GCI Reports Third Quarter 2014 Financial Results

November 5, 2014

Consolidated Revenues of $241 million, Adjusted EBITDA of $93 million Representing Record Quarterly EBITDA Performance

November 5, 2014, Anchorage AK - General Communication, Inc. ("GCI") (NASDAQ:GNCMA) today reported performance for the third quarter of 2014, with consolidated revenues of $241 million, adjusted EBITDA of $93 million, and net income of $13 million or $0.30 per share.

Consolidated revenues of $241 million increased seven percent on a sequential basis and increased 11 percent on a year-over-year basis. Adjusted EBITDA of $93 million represented a 10 percent increase on a sequential basis and an 18 percent increase on a year-over-year basis. This record performance was driven by extraordinary political advertising and sustained strength in wireless roaming.

On a year to date basis, consolidated revenues were $681 million, representing a 15 percent increase over the same period in 2013. Adjusted EBITDA was $252 million, a 27 percent increase over the same period last year. Net income was $23 million or $0.55 per share, a 40 percent and a 41 percent increase over the same period last year, respectively.

“This past quarter was one of extraordinary financial performance, with record revenue and EBITDA performance being driven by wireless roaming and unusually high political advertising," said Ron Duncan, GCI president and chief executive officer. "With our strong financial performance, we were able to continue to invest for the future while simultaneously reducing our debt. Investments during the quarter were made in our wired broadband product for the ‘March to a Gig’, our LTE deployment, the TERRA project for rural Alaska and continued improvements  in customer service operations.   These are all important components of our commitment to meet the competitive challenges in the marketplace and provide superior service to our customers.”

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. Thus, third quarter year-over-year comparisons should take into account the partial quarter of AWN results in 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. GCI elected not to seek any handset subsidies in the third quarter of 2013, and reversed the preliminary subsidies booked. This decision was made due to internal system limitations on tracking the subsidies with the level of precision required. GCI resumed seeking handset subsidies in the second quarter of 2014. There was no net financial impact, but rather a shift of EBITDA between segments.

Operating Highlights

Wireless:

The Wireless segment, reflecting the results of AWN, posted revenues of $76 million, a 10 percent increase on a sequential basis, and a 16 percent increase on a year-over-year basis, reflecting strong roaming and backhaul revenue. Wireless adjusted EBITDA for the period was $47 million, reflecting an 18 percent increase on a sequential basis. This large increase is a continuation of strong seasonal roaming and backhaul demand.  Adjusting for the handset subsidy issue described above, the pro forma adjusted EBITDA growth year-over-year would be 27 percent.

This adjustment can be seen in the following table:

($ millions) 3Q 2014 3Q 2013 2Q  2014
Wireless Reported EBITDA 47 42 40
Wireless Reported Subsidy to Wireline 6 0 5
Wireless Adjusted EBITDA without Subsidy 53 42 45
Normalized Subsidy 6 5 5
Wireless Pro Forma Adjusted EBITDA 47 37 40

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

($ millions) 3Q 2014 3Q 2013 2Q  2014
Wholesale Wireless 25 22 25
Roaming and Backhaul 38 31 30
USF Support 13 13 14
Total Wireless Revenue 76 66 69

Note that third quarter 2013 revenues have been restated to reflect a reclassification of certain items from cost of goods sold to contra revenues.

Wireline:

The Wireline segment posted revenues of $164 million, a six percent increase on a sequential basis and eight percent on a year-over-year basis. Adjusted EBITDA for the segment was $46 million, representing a four percent increase on a sequential basis. Removing the handset subsidy reversal in the third quarter of 2013 would result in a pro forma adjusted EBITDA growth of 12 percent on a year-over-year basis.

This adjustment can be seen in the following table:

($ millions) 3Q 2014 3Q 2013 2Q  2014
Wireline Reported EBITDA 46 36 44
Reported Subsidy from Wireless 6 0 5
Wireline Adjusted EBITDA without Subsidy 40 36 39
Normalized Subsidy 6 5 5
Wireline Pro Forma Adjusted EBITDA 46 41 44

Wireline - Consumer:

Consumer revenues for the third quarter of 2014 were $73 million, a six percent increase on a sequential basis and a five percent increase on a year-over-year basis. Growth in the revenues for the quarter and year were driven by a consumer shift to higher performance cable modem plans.

Following are the Wireline – Consumer key operational metrics:

  • Cable modem subscribers were up 2,200 or two percent on a year-over-year basis, and up 1,400 or one percent on a sequential basis.
  • While basic subscribers dropped 2,500 or two percent on a year-over year-basis, the number of HD/DVR converter boxes were up 13,500 or 15 percent, driven in part by the success of TiVo. On a sequential basis, basic subscribers were essentially flat, with the number of HD/DVR converter boxes up 2,200 or two percent.
  • Non-Lifeline wireless lines in service were up 5,500 or 6 percent on a year-over-year basis, and up 3,600 or four percent on a sequential basis.
  • Video ARPU was up $2.58 or three percent on a year-over year-basis, and up $3.73 or five percent on a sequential basis.

Wireline - Business Services:

Business Services revenues for the third quarter of 2014 were $60 million, an eight percent increase on a sequential basis and an 11 percent increase on a year-over-year basis. The quarter’s growth in this customer group has been driven by political advertising revenue, offsetting the year-over-year decline in Professional Services revenue.  Professional Services revenue was especially high in 2013, and has declined by comparison, though the Company does anticipate growth in the coming quarters.

Data and Professional Services revenues can be better understood by the following detail:

($ millions) 3Q 2014 3Q 2013 2Q  2014
Data Transport and Storage 25 25 25
Professional Services 12 14 11
Total Data Revenue 37 39 36

Following are the Wireline – Business Services key operational metrics:

  • Cable modem subscribers were up 200 or one percent on a year-over-year basis, and flat sequentially.
  • Non-Lifeline wireless subscribers were up 700 or four percent on a year-over-year basis, and up 100 or one percent on a sequential basis.

Wireline - Managed Broadband:

Managed Broadband revenues for the third quarter of 2014 were $32 million, a three percent increase sequentially, and a seven percent increase on a year-over-year basis. This positive performance is driven by the significant investments we have made and are continuing to make in the TERRA network. Specifically, ConnectMD and School Access have proven to be a continued source of growth.

Accomplishments and Milestones

  • AWN signed the nation’s first LTE roaming partnership with a national domestic operator.
  • The iPhone 6 and iPhone 6 Plus were launched on September 26th.
  • Also on the wireless front, AWN received top marks on an independent drive test in Juneau, outperforming competitors in several areas including average 4G LTE download speeds.  AWN currently has 104 LTE sites throughout Alaska, and expects to bring on approximately 100 new LTE sites over the next two quarters.
  • GCI's premiere data service, re:D, had its speed increased to 250 mbps.  re:D is currently available in six markets, and GCI has announced the addition of two more markets that will receive gigabit data service in Alaska.
  • On the video front, GCI strengthened its customer offerings by bringing TiVo service to two new markets and added several new networks on GCI GO (TV Anywhere access).
  • GCI’s TERRA NW project to bring terrestrial broadband service to rural Northwest Alaska reached a milestone as the last of four mountaintop towers were commissioned. GCI expects to begin migrating Kotzebue traffic onto TERRA by the end of the year.
  • Cash expenditures for property and equipment have totaled $125 million year to date, which includes $19 million for the purchase of real estate, implying $106 million in core cash capital expenditures.
  • GCI paid down $66 million in debt during the quarter.

Guidance

While the quarter’s performance was extraordinary, and supported significant investments for future growth, the implications to financial guidance are modest. The Company is reaffirming the existing revenue guidance of $880 million to $900 million.

For earnings as measured by adjusted EBITDA, the Company had previously indicated that it expected to perform to the high end of the provided guidance of $285 to $305 million. At this time, however, GCI is revising the range upwards to $315 million to $325 million, reflecting the strong third quarter.

At this time, the Company is continuing its guidance for 2014 core cash capital expenditures of approximately $170 million, though it notes that there is a risk that it will come in less than that.

Conference Call

The Company will hold a conference call to discuss the quarter's results on Thursday, November 6th, at 2:00 p.m. (Eastern). To access the call, call the conference operator between 1:50-2:00 p.m. (Eastern) at 888-810-3139 (International callers should dial +1-312-470-7418) 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 800-925-2379, access code 7461 (International callers should dial +1-203-369-3515).

About GCI

GCI is the largest Alaska-based and -operated, integrated telecommunications provider, offering wireless, 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.

Contact: 
Investors: 
Tom Chesterman
+1-907-868-1585
tchesterman@gci.com

Media:
David Morris
+1-907-265-5396
dmorris@gci.com