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General Communication Suffers a Sales Slump

Alaskan telecommunications company General Communication (NASDAQ: GNCMA) reported its second-quarter results after the market closed on August 2. Revenue and net income slumped, with the company blaming the recession in Alaska for weakness across most of its segments. General Communication expects its merger transaction with Liberty Ventures Group to close by the end of this year, assuming regulatory approval. Here's what investors need to know about General Communication's second-quarter report.

General Communication: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$224.3 million

$233.8 million

(4.1%)

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)

$66.1 million

$71.5 million

(8.2%)

Net income

($8.9 million)

$3.4 million

N/A

Data source: General Communication.

A ship repairing damaged fiber-optic cables. Image source: General Communication.

What happened with General Communication this quarter?

  • Consumer revenue slumped 5.5% year over year, to $106 million. This was driven by a decline in wireless revenue and video subscribers. General Communication pointed to the recession in Alaska as a significant contributing factor.
  • Business revenue was $118 million, down 2.7% year over year. Excluding an adjustment related to the Rural Health Care program, business revenue would have risen 1.8% year over year. Growth in data products was offset by declines in voice revenue.
  • Pro forma adjusted EBITDA, which adds back charges related to General Communication's merger transaction with Liberty Ventures Group, was $75 million during the second quarter, up from $71.5 million during the prior-year period.
  • Selling, general, and administrative expenses totaled $96 million, down 1% year over year excluding $9 million of costs related to the Liberty transaction.
  • General Communication expects pro forma adjusted EBITDA between $300 million and $315 million during 2017, with capital expenditures of approximately $165 million. Previous guidance called for pro forma adjusted EBITDA between $300 million and $325 million.

What management had to say

General Communication laid out the progress made so far in closing its merger with Liberty Ventures Group. On financing: "We have received consents from our bondholders waiving their change of control put right, and we have amended our Senior Credit Facility to allow for the transaction."

On regulatory issues: "On June 7, 2017, the Federal Trade Commission and Department of Justice announced early termination of the waiting period under the premerger notification rules. We have made the required filings with each of the Federal Communications Commission ('FCC') and the Regulatory Commission of Alaska seeking approval of the transaction."

The company expects the deal to be completed during the fourth quarter of 2017.

Looking forward

Revenue slumped during the second quarter, with strength in data products unable to offset general weakness across the rest of the business. Pro forma adjusted EBITDA did increase, but the company swung to a loss on a net-income basis.

Assuming the deal with Liberty closes, General Communication will be combined with certain assets of Liberty Ventures Group to create a new company, GCI Liberty. This will add diversification beyond Alaska, potentially making it easier for the new company to produce growth.

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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.