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Edited Transcript of ALSK earnings conference call or presentation 7-May-20 6:00pm GMT

·9 mins read

Q1 2020 Alaska Communications Systems Group Inc Earnings Call Anchorage May 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Alaska Communications Systems Group Inc earnings conference call or presentation Thursday, May 7, 2020 at 6:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Laurie M. Butcher Alaska Communications Systems Group, Inc. - CFO * Tiffany Smith Alaska Communications Systems Group, Inc. - Manager of Board & IR * William H. Bishop Alaska Communications Systems Group, Inc. - President, CEO & Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day and welcome to the Alaska Communications Systems First Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Tiffany Smith. Please go ahead, ma'am. -------------------------------------------------------------------------------- Tiffany Smith, Alaska Communications Systems Group, Inc. - Manager of Board & IR [2] -------------------------------------------------------------------------------- Welcome to the Alaska Communications First Quarter 2020 Conference Call. I'm Tiffany Smith, Manager of Investor and Board Relations. With me today are Bill Bishop, President and Chief Executive Officer; Laurie Butcher, Chief Financial Officer; and Leonard Steinberg, General Counsel. During this call, we'll be using a slide deck that we'd encourage everyone to have available. For those listening to this call via the webcast, the presentation will be displayed on your screen. For others, you will find it on our investor website, www.alsk.com. Now please review Slide 3 for our safe harbor statement. During this call, company participants will make forward-looking statements as defined under the U.S. securities laws. You are cautioned not to put undue reliance on forward-looking statements as actual results could differ materially as a result of a variety of factors, many of which are outside the company's control. Additionally, any non-GAAP measurements referred to during this call have been reconciled to their nearest GAAP measure. These reconciliations are in the appendix to our presentation. Following our remarks, we will open the line for questions. With that, I would like to turn the call over to Bill. Bill? -------------------------------------------------------------------------------- William H. Bishop, Alaska Communications Systems Group, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Tiffany. Hello, and thanks for joining. Let's turn to Slide 5. Due to COVID-19, 2020 has started off with the event unprecedented in our lifetimes. We are grateful for all the health care and essential service workers who are supporting our communities. I extend that thanks to our employees on the front line, who are making it possible for people to be calm and stay connected. We are actively serving health care customers, teachers and students as well as those requiring increased bandwidth due to the current shelter-in-place directive. Let's turn to Slide 6. In the first quarter, we delivered strong business performance, strengthening our foundation, which will support the company as we manage the uncertainties that may arise. Our growth revenues continued to perform, largely driven by expansion and broadband needs for our business and wholesale customers. While the outlook for small and medium business is more uncertain, we expect broadband demands for enterprise customers to continue to grow with increased usage of cloud services, 5G wireless backhaul and the overall need for more streaming capacity. For example, in April, we sold our first 100-gig circuit from Alaska to the Lower 48 for a carrier customer. With the completion of construction and installation of our recent prefunded, high capacity fiber network in Alaska, we have increased our network capabilities across the state. Becoming fully operational in the first quarter, this network provides additional capacity for our anchor customer and will be leveraged to serve other customer opportunities. We continue to focus and win new business. Through our managed IT solutions, data center capabilities and unique cloud-based solutions, our share of wallet also continues to increase. Our 5G build out continues, which will accelerate our fiber expansion in 2020. We expect this to continue to improve our results and sustain long-term growth for our shareholders. In addition to our enterprise and carrier customers, we continue to focus on the broadband needs for our small business and consumer customers. We continue to expand the number of multi-dwelling units that are receiving our high-speed Internet service, and we are increasing our presence on the military bases across Alaska. Fixed wireless is the other half of our consumer broadband strategy, currently in use for our CAF II service, we continue to expand the footprint across rural Alaska. We recognize the additional capabilities of this product, and we are working to introduce similar technologies in our urban markets. Turning to Slide 7. COVID-19 is top of mind for all of us, how it impacts our employees and community as well as how it impacts the companies with which we do business. I am proud of how our employees and our company have responded to the situation. Our first and foremost priority is the safety of our employees, customers and our communities. We immediately implemented strict safety procedures, including no contact installations for our customer-facing employees. And we have successfully transitioned approximately 80% of our workforce to remote work. In addition, as a critical infrastructure provider, we are working closely with government emergency response and public health teams making sure our community's needs are met. We quickly supported the FCC's Keep America (sic) [Americans] Connected Pledge. We have provided increased bandwidth at no charge for world telehealth providers since many remote villages across Alaska have restricted travel both in and out. Also, since school districts have shifted to distance learning, we are offering new Internet service for teachers and students, providing free installation and free Internet through the end of the school year. We've committed to maintaining services for those customers impacted by the pandemic who are not able to pay. We are now offering flexible payment plans. In addition, we are monitoring programs under the CARES Act. To date, we have taken advantage of the new tax rules that will accelerate our AMT tax refund. We will continue to evaluate additional programs as they become available and will apply to those for which we qualify. While currently it is too early to understand the full impact of the pandemic, our company is well prepared and will continue to provide updates. With this, let me now hand the call to Laurie who will cover our financials. Laurie? -------------------------------------------------------------------------------- Laurie M. Butcher, Alaska Communications Systems Group, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Bill. Turning to Slide 9, let's review our revenue performance for the first quarter of 2020 compared to the same quarter in the prior year. Total revenue was $58.3 million compared to $56.9 million, up 2.4%. Looking at our individual customer groups, Business and Wholesale revenue increased 6.3%, and Consumer remained steady. As expected, regulatory revenues had a moderate decline. This is in contrast to the steep decline in regulatory revenue we experienced in the prior year. Our total growth revenues, which consist of business, wholesale and consumer broadband, equipment sales and installation and managed IT services increased, 7% year-over-year. Broadband revenue alone, which represents 92.9% of our growth revenues and 58.9% of our total revenues, grew 7.2%. Business and Wholesale revenue was $38.8 million in the quarter and contributed 66.6% of our total revenues compared to 64.1% in 2019. Consumer revenue was $9.1 million in the quarter and contributed 15.7% of our total revenues compared to 16.2% in 2019. Regulatory revenue was $10.3 million in the quarter, representing 17.7% of total revenue compared to 19.7% in 2019. Turning to Slide 10. Adjusted EBITDA for the first quarter was strong at $16.1 million, increasing from $15.2 million in Q1 of 2019. In the quarter, our capital spending was $6.8 million, excluding pre-funded projects compared to $8.6 million in Q1 of 2019. Typically, capital spending is low for the first quarter of the year. And in the first quarter of 2020, we implemented a measured approach to capital spending to preserve cash as we monitor the economic challenges associated with low oil prices and the potential impact of COVID-19. For the first quarter, adjusted free cash flow was $10.1 million, increasing from $3 million in the same period of 2019. This increase was the result of lower capital spending and is inclusive of $5.1 million of cash inflows for special projects for which the capital has yet to be incurred. At March 31, 2020, cash was $35.4 million compared to $28.3 million at December 31, 2019, and our $20 million revolver and $25 million delayed draw instrument remain undrawn. We ended the quarter with net debt on the balance sheet of $143.4 million and net leverage of 2.68x as calculated under our credit agreement. With the COVID-19 pandemic beginning to impact our business in mid-March, the effect on our first quarter was limited. As the year progresses, we expect some industries in Alaska, such as oil and gas, retail, tourism and transportation to be more impacted than others. We are evaluating the impact to the economy on our business, including longer sales and delivery cycles, potential supply chain interruptions and increases in bad debt. At this time, with current operating results, we've chosen to maintain our 2020 guidance. Once we have a more thorough assessment of the potential financial impacts of the pandemic, we will reassess guidance. Although we expect some impact to 2020, we have confidence in our long-term business plan and our ability to drive shareholder value. With that, let me hand the call back to Bill. Bill? -------------------------------------------------------------------------------- William H. Bishop, Alaska Communications Systems Group, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Thanks, Laurie. Let's turn to Slide 11. As I stated, I am proud of how our employees have responded to the current pandemic. We continue to drive ahead to achieve our mission and meet our customers' needs in this most difficult time. Our business is keeping people connected. In today's environment, as our customers negotiate increasing amounts of remote work, our solutions are even more critical. In closing, this management team and the Board are committed to maximizing our shareholder value, and we continue to consider all options to do so. We are excited about our progress, and we look forward to keeping you updated. Thanks again for joining. With that, I will open the call for questions. Operator? -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- (Operator Instructions) With no questions in the queue, I would now like to hand the conference back over to Ms. Tiffany Smith for additional or closing remarks. -------------------------------------------------------------------------------- Tiffany Smith, Alaska Communications Systems Group, Inc. - Manager of Board & IR [7] -------------------------------------------------------------------------------- Thank you. We would like to thank all of you for joining us on the call today. We always welcome the opportunity to talk with our shareholders. If you're interested in meeting with us, whether by phone or eventually in person on future roadshows, please reach out to me, Tiffany Smith, in Investor Relations. Thank you, and good day. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Thank you. That does conclude today's conference. Thank you all for your participation, and you may now disconnect.