General Communication Suffers Revenue and EBITDA Decline

By Markets Fool.com

Image source: Ian D. Keating, via Flickr.

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Alaskan telecommunications company General Communication (NASDAQ: GNCMA) reported its second-quarter results after the market close on Aug. 2. Revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)slumped year over year, driven by long-term roaming and backhaul agreements that promise to reduce the seasonality in the company's results. Here's what investors need to know about General Communication's second-quarter earnings report.

General Communication: The raw numbers

Q2 2016

Q2 2015

Growth (YOY)

Revenue

$233.8 million

$247.5 million

(5.5%)

Adjusted EBITDA

$79.0 million

$88.0 million

(10.2%)

Net income

$3.3 million

($15.6 million)

121%

Data source: General Communication Q2 earnings report. YOY = year-over-year

What happened with General Communication this quarter

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Growth in the GCI business segment, comprised of business services and managed broadband, wasn't enough to offset weakness elsewhere.

  • Wireless revenue declined 21% year over year to $54 million, with the decline driven by long-term roaming and backhaul agreements.
  • The wireless segment produced adjusted EBITDA of $40 million, down 12% year over year.
  • Wireline revenue of $180 million was flat year over year, with growth in data canceling out declines in other areas. Consumer revenue of $84 million slumped 6% year over year, while business revenue of $96 million rose 6% year over year.
  • The wireline segment produced adjusted EBITDA of $39 million, down 8% year over year. Increased costs related to the company's new billing system were partially to blame.
  • Selling, general, and administrative expenses rose 6% year over year to $88 million, driven by the conversion to the new billing system.

General Communication reiterated its guidance for 2016 and provided details about its 2017 capital spending plans.

  • Revenue is expected in a range of $930 million to $980 million, down 2% at the midpoint.
  • Adjusted EBITDA is expected to be between $295 million and $325 million.
  • Capital expenditures will be approximately $210 million.
  • Due to the State of Alaska failing to adopt a workable long-term fiscal plan, General Communication plans to reduce its 2017 capital expenditures by 20% to 25% compared to 2016 levels.

What management had to say

The significant decline in year-over-year revenue during the second quarter was in part due to the company's new long-term roaming and backhaul contracts:

As previously reported, GCI recently entered into long-term roaming and backhaul agreements that smooth roaming and backhaul revenues more evenly throughout the year and over the life of our contracts, which makes year-over-year comparisons less meaningful this year.

The company also provided an update on the previously announced sale of its urban wireless tower and rooftop sites:

Our previously announced agreement to sell our urban wireless tower and rooftop sites to Vertical Bridge closed on August 1st. We received proceeds of approximately $90 million in the transaction.

Looking forward

While total revenue was down year over year due in part to the new agreements, subscriber numbers were a mixed bag as well. Consumer cable-modem subscribers rose by 4,700 compared to the prior-year period, but basic video subscribers dropped by 2,900, and consumer voice subscribers declined by 2,500. On the business side, data subscribers declined by 1,400 and voice subscribers fell by 1,000. Average monthly revenue from data subscribers rose by 5.2%, helping to offset the drop in subscribers.

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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.