General Communication Bleeds Subscribers

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Alaskan telecommunications company General Communication (NASDAQ: GNCMA) reported its third-quarter results after the market closed on Nov. 1. Revenue continued to decline as the company shed video, voice, and wireless subscribers, with growth in data revenue unable to fully offset that weakness. The state of the Alaskan economy continues to be a major headwind, but the merger transaction with Liberty Ventures Group will add geographic diversity to the resulting company. Here's what investors need to know about General Communication's third-quarter report.

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General Communication: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$231.2 million

$236.7 million

(2.3%)

Adjusted EBITDA

$79.1 million

$78.2 million

1.2%

Net income

($8.7 million)

$7.9 million

N/A

What happened with General Communication this quarter?

  • Consumer revenue decreased by 4.1% year over year to $110 million. Within the consumer segment, wireless revenue slumped by $5 million, primarily due to lower handset sales. Subscriber losses during the quarter included 1,900 cable modems, 2,300 video subscribers, and 300 wireless subscribers. The recession in Alaska continues to be a major headwind.
  • Business revenue fell 0.6% year over year to $121 million, driven mostly by slumping voice revenue. Business data revenue grew by 2.8% year over year to $76.9 million, but it wasn't enough to offset a 15.3% decline in voice revenue.
  • Pro forma adjusted EBITDA, which adds back charges related to General Communication's merger transaction with Liberty Ventures Group, was $80.8 million during the third quarter, up 3.3% year over year.
  • Selling, general, and administrative expenses totaled $91 million during the quarter, flat year over year when excluding $2 million related to the Liberty transaction.
  • General Communication expects pro forma EBITDA for the 2017 between $300 million and $315 million, excluding costs related to the Liberty transaction. Capital expenditures are expected to be approximately $165 million.

What management had to say

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CFO Peter Pounds discussed the weak economy in Alaska during the conference call:

The principle issue is uncertainty with respect to the state budget structure and until that uncertainty is resolved investments in both the oil patch and in other industries in Alaska is going to continue to be held back. The state this year appropriated the entirety of its operating budget out of what little is left of its short-term savings account, there's not enough money in the savings account to do the same thing again next year, the legislature seems to be incapable of coming to grips with a long term plan.

CEO Ron Duncan stressed that the company is likely gaining market share even as the number of subscribers declines:

I would note one other thing to which is that you shouldn't necessarily correlate a reduction in the number of subscribers with a loss of market share. We're in a substantially declining market right now, in fact, I think, there's some evidence to suggest that we're incrementally gaining share on our competitors in the wireless face of the year. But because they don't report to Alaska sub, you can't see what's happening in the whole market, but remember we've lost more than 10,000 jobs, lot of people have moved out of state. So the market has materially shrunk in the last 18 months.

Looking forward

General Communication's revenue decline wasn't quite as severe as it was during the second quarter, and adjusted EBITDA increased slightly. The story remained much the same: Growth in data revenue was unable to offset declines in video and voice revenue.

The Alaskan economy will become less of a concern for the company once its transaction with Liberty closes. This deal will combine General Communication with certain assets of Liberty Ventures Group, creating a new company, GCI Liberty, that will be less dependent on a single state.

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