GNCMA - General Communications

[gary17]

Seems like revenue & ebitda are slightly lower than analyst estimates and management stated some pressure on top line.

 

some key numbers

ebitda    = 75M

interest  = 18.2M

cap ex    = 20M

--------------------------

free cash flow to equity = 36.8M  or 8% yield per quarter or 33% yield per year!

 

<if this way of calculating is wrong please let me know, thanks>

 

Gary

[yadayada]

capex will be 170 million for the year it says. So 300-170-10-75. So only like 40-50 million of FCF this year.

[jwfm1985]

Seems like revenue & ebitda are slightly lower than analyst estimates and management stated some pressure on top line.

 

some key numbers

ebitda    = 75M

interest  = 18.2M

cap ex    = 20M

--------------------------

free cash flow to equity = 36.8M  or 8% yield

 

<if this way of calculating is wrong please let me know, thanks>

 

Gary

 

Only have the Drexel Hamilton estimates, but EBITDA was in line ($75 vs. $75.1 est.) with slightly lower revenue ($216 vs. $225 est). Still maintaining guidance right around what analysts are expecting ($910M revenue, $285-305M EBITDA). Seems like a pretty boring quarter...

[Gamecock-YT]

Off to the races this morning, +6.6%.

[tombgrt]

Found this map on reddit: http://www.technocrates.org/wp-content/uploads/2012/10/submarine-cable-map.jpg

If you look closely you can see GCI's cables. ;)

[bookie71]

For what it is worth:

http://www.alaskadispatch.com/article/20140527/verizon-bring-more-competition-alaska-s-communication-industry

[Packer16]

I found the quote of GCI as a giant interesting.

 

Packer

[yadayada]

didnt pay GCI north of 100 million for a cable like that? And these silly canadians want to do it for 60!

 

If verizon cannot use that cable, they have to pay either ALSK or GCI for acces right?

[plato1976]

I was wondering why this baby was so cheap at the first place before we talk about any catalysts;

There is/was no significant bad news except there is quite some amount of debt but I guess it's normal in this industry

 

I don't know what the catalyst is.  If there was one it would not be trading where it is now.  As to EV, I have calculated GNCMAs look-through EBITDA and adjusted the EV by removing the MI and adding the overage payments to ALSK in excess of 1/3 rd of AWN's EBITDA.  Thus, there is $258m economic EBITDA $295m (midpoint of consolidated EBITDA range) - $110m/3 (we can add the PV of $8.3 million over 4 years of debt (difference between $45m and $110/3)).  This results in an EBITDA multiple of 5.7x and an upside at 8x EBITDA of 133%.  We also have EBITDA growing at 10% per year. 

 

Packer

[west]

Google's thinking about building a bunch of low earth satellites to serve internet to underserved parts of the earth.  It sounds like it's very much a "... maybe" right now, but it's probably worth keeping an eye on.

 

http://www.engadget.com/2014/06/01/google-making-internet-satellites/

[west]

Google's thinking about building a bunch of low earth satellites to serve internet to underserved parts of the earth.  It sounds like it's very much a "... maybe" right now, but it's probably worth keeping an eye on.

 

http://www.engadget.com/2014/06/01/google-making-internet-satellites/

 

For a less blurb-y article:

 

http://online.wsj.com/news/article_email/google-invests-in-satellites-to-spread-internet-access-1401666287-lMyQjAxMTA0MDAwMTEwNDEyWj

[Packer16]

There have been at least 2 attempts at this in the past by Iridium, Globestar and by the military.  They all went down in flames because the economics are so hard to make work (amortizing the satellites and launch costs over the polar user base that cannot access geostationary satellites).  I would put this in the Google fiber camp as issues to be concerned about.

 

Packer

[west]

There have been at least 2 attempts at this in the past by Iridium, Globestar and by the military.  They all went down in flames because the economics are so hard to make work (amortizing the satellites and launch costs over the polar user base that cannot access geostationary satellites).  I would put this in the Google fiber camp as issues to be concerned about.

 

Packer

 

I'm not too concerned about this right now, but I definitely think it's worth keeping an eye on.  I think this is a little different than Iridium et al. because 1) satellites are not Google's core business, but complement Google's core business, so they can run them at a loss, 2) Google's got a very large amount of capital and know-how that they can throw at this, and 3) satellites cost a whole helluva lot less to build, run, and launch versus just a decade ago, so the hurdles to get this up and running are much, much lower today.

 

That being said, I'm still not too concerned about it right now.  I just plan to keep an eye on things.

[tombgrt]

You are overestimating the amount of data that can be carried over those satelites. This would serve third world countries with low cable penetration and users would likely only be able to use basic versions of most modern websites. They can completely forget about youtube, netflix, etc. No need to worry.

[yadayada]

it seems that distance is a problem. Tthe longer the distance, the less data you can transmit over a wave. To support a wide band, you need points in between the satellite and the ground it seems. Also latency is a huge issue. Latency on a regular connection is like 20 or 30ms? On satellite it can easily be over 1000 ms.

 

Only issue I see is some kind of break through that cancels all this out. And also SpaceX. If they succeed at making launches much much cheaper, then satellites are also much cheaper.

[Palantir]

^Aren't we overthinking it a bit here?

[investor-man]

^Aren't we overthinking it a bit here?

 

+1

[west]

it seems that distance is a problem. Tthe longer the distance, the less data you can transmit over a wave. To support a wide band, you need points in between the satellite and the ground it seems. Also latency is a huge issue. Latency on a regular connection is like 20 or 30ms? On satellite it can easily be over 1000 ms.

 

yadayada,

 

As far as latency goes, Google is looking at low Earth orbit satellites, which typically range from 99 miles above the Earth's surface to 1200 miles above the Earth's surface.  I believe most satellite internet services have their satellites in geostationary orbit (Packer, please correct me if I'm wrong), which is about 22,300 miles above the earth's surface, significantly higher up.

 

Since latency is based on distance traveled (assuming the transfer medium speed remains the same) we're looking at a total round trip distance traveled of 1200 miles * 2 (once to get to the satellite, once to get back) = 2,400 miles for the worst case for a low Earth orbit satellite versus 22,300 * 2 = 44,600 miles for a geostationary satellite.

 

Meaning, assuming the latency is all in the distance traveled and not in the processing time on the communications devices (a gross simplification, but it will work for now), latency for satellite internet would be 5% (2,400 miles / 22,300 miles) of what it is now.

 

You still won't have better latency than most hard-wired connections, so internet gaming might not be as good for you.  But Netflix/YouTube/etc will work just fine.  And video conferencing will probably work just fine as well.

 

I can't comment on bandwidth capacity though.

 

[west]

^Aren't we overthinking it a bit here?

 

Palantir,

 

If there's a potentially disruptive technology looming just over the horizon, backed by a company with enormous resources, I think it's worthwhile to think about what damage it could do to any businesses you're invested in.  Maybe that's just me.

 

[hardcorevalue]

This seems a more likely threat than satellites: anybody have any thoughts on this? Is Quintillion going to resell this access to ISPs or create their own network? What's their end game?

 

Alaska-based QUINTILLION, INC. (Quintillion), a wholly owned subsidiary of Quintillion Networks Limited, is a middle-mile telecommunications company with exclusive rights to develop Alaska fiber optic landing sites. These sites will connect via spurs to a 15,000+ kilometer subsea fiber optic network currently in the pre-construction phase. This project is led by Arctic Fibre Ltd. Quintillion has selected seven landing sites based upon the market and feasibility analysis. The landing sites range from Shemya in the Aleutian Chain, subject of Federal Government approval, to Prudhoe Bay on the North Slope. The project takes advantage of international economic opportunities to route via the Northwest Passage and North Arctic. This network will run between England and Japan, connecting vital financial markets.

 

http://www.prweb.com/releases/2014/01/prweb11527959.htm

[west]

Ok, so I've been through this thread a few times, and I'm about halfway through ALSK thread, but I can't find anything about how people are looking at the transition from the USF to the CAF (Connect America Fund).  It sounds like the Connect America Fund is going to be a huge change versus USF (e.g., the CAF will only reimburse a service provider if it is the only service provider in the area).  And GNCMA has gotten 19% of its revenues (page 20 of the 2013 10-K) from the USF historically, or about $154m last year.

 

If the transition results in, say, a drop of $50m in revenues (a number pulled from nowhere) EBITDA would drop by a similar amount.  This would result in a huge change in the value of the equity via an industry EV/EBITDA multiple since so much of the company's EV is in debt.

 

How are people coming to terms with this and understanding the effects of the USF -> CAF transition better?  Right now I've got almost nothing to go off of outside of what management's said in the 10-Ks and the conference calls, and wikipedia's articles on the matter.  The FCC website doesn't seem to be too useful, but maybe I'm not seeing something.

[prevalou]

http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/universal-service-brochure.pdf

 

The new regulation (caf versus usf) seems to favor the most efficient. Another point: who will pay if subventions abatte, the carrier or the consumer ?

[Packer16]

The transition has already been happening and has caused a decline in USF/regulatory revenues.  Despite this, revenue has continued to grow and I think it will continue to do so.  The analysts following the stock have included this in there models and have 40% revenue and EBITDA growth between now and 2018.  Now this may be higher but the stock has 0% growth implied in its current price.

 

Packer

[west]

The transition has already been happening and has caused a decline in USF/regulatory revenues.  Despite this, revenue has continued to grow and I think it will continue to do so.  The analysts following the stock have included this in there models and have 40% revenue and EBITDA growth between now and 2018.  Now this may be higher but the stock has 0% growth implied in its current price.

 

Packer

 

So (and I'm really not trying to be confrontational here) you don't understand the consequences of the USF to CAF transition 100%?

 

I'm always a bit wary of taking sell-side analysts' estimates at face level.  I always figured they'd regurgitate what management says in a heartbeat if it made their job easier and it resulted in a "Buy" rating for the company (which, in turn, would result in more commissions for their firm...).

 

Are you as jaded as I am on this? :)

 

Also, if you don't mind me asking, what percentage of your portfolio is in GNCMA?  I'm guessing it's not a huge position, perecentage-wise?

[Packer16]

The transition is going to happen overtime with a decline of 10% per year on a small amount of revenues.  They have and will receive grants to expand network which should result in more revenue and EBITDA they would not otherwise have.  I think it will be neutral in terms of impact due to expanding network and up to date service offering.  Where it may be more of an issue with telcos who  are not expanding the network or are not providing broadband services.  In terms of analysts, GNMCA is only followed by a few smaller firms.  GNMCA is my second largest position about 10% of the portfolio so it is a material position.

 

Packer