GCI Reports First Quarter 2014 Financial Results

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May 7, 2014

Contact:
Investor Inquiries: Tom Chesterman, (907) 868-1585, tchesterman@gci.com
Media Inquiries: David Morris, (907) 265-5396, dmorris@gci.com

FOR IMMEDIATE RELEASE

Consolidated Revenues of $216 Million, Adjusted EBITDA of $75 Million

Anchorage AK – General Communication, Inc. (“GCI”) (NASDAQ:GNCMA) today reported performance for the first quarter of 2014, with consolidated revenues of $216 million, adjusted EBITDA of $75 million, and net income of $2 million or $0.05 per share.

Consolidated revenues of $216 million declined four percent on a sequential basis and increased sixteen percent on a year over year basis. Adjusted EBITDA of $75 million represented a ten percent increase on a sequential basis and a twenty seven percent increase on a year over year basis.

“Our first quarter results provide a solid foundation for growth in 2014,” said Ron Duncan, GCI president and chief executive officer. “We are particularly pleased with progress in our cable modem and managed broadband service offerings. Our 2014 capital investment plan is well under way with particular emphasis on expanding our 4G LTE footprint throughout Alaska and continuing expansion of the TERRA network.”

Important Notes

It should be noted that both Wireless and Wireline segment results are materially affected by The Alaska Wireless Network (“AWN”) transaction, which was effective July 23, 2013.

Also, under the AWN operating agreement, each partner is allowed to receive certain reimbursements for customer equipment, commonly known as “handset subsidies,” according to a schedule for qualified devices. In the fourth quarter of 2013, GCI elected not to seek any handset subsidies at this time, and reversed the preliminary subsidies booked in the third quarter of 2013. This decision was made due to internal system limitations on tracking the subsidies with the level of precision required. GCI expects to resume seeking handset subsidies before year-end. There was no economic impact, but rather a shift of EBITDA between segments.

Segment adjusted EBITDA performance on a pro forma basis, using a standard subsidy recovery rate, is shown below.

Operating Highlights

Wireless:

The Wireless segment, reflecting the results of AWN, posted revenues of $63 million, a slight increase on a sequential basis, and an eighty five percent increase on a year over year basis, reflecting the results of the AWN transaction, which was effective July 23, 2013. Wireless adjusted EBITDA for the period was $38 million, reflecting an eleven percent decline on a sequential basis and a one hundred fifty percent increase on a year over year basis.

Removing the handset subsidy reversal in the first and fourth quarters of 2013 and providing an estimated handset subsidy for all of the quarters would result in a pro forma adjusted EBITDA as follows:

 ($millions) 1Q 2014 4Q 2013 1Q  2013
Wireless Reported Adjusted EBITDA 38.0 42.9 15.2
Wireless Reported Subsidy to Wireline 0.0 (5.2) 5.5
Wireless Adjusted EBITDA Without Subsidy 38.0 37.7 20.7
Estimated Subsidy @ 75% of Gross Handsets (5.5) (9.8) (5.6)
Wireless Pro Forma Adjusted EBITDA 32.5 27.9 15.1

Thus, on a pro forma basis, Wireless adjusted EBITDA increased seventeen percent on a sequential basis and one hundred fifteen percent on a year over year basis.

For the first quarter of 2014, the revenue detail was as follows:

($ millions) 1Q 2014 4Q 2013 1Q  2013
Wholesale Wireless 25 24 16
Roaming and Backhaul 25 25 10
USF Support 13 13 8
Total Wireless Revenue 63 62 34

Since the beginning of the year, the company implemented many enhancements and improvements to the wireless network, including:

  • The Fairbanks market was substantially upgraded with LTE service going live April 30th. Also on April 30th, 3G service was launched in Bethel. In all, 11 new LTE sites and four new 3G sites were put into service across the state.
  • Turbozone has continued to expand, and now covers 1,146 venues with 1,843 access points.
  • The Company acknowledged the preliminary award of $41.4 million in the Tribal Mobility Fund I auction, which, upon final FCC approval, will support the expanded provision of 3G and 4G service in rural Alaska.

Wireline:

The Wireline segment posted revenues of $154 million, a one percent decline on a sequential basis, and a one percent increase on a year over year basis. Adjusted EBITDA for the segment was $37 million, representing a forty eight percent increase on a sequential basis, and a fifteen percent decline on a year over year basis. The year over year decline is due to labor and healthcare cost increases.

Removing the handset subsidy reversal in the first and fourth quarters of 2013 and providing an estimated handset subsidy for all of the quarters would result in a pro forma adjusted EBITDA as follows:

 ($millions) 1Q 2014 4Q 2013 1Q  2013
Wireline Reported Adjusted EBITDA 36.8 24.9 43.5
Reported Subsidy from Wireless 0.0 5.2 (5.5)
Wireline Adjusted EBITDA Without Subsidy 36.8 30.1 38.0
Estimated Subsidy @ 75% of Gross Handsets 5.5 9.8 5.6
Wireline Pro Forma Adjusted EBITDA 42.3 39.9 43.6

Thus, on a pro forma basis, Wireline adjusted EBITDA increased six percent on a sequential basis and decreased three percent on a year over year basis.

The year over year decline is due to labor and healthcare cost increases.

Wireline - Consumer:

Consumer revenues for the first quarter of 2014 were $70 million, a one percent increase on a sequential basis and a three percent increase on a year over year basis. Product groups that grew quarter over quarter included wireless, data and a slight increase in voice, offset by a decline in video revenues.

During the quarter, the Company announced several campaigns and new programs:

  • Progress to gigabit broadband service has continued. Re:D speeds were doubled from 50 Mbpps to 100 Mbps in the fourth quarter of 2013, and then to 200 Mbps in the first quarter of 2014. Furthermore, the Company is driving towards 400 Mbps in some markets by the end of 2014.
  • TiVo service has been expanded to thirteen markets within Alaska, with the markets having been doubled in the first quarter of 2014.
  • FastPhone, GCI’s new prepaid wireless service launched late in the fourth quarter of 2013, is showing continued customer adoption.

Wireline  - Business Services:

Business Services revenues for the first quarter of 2014 were $52 million, a six percent decline on a sequential basis and a seven percent decline on a year over year basis. These decreases were driven by a decline in voice products and professional services, offsetting increases in data transport/storage, video and wireless.

The sequential decline in voice products is the result of a one time resolution of a billing dispute with a carrier customer that we received in the fourth quarter of 2013. In addition, Professional Services declined due to the slowing of one particularly active oil and gas project from early 2013 levels. The improvements can be attributed in part to the continued adoption of virtualization by our customers, validating the strength of our cloud and data center products.

Data revenues can be better understood by the following detail:

($ millions) 1Q 2014 4Q 2013 1Q  2013
Data Transport and Storage 24 24 22
Professional Services 11 12 18
Total Data Revenue 35 36 40

Wireline - Managed Broadband:

Managed Broadband revenues for the first quarter of 2014 were $31 million, a three percent increase over the fourth quarter of 2013, and an eleven percent increase over the first quarter of 2013. The increases are attributable to continued demand in the School Access and Telehealth programs, as well as positive momentum in the regulated business.

The Company has recently announced a number of positive developments in this area, including:

  • The Company continues to be on track with the terrestrial broadband network, TERRA, and particularly with the extension of TERRA to Kotzebue by early 2015.

 

Corporate Highlights

  • Cash capital expenditures for the quarter were $20 million, exclusive of grant funded capital expenditures and a satellite capital lease.

 

Guidance

The Company continues its guidance of annual consolidated revenues in the range of $910 million to $930 million, and adjusted EBITDA in the range of $285 million to $305 million, though there are increased pressures on the top line. Further, the company continues its guidance for cash capital expenditures of approximately $170 million, excluding real estate and the extension of a satellite lease which was capitalized, as well as any grant-funded capital expenditures.

The Company will hold a conference call to discuss the quarter’s results on Thursday, May 8th, at 2:00 p.m. (Eastern). To access the call, call the conference operator between 1:50-2:00 p.m. (Eastern) at 888-390-0685 (International callers should dial +1-773-756-4700) and identify your call as “GCI”. In addition to dial-up access, GCI will make available net conferencing. To access the call via net conference, log on to gci.com and follow the instructions. A replay of the call will be available for 72-hours by dialing 866-373-1992, access code 7461 (International callers should dial +1-203-369-0266).

 

About GCI

GCI is the largest Alaska-based and –operated, integrated telecommunications provider, offering voice, data, and video services statewide. Learn more about GCI at www.gci.com/about.

 

Forward Looking Statement Disclosure

The foregoing contains forward-looking statements regarding GCI’s expected results that are based on management’s expectations as well as on a number of assumptions concerning future events. Actual results might differ materially from those projected in the forward looking statements due to uncertainties and other factors, many of which are outside GCI’s control. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in GCI’s cautionary statement sections on Forms 10-K and 10-Q filed with the Securities and Exchange Commission.