General Communication Expects Adjusted EBITDA Growth in 2017

By Timothy Green Markets Fool.com

Alaskan telecommunications company General Communication (NASDAQ: GNCMA) reported its fourth-quarter results after the market closed on March 1. Revenue, adjusted EBITDA, and net income all declined due to changes in backhaul and roaming agreements, but the company expects adjusted EBITDA to return to growth in 2017. Here's what investors need to know about General Communication's fourth-quarter report.

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General Communication: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$232.3 million

$241.3 million

(3.7%)

Adjusted EBITDA

$67.7 million

$70.5 million

(4%)

Net income

($16.2 million)

($8.9 million)

N/A

Data source: General Communication.

Image source: General Communication.

What happened with General Communication this quarter?

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The company's roaming and backhaul agreements created a headwind in 2016.

  • Total revenue declined by 4.6% in 2016, but would have grown by 1% excluding the effects of the roaming and backhaul agreements.
  • Wireless revenue declined by 16.7% year over year to $50 million in the fourth quarter, with a major decline in roaming and backhaul revenue the primary factor.
  • The wireless segment produced adjusted EBITDA of $32 million, down 17% year over year and flat compared to the third quarter.
  • Wireline revenue rose less than 1% year over year to $182 million, but was down about 1% compared to the third quarter. The decline was driven by a drop in wireless subscribers and lower revenue per subscriber.
  • Within the wireline segment, consumer revenue was down 6% year over year to $84 million, while business revenue was up 7% to $98 million.
  • The wireline segment produced adjusted EBITDA of $36 million, up 12% year over year and down 23% from the third quarter.
  • The company has completed the migration of all acquired wireless subscribers and the consolidation of its billing platforms. It expects to save $5 million annually due to the change.

General Communication provided a few pieces of guidance for 2017:

  • Adjusted EBITDA is expected between $300 million and $325 million, up from $288 million in 2016.
  • Capital expenditures are expected to decline by 21% to $165 million. The company is focusing on growing its free cash flow, and its guidance reflects the difficult economic environment in Alaska.

What management had to say

Management discussed the benefits of the now-complete consolidation of the company's billing systems:

We achieved significant operational successes in the fourth quarter, the most prominent of which is the migration of all the acquired wireless subscribers and the shutdown of an additional wireless billing system as promised. The elimination of four billing platforms in 2016 not only saves us $5 million per year in direct payments to those vendors, it also drives simplicity in our business for both our customers and the hundreds of front-line employees that used them.

The company also discussed its strategy of growing free cash flow in 2017:

Topline revenue growth in 2016, absent the effect of our roaming and backhaul arrangements, was one percent. We expect similar revenue opportunities in 2017, and as such are focusing on growing free cash flow by continuing our efforts to simplify our business. In addition to the billing system savings and the circuit cost savings we expect to generate meaningful savings from our procurement initiative in 2017 and beyond.

Looking forward

The roaming and backhaul agreements continued to drive year-over-year declines in revenue, and one-time costs associated with the billing system transition and inventory write-offs contributed to the weakness in adjusted EBITDA. Adjusted EBITDA is expected to grow in 2017, but it will still be lower than 2015 levels.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends General Communication. The Motley Fool has a disclosure policy.