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GCI REPORTS THIRD QUARTER 2016 FINANCIAL RESULTS

 GCI REPORTS THIRD QUARTER 2016 FINANCIAL RESULTS

Net Income of $8 million

Consolidated Revenue of $237 million

Adjusted EBITDA up $7 million sequentially

November 2, 2016, Anchorage, Alaska - General Communication, Inc. ("GCI") (NASDAQ: GNCMA) announces its results for the third quarter of 2016.

Operationally, this was one of our best quarters ever, and it showed up in our EBITDA growth of $7 million sequentially.  We saw growth of data revenue, reductions in Cost of Goods Sold, significant risk reduction from the high cost reform, and our Senior Credit Facility refinance is imminent.  Finally, we are close to eliminating our fourth billing system of the year which significantly simplifies our business and will lead to reductions of over $5 million per year in cost paid to those billing system providers.

Significant Updates

Change in Adjusted EBITDA Calculation:  In March 2016 we noted, with our annual guidance, that we would be including in our Adjusted EBITDA, $30 million in cash payments under our roaming agreements in excess of GAAP revenues. GAAP requires revenues on long term contracts like our roaming agreements to be recognized on a straight line basis. We believe the contractual payment streams more accurately reflect the economics of the contracts.  However, recent SEC interpretations and comments have made clear that these types of adjustments are generally inappropriate.  Thus, we have elected, in the absence of any direct discussions with the SEC, to eliminate the adjustment both prospectively and retrospectively.  This will not affect either our cash flow or the leverage on our new Senior Credit Facility which calculates leverage on the contractual payment streams.

High Cost Reform Update: On August 31st, the FCC released an Order adopting the Alaska Plan for high cost universal service funding, which is a huge step towards keeping existing and bringing new advanced broadband communications to rural Alaska. This Order largely completes the reform of the federal universal service high cost support in the State, providing the certainty and stability necessary to continue deployment of new telecommunications infrastructure in rural Alaska.  We are pleased with this outcome.

The financial impact to GCI is twofold:

  1. Our rural high cost payments will remain unchanged at $55 million annually over the next ten years, subject to performance commitments and elimination of any duplicative support after five years. 
  2. Urban high cost support was phased down 20 percent per year in 2012 and 2013 and subsequently frozen.  Under the Alaska plan, this revenue will continue to phase down from the frozen 60 percent level of $11 million to 40 percent in 2017, 20 percent in 2018 and then to zero.

Credit Facility Refinance: We expect to close on a refinancing of our Senior Credit Facility term loan and revolver this month.  The terms will be substantially similar to the current facility, with the maturity extended to five years from the closing date.  This will extend our earliest debt maturity out to 2021.

Operating and Financial Highlights

We achieved net income in the quarter of $8 million, up $5 million from the second quarter of 2016 and down $10 million year-over-year.

Our third quarter revenues and Adjusted EBITDA were $237 million and $78 million respectively, representing sequential growth of 1% and 9%, respectively.  Growth was primarily driven by strength in data revenue and cost reductions including what we pay other carriers for circuit costs.  On a year-over-year basis, revenues and Adjusted EBITDA declined $22 million and $18 million, respectively.  As previously disclosed, we believe year-over-year comparisons are less relevant due to the change in roaming and backhaul agreements with our large wireless customers.

Wireless

Wireless segment revenues were $52 million for the quarter, down $28 million or 35 percent year-over-year and $2 million or three percent sequentially. The year-over-year decline is driven primarily by roaming and backhaul but also by lower plan fee revenue from declining wireless ARPU.

Wireless segment Adjusted EBITDA was $32 million for the quarter, declining $25 million or 44 percent over the third quarter of 2015 and was $1 million or two percent lower compared with the second quarter of 2016. The year-over-year decline in Adjusted EBITDA was a result of our roaming and backhaul agreements.

The wireless segment revenue detail is as follows:

($ millions) 3Q16 3Q15 2Q16
Wholesale Wireless 16 20 17
Roaming and Backhaul 21 45 21
USF Support 13 15 13
Other 2 0 3
Total Wireless Revenue 52 80 54

Wireline

Wireline segment revenues of $184 million during the quarter were up $6 million or three percent over the third quarter of 2015 and up $4 million or two percent over the prior quarter. Declines in voice and video were offset by strong gains in both Consumer and Business data revenues.

Adjusted EBITDA for the quarter was $46 million, up $7 million or 18 percent year-over-year and up $7 million or 19 percent from the previous quarter. The sequential gain in Adjusted EBITDA was the result of growth in data revenues and cost reductions; particularly in our professional services business, which operates primarily in the economically challenged oil industry. 

Wireline - Consumer

Consumer revenues of $88 million in the third quarter are flat year-over-year and up $4 million or four percent sequentially. Year-over-year growth in data ARPU driven by migration to higher plan tiers contributed to a nine percent, or $3 million, increase in data revenues. This gain was offset by declining voice and video subscribers. Sequentially, the growth was related to wireless handsets.

Total wireless subscribers were down 1,700 for the quarter as we continue transitioning the acquired wireless subscriber base.  We ended the quarter with just 5,700 subscribers left to transition, down from 20,000 at the end of the second quarter. We currently have fewer than 1,000 remaining and we expect to complete the transition in the fourth quarter. 

Our cable modem subscribers were up 2,700 year-over-year and flat sequentially. Towards the end of the quarter, we introduced new data plans which pick up where our competitor leaves off.  Our new plans start at 50Mbps for $59.99 and additional plans are available up to our 1 Gig plans.  These speeds are a compelling offer over what is available from our competitors.

Wireline - GCI Business

GCI Business revenues were $97 million for the quarter. This is up $6 million or seven percent compared with the same period in 2015 and up $1 million or one percent sequentially.

SG&A

SG&A expenses were $89 million during the quarter, up $6 million or eight percent over last year and up $1 million or one percent sequentially. Spending on our billing system conversion is reflected in the increase in SG&A.  As part of our billing system conversion, we have eliminated three wireless billing platforms and with the completion of our acquired subscriber transition this year we will eliminate a fourth.

Capital Expenditures

Capital expenditures for the quarter totaled $58 million, bringing the total for the year to $142 million.

Stock Buybacks

GCI repurchased 1.8 million shares of its Class A common stock during the third quarter at a cost of $27 million, or $14.85 per share.

Leverage

We have guided to net leverage in the range of 4.0x to 4.5x, although we have noted that we would go outside of that for compelling reasons.  The change in Adjusted EBITDA calculation means that we are slightly above 4.5x net leverage.  However, when you add back the roaming adjustment, as our new Senior Credit Facility will allow, we are at 4.2x net leverage.

The following table may be helpful to understand our leverage:

($ millions) 3Q16 Leverage on EBITDA Leverage on Cash Flow
Total Debt 1,484 5.0x 4.5x
Less Cash (93) (0.3x) (0.3x)
Net Debt 1,391 4.6x 4.2x
Adjusted EBITDA (Last 2 quarters annualized) 299  
Add back of roaming cash flows allowed by new credit facility 30  
Annualized Cash Flow 329  

2016 Guidance

  • Revenue is expected to be between $930 million and $980 million in 2016.
  • Previously our Adjusted EBITDA guidance was between $295 million and $325 million, including the $30 million adjustment.  The change in the roaming adjustment would imply guidance of $265 to $295 million.  We are increasing the guidance to $280 to $295 million.
  • Capital expenditures are expected to be approximately $210 million.

Use of Non-GAAP Measure

Adjusted EBITDA is presented herein and is a non-GAAP measure. See our attached financials for a reconciliation of this non-GAAP measure to the nearest GAAP measure.

Adjusted EBITDA guidance is a forward-looking non-GAAP financial measure presented herein. Reconciliation to the most directly comparable GAAP financial measure is not provided because we are unable to provide such reconciliation without unreasonable effort.  The inability to provide a reconciliation is due to the uncertainty and inherent difficulty regarding the occurrence, the financial impact and the periods with respect to recognition of future GAAP financial measures.  We also believe that such a reconciliation would imply an inappropriate degree of precision.  For the same reasons, we are unable to address the probable significance of the unavailable information.

Conference Call

The company will hold a conference call to discuss the financial results on Thursday, November 3rd, at 2:00 p.m. (Eastern). To access the call, call the conference operator between 1:45-2:00 p.m. (Eastern) at 844-850-0551 (International callers should dial +1-412-902-4197) 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 ir.gci.com and follow the instructions.

A replay of the call will be available, beginning at 4:00pm, for 72-hours by dialing 877-344-7529, access code 10094070 (International callers should dial +1-412-317-0088).

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 of Forms 10-K and 10-Q filed with the Securities and Exchange Commission.

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.

Contacts:
Investors: Kyle Jones, 907.868.7105, kjones@gci.com
Media: David Morris, 907.868.5396, dmorris@gci.com

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