|  November 26, 2014  |  
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Alaska Communications Systems Reports First Quarter 2014 Results

-Total Service and Other Revenues increased $3.8 million or 7.7%, led by Broadband growth-

-Adjusted EBITDA of $22.9 million-

-Free Cash Flow of $8.4 million-

-Deleveraging continues with over $13 million of repayments of long term debt-

ANCHORAGE, Alaska--(May 8, 2014)-- Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ: ALSK) today reported financial results for its first quarter ended March 31, 2014.

"We are starting 2014 on strong footing, and have delivered solid results for the quarter. Top line growth was robust, driven by continued strength in broadband revenues, while EBITDA performance positions us well to meet our guidance for the year. We continue to pay down debt ahead of schedule which directly translates to shareholder value creation.

"Looking ahead, we are pleased with our performance in the market. We've seen strategic customer wins which provide momentum for the rest of the year. Further, since closing the TekMate transaction in January, sales have exceeded expectations which bode well for continued growth in the managed services area. We have a sound operating plan for the year and we are doing well performing to our plan," said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: First Quarter 2014 Compared to First Quarter 2013

  • The quarter experienced strong revenue performance in our key areas of focus:

o Business and wholesale service revenue of $26.4 million grew $1.8 million or 7.2%, with broadband revenues growing 17.1%.

o Consumer service revenue of $10.2 million grew $0.2 million, or 1.9%, with broadband revenues growing 11.8%.

o Wireless revenue of $19.4 million, declined $0.8 million, or 4.2%, as connections continued to decline.

  • Adjusted EBITDA was $22.9 million and is consistent with our overall guidance expectations for the year.
  • Free Cash Flow was strong at $8.4 million.
  • Persistent deleveraging continues, with debt balances of $444 million at the end of the quarter, compared to $456 million at December 31, 2013. Cash stands at approximately $32 million.

Metric Highlights: First Quarter 2014 Compared to Fourth Quarter 2013

  • Business broadband connections increased to 19,304 from 19,285 and business broadband ARPU increased to $191.21 from $181.77.
  • Consumer broadband connections increased to 39,468 from 38,677 and consumer broadband ARPU increased to $49.46 from $48.59.
  • Wireless subscribers decreased by 873 to 107,975 and Wireless ARPU decreased to $52.51 from $53.14.

"Our financial metrics for the quarter were strong, and our balance sheet is strengthening as we pay down debt ahead of schedule while maintaining strong cash reserves. As anticipated, total revenue of $78.3 million decreased $12.7 million reflecting the shift of $15.7 million in AWN revenue categories, including roaming, which the company no longer reports but reside in its AWN affiliate. Our focus is on Total Service and Other revenue, which grew $3.8 million or 7.7%. Close attention to cost management will result in continued free cash flow performance which will be dedicated to further debt reductions," said Wayne Graham, ACS chief financial officer.

2014 Guidance:

We reaffirm guidance for the year as follows:

Revenue is expected to be approximately $310 million.

Adjusted EBITDA is expected to be approximately $90 million.

Capital spending is expected to be approximately $40 million.

Free cash flow is expected to be approximately $20 million.

Conference Call

The company will host a conference call and live webcast on Friday, May 9, 2014 at 2:00 p.m. Eastern time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-877-941-8609. All other parties can access the call at 1-480-629-9692.

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 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until June 9, 2014 at midnight Eastern time. To hear the replay, parties in the United States and Canada can call 1-800-406-7325 and enter pass code 4678703. All other parties can call 1-303-590-3030 and enter pass code 4678703.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The company operates a highly reliable, advanced statewide data and voice network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit http://www.alaskacommunications.com or http://www.alsk.com.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted EBTDA margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedule 4 to this press release. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP. Other companies may not calculate non-GAAP measures in the same manner as ACS.

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 ACS' control. Such factors include, without limitation, Verizon's retail entry into the Alaska market, Universal Service Fund changes, AWN's financial and operational performance, adverse national economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, adverse local economic conditions, including an unexpected downturn in the Alaskan oil and gas or tourism markets, changes in capital expenditures, the effects of competition in our markets, the entry of one or more additional facilities-based carriers into the Alaska market, the Company's ability to complete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may derive, adverse changes in labor matters, including workforce levels, labor negotiations, and benefits costs, disruption of our supplier's provisioning of critical products or services, the impact of natural or man-made disasters, changes in Company's relationships with large carrier or enterprise customers, changes in revenue from universal service funds, unforeseen changes in public policies, changes in accounting policies, including the Company's application of regulatory accounting rules, which could result in an impact on earnings, or disruptive technological developments in the telecommunications industry. For further information regarding risks and uncertainties associated with ACS' 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,
            2014     2013  
             
Operating revenues:      
  Operating revenues, non-affiliates   $ 76,545   $ 90,996  
  Operating revenues, affiliates *     1,786     63  
Total operating revenues     78,331     91,059  
             
Operating expenses:      
  Cost of services and sales, non-affiliates     30,058     35,319  
  Cost of services and sales, affiliates *     14,760     128  
  Selling, general & administrative     24,595     26,797  
  Depreciation and amortization     8,790     12,632  
  Loss on disposal of assets, net     401     41  
  Earnings from equity method investments     (8,523 )   -  
Total operating expenses     70,081     74,917  
             
Operating income     8,250     16,142  
             
Other income and (expense):      
  Interest expense     (8,857 )   (10,029 )
  Interest income     8     10  
Total other income and (expense)     (8,849 )   (10,019 )
             
(Loss) income before income tax benefit (expense)     (599 )   6,123  
             
  Income tax benefit (expense)     214     (2,655 )
             
Net (loss) income   $ (385 ) $ 3,468  
             
Net (loss) income per share:      
  Basic     $ (0.01 ) $ 0.08  
  Diluted     $ (0.01 ) $ 0.07  
             
Weighted average shares outstanding:      
  Basic       48,913     46,055  
  Diluted       48,913     46,563  
             
* Affiliate balances are related to activity with our equity method investees TekMate and AWN
 

 

          Schedule 2
           
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
           
        March 31, December 31,
Assets     2014     2013  
           
Current assets:      
  Cash and cash equivalents   $ 31,920   $ 43,039  
  Restricted cash     467     467  
  Accounts receivable-trade, non-affiliates, net     33,864     34,066  
  Materials and supplies     10,784     10,131  
  Prepayments and other current assets     7,413     7,300  
  Deferred income taxes     9,975     7,144  
    Total current assets     94,423     102,147  
           
Property, plant and equipment     1,351,056     1,344,949  
Less: accumulated depreciation and amortization     (999,300 )   (992,936 )
  Property, plant and equipment, net     351,756     352,013  
           
Goodwill     5,892     4,650  
Debt issuance costs     6,226     6,929  
Deferred income taxes     12,435     15,572  
Equity method investments     262,130     266,972  
Other assets     396     502  
Total assets   $ 733,258   $ 748,785  
           
Liabilities and Stockholders' Equity (Deficit)      
Current liabilities:      
  Current portion of long-term obligations   $ 4,798   $ 14,256  
  Accounts payable, accrued and other current liabilities, non-affiliates     51,170     55,475  
  Accounts payable, accrued and other current liabilities, affiliates, net *     17,725     14,566  
  Advance billings and customer deposits     9,115     9,104  
    Total current liabilities     82,808     93,401  
           
Long-term obligations, net of current portion     438,847     442,001  
Other long-term liabilities     15,558     16,947  
Deferred AWN capacity revenue, net of current portion     62,422     63,263  
Total liabilities     599,635     615,612  
Commitments and contingencies      
Stockholders' equity (deficit):      
  Common stock, $.01 par value; 145,000 authorized     494     487  
  Additional paid in capital     152,258     152,193  
  Accumulated deficit     (14,283 )   (13,898 )
  Accumulated other comprehensive loss     (4,846 )   (5,609 )
    Total stockholders' equity (deficit)     133,623     133,173  
           
Total liabilities and stockholders' equity (deficit)   $ 733,258   $ 748,785  
           
* Affiliate balances are related to activity with our equity method investees TekMate and AWN
 

 

              Schedule 3
               
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
               
            Three Months Ended
            March 31,
              2014     2013  
Cash Flows from Operating Activities:      
  Net (loss) income   $ (385 ) $ 3,468  
  Adjustments to reconcile net income to net cash provided by      
  operating activities:      
    Depreciation and amortization     8,790     12,632  
    Loss on the disposal of assets     401     41  
    Gain on ineffective hedge adjustment     -     (420 )
    Amortization of debt issuance costs and debt discount     1,398     1,426  
    Amortization of ineffective hedge     607     430  
    Amortization of deferred AWN capacity revenue     (841 )   -  
    Stock-based compensation     653     1,219  
    Deferred income taxes     (227 )   2,655  
    Provision for uncollectible accounts     565     268  
    Cash distribution from equity method investments     8,523     -  
    Earnings from equity method investments     (8,523 )   -  
    Other non-cash expense, net     (3 )   40  
    Changes in operating assets and liabilities     2,868     3,809  
  Net cash provided by operating activities     13,826     25,568  
               
Cash Flows from Investing Activities:      
    Capital expenditures     (7,164 )   (5,968 )
    Capitalized interest     (738 )   (483 )
    Change in unsettled capital expenditures     (7,186 )   (3,151 )
    Proceeds on sale of assets     -     1,935  
    Return of capital from equity investment     4,010     -  
    Non-cash acquisition, cash received     68     -  
    Net change in restricted accounts     -     (1 )
  Net cash used by investing activities     (11,010 )   (7,668 )
               
Cash Flows from Financing Activities:      
    Repayments of long-term debt     (13,354 )   (15,015 )
    Payment of withholding taxes on stock-based compensation     (581 )   (630 )
  Net cash used by financing activities     (13,935 )   (15,645 )
               
Change in cash and cash equivalents     (11,119 )   2,255  
               
Cash and cash equivalents, beginning of period     43,039     16,839  
               
Cash and cash equivalents, end of period   $ 31,920   $ 19,094  
               
Supplemental Cash Flow Data:      
  Interest paid   $ 6,562   $ 7,164  
  Income tax paid (refunded), net   $ 13   $ -  
               
Supplemental Non-cash Transactions:      
  Property (retired) acquired under capital leases, net   $ 44   $ 2  
  Additions to ARO asset   $ 214   $ 30  
  Non-cash acquisition purchase price, net of cash received   $ 1,850   $ -  
         

 

            Schedule 4
             
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
             
          Three Months Ended
          March 31,
            2014     2013  
             
Net (loss) income   $ (385 ) $ 3,468  
  Add (subtract):      
    Interest expense     8,857     10,029  
    Interest income     (8 )   (10 )
    Depreciation and amortization     8,790     12,632  
    Loss on disposal of assets     401     41  
    Earnings from equity method investment in TekMate     (12 )   -  
    Earnings from equity method investment in AWN     (8,511 )   -  
    AWN distributions received     12,500     -  
    AWN distributions received for the prior period     (4,167 )   -  
    AWN distributions receivable within 12 days     4,167     -  
    Income tax expense (benefit)     (214 )   2,655  
    Stock-based compensation     653     1,219  
    Long-term cash incentives     684     169  
    AWN transaction-related costs     172     845  
             
Adjusted EBITDA   $ 22,927   $ 31,048  
             
  Less:      
    Incurred capital expenditures     (7,164 )   (5,968 )
    Amortization of deferred AWN capacity revenue     (841 )   -  
    AWN transaction-related capital costs, net change     -     (55 )
    Cash interest expense     (6,562 )   (7,164 )
  Free cash flow   $ 8,360   $ 17,861  
             
Revenue   $ 78,331   $ 91,059  
             
Adjusted EBITDA Margin     29.3 %   34.1 %

 

NonGAAP Measures:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors.

 

The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, provisions for taxes, AWN transaction-related costs, stock-based compensation, and expenses under the company's long term cash incentive plan ("LTCI"). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA.

 

Adjusted EBITDA Margin, is defined as Adjusted EBITDA divided by Operating Revenues.

 

Free cash flow is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay ("incurred capital expenditures"), less amortization of deferred AWN capacity revenue (a non cash revenue item), less AWN transaction-related capital costs, less cash interest expense.

 

Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP. Other companies may not calculate Non-GAAP measures in the same manner as ACS.

 

 

            Schedule 5
             
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH
(Unaudited, In Thousands)
             
        Three Months Ended
        March 31,
Service Revenue:       2014

 

    2013
Business and Wholesale Customers        
  Voice     $ 5,611     $ 5,723
  Broadband     11,088       9,467
  Other       1,792       1,856
  Wholesale     7,913       7,591
  Business and Wholesale service revenue     26,404       24,637
             
Consumer Customers        
  Voice       3,876       4,319
  Broadband     5,861       5,242
  Other       423       414
  Consumer service revenue     10,160       9,975
             
Total Service Revenue     36,564       34,612
Growth in Service Revenue     5.6 %    
Growth in Broadband Service Revenue     15.2 %    
             
Other Revenue:          
Equipment Sales       837       592
Access         8,993       9,515
High Cost Support       6,274       4,162
Total Service and Other Revenue     52,668       48,881
Growth in Service and Other Revenue     7.7 %    
Growth excluding equipment sales     7.3 %    
             
Wireless Revenue:          
Business and Consumer service revenue     17,056       17,904
Equipment sales       1,004       1,248
Other         1,347       1,101
             
AWN Related:          
Foreign Roaming       -       15,026
Wireless Backhaul       70       1,975
CETC         5,345       4,924
Amortization of deferred AWN capacity revenue     841       -
Total AWN Related       6,256       21,925
Total Wireless & AWN Related Revenue     25,663       42,178
             
Total Revenue     $ 78,331     $ 91,059
                 

 

                      Schedule 6
                       
    ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
    KEY OPERATING STATISTICS
    (Unaudited)
                       
              Three Months Ended
              March 31,   December 31,   March 31,
                2014       2013       2013  
                       
    Voice:                
      Consumer access lines     48,165       49,297       54,037  
      Business access lines     79,841       79,816       80,770  
                       
      Voice ARPU consumer   $ 26.51     $ 26.65     $ 26.21  
      Voice ARPU business   $ 23.43     $ 23.53     $ 23.61  
                       
    Broadband: (1)            
      Consumer connections     39,468       38,677       37,310  
      Business connections (2)     19,304       19,285       18,794  
                       
      ARPU consumer   $ 49.46     $ 48.59     $ 46.57  
      ARPU business (2)   $ 191.21     $ 181.77     $ 167.85  
                       
    Wireless:              
      Postpaid connections     86,238       85,982       90,363  
      Lifeline connections     6,510       7,145       9,494  
      Prepaid connections     15,227       15,721       14,234  
      Total       107,975       108,848       114,091  
                       
      Retail wireless ARPU   $ 52.51     $ 53.14     $ 52.17  
                       
    Churn:                
                       
      Voice connections (3)     1.0 %     1.3 %     1.2 %
      Broadband connections (1) (3)     1.9 %     2.1 %     1.9 %
      Wireless connections     3.0 %     3.4 %     2.6 %
                       
                       
    Wireless equipment subsidy (4)     (463 )     (1,100 )     (3,527 )
                             

(1)

 

Consumer and business broadband connections, ARPU, and churn have been restated to exclude dial up lines.

     

(2)

 

Business broadband connections counts have been restated to correct how certain high bandwidth circuit types are measured. These changes have no material affect on our financial results, but will affect connection count and ARPU amounts presented above compared to their presentation in prior periods.

     

(3)

 

Voice and broadband churn have been restated to exclude wholesale lines.

     

(4)

 

For the quarters ending March 31, 2014 and December 31, 2013, respectively, these amounts are net of AWN subsidy reimbursement.

     

 

                  Schedule 7
                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt
(Unaudited, In Thousands)
                   
                March 31
                  2014     2013  
  2010 senior credit facility term loan due 2016     $ 332,700   $ 429,375  
  Debt discount - 2010 senior credit facility term loan due 2016     (1,479 )   (2,613 )
  6.25% convertible notes due 2018         114,000     120,000  
  Debt discount - 6.25% convertible notes due 2018       (8,726 )   (11,131 )
  Capital leases and other long-term obligations       7,150     5,350  
                  443,645     540,981  
  Less current portion             (4,798 )   (10,108 )
  Long-term obligations, net of current portion       $ 438,847   $ 530,873  
                   
                   
                   
                   
        Maturities          
                   
        2014 (April 1 - December 31)   $ 952    
        2015 (January 1 - December 31)     15,417    
        2016 (January 1 - December 31)     318,788    
        2017 (January 1 - December 31)     506    
        2018 (January 1 - December 31)     114,287    
        2019 (January 1 - December 31)     278    
        Thereafter         3,622    
                $ 453,850    
                       

 

Schedule 8

 

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

   

Summary AWN information

   

(Unaudited, In Thousands)

   
     
Alaska Wireless Network, LLC    
Stand Alone Selected Operating Results    
                 
            Q1 - 2014  
Operating revenues       $ 63,037    
                 
Operating expenses:            
  Cost of services and sales   19,119    
  Selling, general & administrative   5,954    
  Depreciation and amortization   10,995    
                 
Total operating expenses     36,068    
                 
Operating income       26,969    
                 
Other income and (expense)     (92

)

 

                 
Net income        

26,877

 

A

                 
Plus: Depreciation Expense     10,995    
  Other, net       1,706    
Minus: Capital Spending     3,639    
  Management Fee to GCI   1,438    
Adjusted Free Cash Flow     $ 34,501    
                 
Distributions paid to ACS:     12,500    
                 
                 
Distributions to ACS as a proportion of FCF:   36.2

%

 

         
The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.  
     
Wholesale Margin Contribution from AWN:          
                       
Wireless business and consumer service revenue $ 17,056      
                       
AWN wholesale charges *           $ 11,905      
Handset subsidy support *           (2,664 )    
Equipment subsidy             3,127      
Other *               235      
Total                 $ 12,603      
                       
Wholesale Margin             $ 4,453   26 %  
                       

* Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN.

                       
Key AWN Results included in the ACS Consolidated Income Statement:  
                  Q4    
AWN net income             $ 26,877     A
Adjusted for step-up in GCI assets         (1,345 )   B
AWN stepped-up earnings           $ 25,532     C
                       
ACS ownership percentage of AWN           33.33 %   D
"Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.
                       
Earnings on equity method investment in AWN     $ 8,511     C * D
               
AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage.
                       
Key AWN Results Included in the ACS Non GAAP financial measures:    
                  Q1    
Cash distributions received during the quarter       $ 12,500      
Less:   Distributions received during the quarter related to the      
    previous period             (4,167 )    
Plus:   Distributions received within 14 business days of quarter-end   4,167      
    Amortization of deferred AWN capacity revenue       841      
Equals   AWN impact to Adjusted EBITDA         $ 13,341      
                       
Less:   Amortization of deferred AWN capacity revenue       841      
Equals   AWN impact to Free Cash Flow         $ 12,500      
                       
In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.

Source: Alaska Communications Systems Group, Inc.

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