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Alaska Communications Reports First Quarter 2020 Results

·20 mins read
  • Increased Total Revenue 2.4% compared to First Quarter 2019

  • Reported Net Income of $2.4 Million

  • Posted Adjusted EBITDA of $16.1 Million and Adjusted Free Cash Flow of $10.1 Million

  • Contracted first subsea 100Gb IRU in April

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the first quarter of 2020.

"We are pleased with our first quarter 2020 results: Broadband revenues increased 7.2% year over year, and growth revenues continued to outpace declining legacy revenues. This strong business performance strengthens our foundation, and the company is well prepared to manage the challenges related to COVID-19.

"As a premier broadband and managed IT provider in Alaska, we deliver essential services. I am proud of how our employees have responded to the pandemic. They stepped up to serve our customers in this difficult time and continue to drive ahead to achieve our mission. In today’s environment, our customers are negotiating increasing amounts of remote work and our solutions are even more critical. While the small and medium business outlook is unclear, we expect broadband demand for enterprise customers to continue to grow, as demonstrated by the sale of a subsea 100Gb IRU to a carrier customer in April," said Bill Bishop, president & CEO.

First Quarter 2020 Compared to First Quarter 2019

  • Total revenue was $58.3 million, compared to $56.9 million, an increase of 2.4%.

    • Business and wholesale revenue was $38.8 million, compared to $36.5 million, up 6.3%.

    • Consumer revenue was $9.1 million, compared to $9.2 million, a decrease of 0.7%.

    • Regulatory revenue was $10.3 million, compared to $11.2 million, a decrease of 7.8%.

  • Operating expenses were $52.4 million, compared to $51.0 million.

  • Operating income was $5.8 million, compared to $5.9 million.

  • Net income was $2.4 million, compared to $0.2 million.

  • Capital expenditures were $7.5 million, compared to $8.6 million.

  • Adjusted EBITDA was $16.1 million, compared to $15.2 million.

  • Adjusted Free Cash Flow was $10.1 million, compared to $3.0 million.

Balance Sheet Highlights

  • Cash was $35.4 million at March 31, 2020, compared to $28.3 million at December 31, 2019.

  • Net debt was $143.4 million at March 31, 2020, compared to $153.8 million at December 31, 2019.

Reconciliations of non-GAAP financial measures to GAAP financial measures can be found in tables at the end of this release and on the Company’s website at http://www.alsk.com in the investment data section.

Laurie Butcher, Alaska Communications chief financial officer, said, "We met our expectations for the quarter, and growth revenues increased 6.9% compared to last year. Dedicated to meeting the needs of our communities, we developed special internet services offerings to help people with tele-health, distance learning and remote work demands. Recognizing the potential financial impact to some residential and small businesses customers, we are providing flexible payment plans and will continue to monitor the situation. We are evaluating the effect of COVID-19 on our business from supply chain to collections. Although the near-term impact is uncertain, our business is keeping people connected, and we are confident in our long-term business plan and ability to drive shareholder value."

2020 Guidance

Management maintains its 2020 financial guidance as follows:

  • Total Revenue to be between $232 million and $237 million

  • Adjusted EBITDA to be between $63 million and $65 million

  • Capital Expenditures to be between $39 million and $43 million

  • Adjusted Free Cash Flow to be between $8 million and $10 million

Conference Call

The Company will host a conference call and live webcast on Thursday, May 7, 2020 at 2:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-800-458-4121 and enter pass code 4240283. All other parties can access the call at 1-323-794-2597 and use the same code.

The live webcast of the conference call will be accessible from the "Events Calendar" section of the Company's website (www.alsk.com). The webcast will be archived for a period of 30 days. A telephonic replay of the conference call will also be available two hours after the call and will run until June 6, 2020 at 5:00 p.m. Eastern Time. To hear the replay, parties in the U.S. and Canada can call 1-888-203-1112 and enter pass code 4240283. All other parties can call 1-719-457-0820 and enter pass code 4240283.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is the leading provider of advanced broadband and managed IT services for businesses and consumers in Alaska. The Company operates a highly reliable, advanced statewide data network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous U.S. For more information, visit www.alaskacommunications.com or www.alsk.com.

Revenue Category Definitions

Growth Revenues are defined as business broadband, managed IT services, equipment sales and installations, wholesale broadband and consumer broadband. Legacy Revenues are defined as business voice and other, Wholesale voice and other, consumer voice and other, and Access. CAF II Revenues are defined as high cost support.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, we have provided certain non-GAAP financial information, including Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt. Adjusted EBITDA eliminates the effects of period to period changes in costs that are not directly attributable to the underlying performance of the Company’s business operations and is used by Management and the Company’s Board of Directors to evaluate current operating financial performance, analyze and evaluate strategic and operational decisions and better evaluate comparability between periods. Adjusted Free Cash Flow is a non-GAAP liquidity measured used by Management and the Company’s Board of Directors to assess the Company’s ability to generate cash and plan for future operating and capital actions. Adjusted EBITDA and Adjusted Free Cash Flow are common measures utilized by our peers (other telecommunications companies) and we believe they provide useful information to investors and analysts about the Company’s operating results, financial condition and cash flows. Net Debt provides Management and the Company’s Board of Directors with a measure of the Company’s current leverage position. The definition and computation of these non-GAAP measures are provided on Schedules 4, 6 and 9 to this press release. Adjusted EBITDA and Adjusted Free Cash Flow should not be considered a substitute for Net Income, Net Cash Provided by Operating Activities and other measures of financial performance recorded in accordance with GAAP. Reconciliations of our non-GAAP measures to our nearest GAAP measures can be found in the tables in this release. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications. The Company does not provide reconciliations of guidance for Adjusted EBITDA to Net Income, and Adjusted Free Cash Flow to Net Cash from Operating Activities, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company does not forecast certain items required to develop the comparable GAAP financial measures. These items are charges and benefits for uncollectible accounts, certain other non-cash expenses, unusual items typically excluded from Adjusted EBITDA and Adjusted Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $9.9 million in the three-month period of 2020).

Forward-Looking Statements

This press release includes certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control. Such factors include, without limitation changes in technology and related standards, the impacts of the COVID-19 pandemic on the economy of Alaska and on the Company, the impact of natural or man-made disasters and accidents, Federal and Alaska Universal Service Fund changes and our current and historical compliance with the obligations of those programs, structural declines for voice and other legacy services, maintenance or IT issues, third-party intellectual property claims, potential pension shortfalls, the success or failure of future strategic transactions, funding through the rural health care universal service support mechanism and our ability to comply and our history of compliance with the regulatory requirements to receive those support payments, our ability to service our debt and refinance as required, adverse economic conditions, our success in providing broadband services on the Northslope and Western Alaska, the effects of competition in our markets, our relatively small size compared with our competitors, the Company’s ability to compete, manage, integrate, market, maintain, and attract sufficient customers for its products and services, adverse changes in labor matters, including workforce levels, labor negotiations, employee benefit costs, our ability to control other operating costs, disruption of our supplier’s provisioning of critical products or services, the actions of activist shareholders, changes in Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, our internal control over financial reporting, and changes in accounting standards or policies, which could affect reported financial results. For further information regarding risks and uncertainties associated with the Company’s business, please refer to the Company's SEC filings, including, but not limited to, the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q. Copies of the Company's SEC filings may be obtained by contacting its investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com.

Schedule 1

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

CONSOLIDATED SCHEDULE OF OPERATIONS

(Unaudited, In Thousands Except Per Share Amounts)

Three Months Ended

March 31,

2020

2019

Operating revenues

$

58,266

$

56,909

Operating expenses:

Cost of services and sales (excluding depreciation and amortization)

27,114

25,627

Selling, general & administrative

15,394

16,656

Depreciation and amortization

9,840

8,679

Loss on disposal of assets, net

86

(2

)

Total operating expenses

52,434

50,960

Operating income

5,832

5,949

Other income and (expense):

Interest expense

(2,959

)

(3,056

)

Loss on extinguishment of debt

-

(2,799

)

Interest income

75

75

Other income, net

381

122

Total other income and (expense)

(2,503

)

(5,658

)

Income before income tax expense

3,329

291

Income tax expense

(960

)

(98

)

Net income

2,369

193

Less net loss attributable to noncontrolling interest

(18

)

(34

)

Net income attributable to Alaska Communications

$

2,387

$

227

Net income per share attributable to Alaska Communications:

Net income applicable to common shares

$

2,387

$

227

Basic and Diluted

$

0.04

$

0.00

Weighted average shares outstanding:

Basic

53,186

53,382

Diluted

54,237

54,605

Schedule 2

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, In Thousands Except Per Share Amounts)

March 31,

December 31,

Assets

2020

2019

Current assets:

Cash and cash equivalents

$

33,818

$

26,662

Restricted cash

1,620

1,631

Short-term investments

134

134

Accounts receivable, net of allowance of $4,285 and $4,627

27,738

34,354

Materials and supplies

7,745

8,900

Prepayments and other current assets

12,535

9,617

Total current assets

83,590

81,298

Property, plant and equipment

1,429,446

1,424,904

Less: accumulated depreciation and amortization

(1,049,102

)

(1,042,546

)

Property, plant and equipment, net

380,344

382,358

Operating lease right of use assets

80,394

80,991

Other assets

10,307

12,598

Total assets

$

554,635

$

557,245

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of long-term obligations

$

7,931

$

8,906

Accounts payable, accrued and other current liabilities

42,337

39,108

Advance billings and customer deposits

3,680

3,761

Operating lease liabilities - current

2,902

2,795

Total current liabilities

56,850

54,570

Long-term obligations, net of current portion

165,561

167,476

Deferred income taxes

4,550

4,403

Operating lease liabilities - noncurrent

78,207

78,767

Other long-term liabilities, net of current portion

80,606

78,520

Total liabilities

385,774

383,736

Commitments and contingencies

Alaska Communications stockholders' equity:

Common stock, $.01 par value; 145,000 authorized

546

541

Treasury stock, 1,000 shares at cost

(1,812

)

(1,812

)

Additional paid in capital

161,709

161,844

Retained earnings

12,902

15,367

Accumulated other comprehensive loss

(5,312

)

(3,277

)

Total Alaska Communications stockholders' equity

168,033

172,663

Noncontrolling interest

828

846

Total stockholders' equity

168,861

173,509

Total liabilities and stockholders' equity

$

554,635

$

557,245

Schedule 3

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited, In Thousands)

Three Months Ended

March 31,

2020

2019

Cash Flows from Operating Activities:

Net income

$

2,369

$

193

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

9,840

8,679

Loss on disposal of assets, net

86

(2

)

Amortization of debt issuance costs and debt discount

350

303

Loss on extinguishment of debt

-

2,799

Amortization of deferred capacity revenue

(1,360

)

(1,126

)

Stock-based compensation

309

498

Deferred income tax expense

636

92

Charge for uncollectible accounts

(229

)

(697

)

Amortization of ROU asset

521

565

Other non-cash expense, net

(33

)

121

Changes in operating assets and liabilities

9,873

4,050

Net cash provided by operating activities

22,362

15,475

Cash Flows from Investing Activities:

Capital expenditures

(7,463

)

(8,563

)

Capitalized interest

(316

)

(355

)

Change in unsettled capital expenditures

(3,759

)

(1,121

)

Net cash used by investing activities

(11,538

)

(10,039

)

Cash Flows from Financing Activities:

Repayments of long-term debt

(3,240

)

(171,758

)

Proceeds from the issuance of long-term debt

-

180,000

Debt issuance costs and discounts

-

(2,659

)

Cash paid for debt extinguishment

-

(1,222

)

Payment of withholding taxes on stock-based compensation

(439

)

(305

)

Net cash used by financing activities

(3,679

)

4,056

Change in cash, cash equivalents and restricted cash

7,145

9,492

Cash, cash equivalents and restricted cash, beginning of period

28,293

14,985

Cash, cash equivalents and restricted cash, end of period

$

35,438

$

24,477

Supplemental Cash Flow Data:

Interest paid

$

2,919

$

3,075

Dividends payable at March 31, 2020

$

4,852

$

-

Income taxes paid, net

$

-

$

10

Schedule 4

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

ADJUSTED EBITDA

(Unaudited, In Thousands)

Three Months Ended

March 31,

2020

2019

Net income

$

2,369

$

193

Add (subtract):

Interest expense

2,959

3,056

Loss on extinguishment of debt

-

2,799

Interest income

(75

)

(75

)

Depreciation and amortization

9,840

8,679

Other income, net

(381

)

(122

)

Loss on disposal of assets, net

86

(2

)

Income tax expense

960

98

Stock-based compensation

309

498

Net loss attributable to noncontrolling interest

18

34

Adjusted EBITDA

$

16,085

$

15,158

NonGAAP Measures:
The Company provides certain non-GAAP financial information, including Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt. Adjusted EBITDA eliminates the effects of period to period changes in costs that are not directly attributable to the underlying performance of the Company’s business operations and is used by Management and the Company’s Board of Directors to evaluate current operating financial performance, analyze and evaluate strategic and operational decisions and better evaluate comparability between periods. Adjusted Free Cash Flow is a non-GAAP liquidity measure used by Management to assess the Company’s ability to generate cash and plan for future operating and capital actions. Adjusted EBITDA and Adjusted Free Cash Flow are common measures utilized by our peers (other telecommunications companies) and we believe they provide useful information to investors and analysts about the Company’s operating results, financial condition and cash flows. Net Debt provides Management and the Board of Directors with a measure of the Company’s current leverage position.

The Company does not provide reconciliations of guidance for Adjusted EBITDA to Net Income, and Adjusted Free Cash Flow to Net Cash Provided by Operating Activities, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company does not forecast certain items required to develop the comparable GAAP financial measures. These items are charges and benefits for uncollectible accounts, certain other non-cash expenses, unusual items typically excluded from Adjusted EBITDA and Adjusted Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $9.9 million in the three-month period ended March 31, 2020).

Adjusted EBITDA and Adjusted Free Cash Flow are not GAAP measures and should not be considered a substitute for net income, net cash provided by operating activities, or net cash provided or used. Adjusted EBITDA as computed above is not consistent with the definition of Consolidated EBITDA referenced in our 2019 Senior Credit Facility, and other companies may not calculate Non-GAAP measures in the same manner we do.

Adjusted EBITDA is defined as net income before interest expense and income, loss on extinguishment of debt, depreciation and amortization, other income and expense, gain or loss on asset purchases or disposals, provision for income taxes, stock-based compensation, and net loss attributable to noncontrolling interest.

Schedule 5

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED FREE CASH FLOW

(Unaudited, In Thousands)

Three Months Ended

March 31,

2020

2019

Net cash provided by operating activities

$

22,362

$

15,475

Adjustments to reconcile net cash provided by operating

activities to adjusted free cash flow:

Capital expenditures excluding prefunded projects

(6,836

)

(8,563

)

Capital expenditures for prefunded projects

(627

)

-

Milestone payments received for prefunded projects

5,140

-

Amortization of revenue for prefunded projects

(227

)

-

Amortization of deferred capacity revenue

1,360

1,126

Amortization of GCI capacity revenue

(516

)

(511

)

Amortization of debt issuance costs and debt discount

(350

)

(303

)

Interest expense

2,959

3,056

Interest paid

(2,919

)

(3,075

)

Interest income

(75

)

(75

)

Deferred income tax expense

(636

)

(92

)

Income tax expense

960

98

Income taxes paid, net

-

(10

)

Charge for uncollectible accounts

229

697

Amortization of ROU asset

(521

)

(565

)

Other income, net

(381

)

(122

)

Net loss attributable to noncontrolling interest

18

34

Other non-cash expense, net

33

(121

)

Changes in operating assets and liabilities

(9,873

)

(4,050

)

Adjusted free cash flow

$

10,100

$

2,999

Schedule 6

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

ADJUSTED FREE CASH FLOW

(Unaudited, In Thousands)

Three Months Ended

March 31,

2020

2019

Adjusted EBITDA

$

16,085

$

15,158

Less:

Capital expenditures excluding prefunded projects

(6,836

)

(8,563

)

Amortization of GCI capacity revenue

(516

)

(511

)

Income taxes paid, net

-

(10

)

Interest paid

(2,919

)

(3,075

)

5,814

2,999

Impact of prefunded projects:

Capital expenditures for prefunded projects

(627

)

-

Milestone payments received for prefunded projects

5,140

-

Amortization of revenue for prefunded projects

(227

)

-

4,286

-

Adjusted free cash flow*

$

10,100

$

2,999

* Quarterly Adjusted Free Cash Flow fluctuates and should not be viewed as an indicator of annual performance. Onetime events, seasonality of capital spend and the timing of interest payments may result in negative Adjusted Free Cash Flow in one or more quarters.

NonGAAP Measures:
Adjusted Free Cash Flow is a non-GAAP liquidity measure and is defined as Adjusted EBITDA, less recurring operating cash requirements which include capital expenditures, cash income taxes refunded or paid, cash interest paid, amortization of GCI capacity revenue, cash severance expense for the Company's former Chief Executive Officer, and cash receipts and payments, deferred costs and amortized revenue and expense associated with certain prefunded special projects as defined in the 2019 Senior Credit Facility. Amortization of deferred revenue associated with our interconnection agreement with GCI is excluded from Adjusted Free Cash Flow because no cash was received by the Company in connection with this agreement. Amortization of all other deferred revenue, including that associated with other IRU capacity arrangements, is included in Adjusted Free Cash Flow because cash was received by the Company, typically at contract inception, and is being recognized as revenue over the term of the relevant agreement.

See Schedule 3 for Net cash provided by operating activities, Net cash used by investing activities, and Net cash used by financing activities.

See Schedule 5 for the reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow.

Schedule 7

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

REVENUE BY CUSTOMER GROUP

(Unaudited, In Thousands)

Three Months Ended

March 31,

2020

2019

Business and wholesale revenue

Business broadband

$

15,639

$

15,267

Business voice and other

7,236

7,001

Managed IT services

1,227

1,659

Equipment sales and installations

1,414

880

Wholesale broadband

11,979

10,262

Wholesale voice and other

1,288

1,426

Total business and wholesale revenue

38,783

36,495

Growth in business and wholesale

6.3

%

Consumer revenue

Broadband

6,692

6,468

Voice and other

2,449

2,733

Total consumer revenue

9,141

9,201

Total business, wholesale, and consumer revenue

47,924

45,696

Growth in business, wholesale and consumer revenue

4.9

%

Growth in broadband revenue

7.2

%

Regulatory revenue

Access

5,418

6,289

High cost support

4,924

4,924

Total regulatory revenue

10,342

11,213

Total revenue

$

58,266

$

56,909

Growth in total revenue

2.4

%

Growth Revenues: Business broadband, Managed IT services, Equipment sales and installations,

Wholesale broadband, and Consumer broadband

Legacy Revenues: Business voice and other, Wholesale voice and other, Consumer voice and other,

and Access

CAF II Revenues: High Cost Support

Schedule 8

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

KEY OPERATING STATISTICS

(Unaudited)

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

Voice:

Business access lines

67,406

67,248

68,788

Consumer access lines

22,227

22,864

25,156

Voice ARPU business

$

27.14

$

26.95

$

25.21

Voice ARPU consumer

$

34.11

$

33.85

$

33.77

Broadband:

Business connections

14,689

14,789

15,132

Consumer connections

31,819

31,476

32,811

Broadband ARPU business

$

352.28

$

345.93

$

334.87

Broadband ARPU consumer

$

70.19

$

70.82

$

65.44

Monthly Average Churn:

Business voice

0.9

%

0.7

%

1.1

%

Consumer broadband

2.2

%

2.9

%

2.2

%

Consumer voice

1.1

%

1.3

%

1.1

%

Schedule 9

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

LONG TERM DEBT AND NET DEBT

(Unaudited, In Thousands)

March 31,

December 31,

2020

2019

2019 senior secured credit facility due 2024

$

174,521

$

177,750

Debt discount - 2019 senior secured credit facilities due 2024

(2,033

)

(2,234

)

Debt issuance costs - 2019 senior secured credit facilities due 2024

(1,713

)

(1,863

)

Capital leases and other long-term obligations

2,717

2,729

Total debt

173,492

176,382

Less current portion

(7,931

)

(8,906

)

Long-term obligations, net of current portion

$

165,561

$

167,476

Total debt

$

173,492

$

176,382

Plus debt discounts and debt issuance costs

3,746

4,097

Gross debt

177,238

180,479

Cash and cash equivalents

(33,818

)

(26,662

)

Net debt

$

143,420

$

153,817

View source version on businesswire.com: https://www.businesswire.com/news/home/20200506005900/en/

Contacts

Media Contact
Heather Cavanaugh, 907-564-7722
Director, External Affairs and Corporate Communications

Investor Contact
Tiffany Smith, 907-564-7556
Manager, Board and Investor Relations
investors@acsalaska.com