GCI Reports Second Quarter 2014 Financial Results

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August 6, 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 $224 Million, Adjusted EBITDA of $84 Million

Anchorage AK – General Communication, Inc. (“GCI”) (NASDAQ:GNCMA) today reported performance for the second quarter of 2014, with consolidated revenues of $224 million, adjusted EBITDA of $84 million, and net income of $8 million or $0.20 per share.

Consolidated revenues of $224 million increased four percent on a sequential basis and increased eighteen percent on a year-over-year basis. Adjusted EBITDA of $84 million represented a 13 percent increase on a sequential basis and a 36 percent increase on a year-over-year basis.

On a year to date basis, consolidated revenues were $441 million, representing a 17 percent increase over the same period in 2013. Adjusted EBITDA was $159 million, a 32 percent increase over the same period last year. Net income was $10 million or $0.25 per share, a 38 percent and a 39 percent increase over the same period last year, respectively.

“The first half of 2014 has been a period of solid performance, especially with wireless and data services,” said Ron Duncan, GCI president and chief executive officer. “As we look forward to the remainder of 2014, our challenge is to build on the success of the first half and continue to execute to plan.”

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.

Operating Highlights

Wireless:

The Wireless segment, reflecting the results of AWN, posted revenues of $69 million, an 11 percent increase on a sequential basis, and a 95 percent increase on a year-over-year basis, reflecting the results of the AWN transaction. Wireless adjusted EBITDA for the period was $40 million, reflecting a six percent increase on a sequential basis and a 182 percent increase on a year-over-year basis. When the sequential growth is compared to a pro forma adjusted EBITDA, with a normalized effect of handset subsidies, as was reported last quarter, the normalized growth was 24 percent. This strong increase is a result of seasonal increases in roaming, as well as increased demand for backhaul services.

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

($ millions) 2Q 2014 2Q 2013 1Q 2014
Wholesale Wireless 25 15 25
Roaming and Backhaul 30 13 25
USF Support 14 8 13
Total Wireless Revenue 69 36 63

Wireline:

The Wireline segment posted revenues of $155 million, a one percent increase on a sequential basis and on a year-over-year basis. Adjusted EBITDA for the segment was $44 million, representing a 20 percent increase on a sequential basis, and an eight percent decline on a year-over-year basis. When the sequential growth is normalized for handset subsidies, the growth was five percent. The year-over-year decline is due primarily to increases in Selling, General and Administrative expenses (SG&A), partially offset by the revenue increases discussed below. Within SG&A, the primary drivers of the increase are increased labor costs as well as increased health care costs.

Wireline - Consumer:

Consumer revenues for the second quarter of 2014 were $69 million, a slight decline on a sequential basis and a slight increase on a year-over-year basis. Growth in the revenues for the quarter has been driven by video set top boxes, data average revenue per subscriber (ARPU), and non-Lifeline wireless subscribers, but has been offset by seasonal losses overall in cable modem and video subscribers. Revenue was also lower due to a wireless promotion during the quarter that reduced activation fees received and credited newly activated customers $100.

Wireline - Business Services:

Business Services revenues for the second quarter of 2014 were $55 million, a five percent increase on a sequential basis and a three percent decline on a year-over-year basis. The sequential growth for the quarter in this customer segment has been driven by seasonal increases in hotel video and increased demand for data transport and storage. On a year-over-year basis, the reduction in revenue is largely attributable to lower Professional Services revenue, which were particularly strong in the second quarter of 2013.

Data revenues can be better understood by the following detail:

($ millions) 2Q 2014 2Q 2013 1Q 2014
Data Transport and Storage 25 22 24
Professional Services 11 17 11
Total Data Revenue 36 39 35

Wireline - Managed Broadband:

Managed Broadband revenues for the second quarter of 2014 were $31 million, a slight decline sequentially, and a seven percent increase on a year-over-year basis. The strong performance is attributable to continued demand in the School Access and Telehealth programs, as well as positive momentum in the regulated business.

 

Accomplishments and Milestones

  • GCI became the first Alaska carrier to provide a Lifeline service plan that includes data.
  • GCI’s premiere data service, re:D, had its speed increased to 200 Mbps, and was launched in two additional markets.
  • On the video front, GCI strengthened its customer offerings with video on demand (VOD) launches in three new markets, and an expansion of fourteen new networks on GCI GO (TV Anywhere access).
  • Also on the video front, GCI is one of the first carriers in the U.S. to launch the Netflix app on TiVo.
  • On July 28th, the Company announced the acquisition of three CBS broadcast stations in Southeast Alaska, KXLJ in Juneau, KTNL in Sitka, and KUBD in Ketchikan. Through its subsidiary, Denali Media Holdings, the Company now owns CBS and NBC affiliates in Southeast Alaska and the CBS affiliate KTVA-TV in Anchorage.

 

Guidance

The Company previously provided 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. On a revenue perspective, the first half performance was weaker than expected, and the Company is revising the range downward to $880 million to $900 million. For earnings as measured by adjusted EBITDA, however, the strong performance in the first two quarters implies that the high end of the range is most likely.

With respect to capital expenditures, our cash expenditures for property and equipment have totaled $81 million year to date, which includes $19 million for the purchase of real estate, or $62 million in core cash capital expenditures. At this time, the Company is continuing its guidance for 2014 core cash capital expenditures of approximately $170 million.

The Company will hold a conference call to discuss the quarter’s results on Thursday, August 7th, at 2:00 p.m. (Eastern). To access the call, call the conference operator between 1:50-2:00 p.m. (Eastern) at 888-942-9537 (International callers should dial +1-517-308-9456) 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 800-839-2291, access code 7461 (International callers should dial +1-402-998-1194).

 

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.