Communication's wireless comes in the form of roaming and backhaul agreements, and the company gave an update on the impact of new long-term agreements. "These agreements will reduce the cash we receive from roaming and backhaul by approximately 20%, or $25 million, in 2016 when compared with 2015. Notwithstanding the negative cash impact to GCI in 2016, we believe these agreements are valuable to GCI and substantially mitigate a key risk factor in the business."

CEO Ron Duncan pointed to these new agreements as important for the long-term health of the company:

We finished 2015 on strong operational footing, which sets us up to capitalize on opportunities in 2016. Our broadband data products continue to provide core growth, and our new wireless roaming agreements secure an important revenue sourcefor the long-term health of the company. We also anticipate selling our urban wireless towers in 2016, which will provide us additional capital that we intend to reinvest in the growth of our company. This sale will support significant investments in a diverse fiber to the North Slope and continued expansion of our TERRA network. These steps demonstrate GCI's commitment to being the leader in broadband infrastructure in Alaska.

Looking ahead
General Communication's adjusted EBITDA guidance for 2016 calls for a decline compared to 2015. This expected decline, as well as the expectation of a drop in revenue during 2016, is likely the reason why the stock declined significantly the day earnings were released.

The new long-term roaming contracts represent a trade-off for the company, providing a higher degree of visibility in exchange for lower payments. General Communications stated that the negative impact to adjusted EBITDA would be $25 million, which more than accounts for the discrepancy between the company's guidance for 2016 and its results from 2015. While investors may be disappointed by the guidance, the company clearly believes that these long-term contracts are the right choice.

The article General Communication Inc. Grows Revenue While Earnings Slump originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends General Communication. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.