August 4, 2016

Alaska Communications Reports Solid Second Quarter 2016 Results


-Posted Total Wireline Revenues of $56.3 million, a 2.8% increase-

-Reported Business and Wholesale Revenue growth of 8.6%-

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the second quarter of 2016.

"We are performing to our business plan, delivering consistent results in-line with our long-term directional guidance. For the second quarter 2016 compared to a year ago, revenue grew 2.8 percent for total wireline and 8.6 percent for business and wholesale. Revenue contribution from Business and Wholesale as a percentage of total wireline revenue has grown from 51.7 percent in the first quarter 2014 to 60.2 percent in the second quarter 2016, reflecting our steady progress as a fiber broadband and managed IT services focused company. With strong customer wins in the quarter, and investments in a flagship Business Technology Center, we remain confident in the growth opportunities ahead of us and look forward to reporting continued progress in upcoming quarters," Anand Vadapalli, president and CEO of Alaska Communications, said.

Revenue Highlights: Second Quarter 2016 Compared to Second Quarter 2015

  • Total Wireline revenues:
    • Revenue increased to $56.3 million from $54.7 million, up 2.8 percent.
    • Total broadband revenue reached $28.4 million from $26.2 million, up 8.4 percent.
  • Business and wholesale:
    • Comprised 60.2 percent of total wireline revenue.
    • Revenue grew to $33.9 million from $31.2 million, up 8.6 percent.
    • Broadband revenues reached $22.2 million from $19.6 million, up 13.2 percent.
  • Consumer:
    • Comprised 16.9 percent of total wireline revenue.
    • Revenue was $9.5 million, down 6.4 percent from $10.1 million.
    • Broadband revenue was $6.2 million, down 5.8 percent from $6.6 million.
  • Regulatory:
    • Comprised 22.9 percent of total wireline revenue.
    • Revenue was $12.9 million, down 3.6 percent from $13.4 million.

Financial Metrics: Second Quarter 2016 compared to Second Quarter 2015 and Year to Date June 30, 2016

  • Net income was $0.3 million, compared to a net loss of $4.9 million. Year to date net income was $0.4 million.
  • Net cash provided by operating activities was $8.7 million, compared to net cash used of $9.6 million. Year to date cash provided by operating activities was $18.9 million.
  • Capital expenditures were $8.5 million, compared to $20.2 million. Year to date capital expenditures were $13.7 million.

Balance Sheet Metrics: June 30, 2016 compared to December 31, 2015

  • Cash remained strong at $22.2 million, compared to $36.0 million.
  • Net debt was $163.8 million, compared to $161.7 million.

Non-GAAP Metrics: Second Quarter 2016 compared to Second Quarter 2015 and Year to Date June 30, 2016

  • Adjusted EBITDA was $14.0 million, compared to $11.1 million. Year to date Adjusted EBITDA was $28.0 million.
  • Free cash flow was ($5.0) million, compared to ($6.7) million. Year to date free cash flow was $4.1 million.

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 senior vice-president of finance, said, "We are pleased with our results for the quarter, which are aligned with our business plan. We remain committed to growing Adjusted EBITDA and free cash flow and reaffirm our guidance for 2016."

2016 Guidance:

The company reaffirmed 2016 guidance as follows:

  • Total Wireline Revenue of approximately $228 million
  • Adjusted EBITDA of approximately $59 million
  • Capital Expenditures of approximately $35 million
  • Free Cash Flow of approximately $5 million

Conference Call

The Company will host a conference call and live webcast on Thursday, Aug. 4, 2016, at 3:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-888-481-2848 and enter pass code 410670. All other parties can access the call at 1-719-325-2219 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 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until Sept. 3, 2016, at 6:00 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 7519974. All other parties can call 1-719-457-0820 and enter pass code 7519974.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is the leading provider of advanced broadband and IT managed 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.

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, Free Cash Flow and Net Debt, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedules 4 and 5 to this press release. Adjusted EBITDA and Free Cash Flow are non-GAAP measures and should not be considered a substitute for Net Income, Net Cash Provided (Used) 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 at the end of this release or on our website at http://www.alsk.com in the investment data section. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications. We do not provide guidance for Net Income and Net Cash Provided (Used) By Operating Activities.

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, Federal and Alaska Universal Service Fund changes, adverse economic conditions, 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, our ability to service our debt and refinance as required, labor negotiations, including renegotiating our collective bargaining agreement, employee benefit costs, our ability to control other operating costs, disruption of our supplier's provisioning of critical products or services, the impact of natural or man-made disasters, changes in the Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, changes in technology and standards, 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 Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
 
Operating revenues:
Operating revenues, non-affiliates $ 56,262 $ 55,665 $ 112,590 $ 120,876
Operating revenues, affiliates   -     -     -     575  
Total operating revenues   56,262     55,665     112,590     121,451  
 
Operating expenses:
Cost of services and sales, non-affiliates 25,543 30,078 51,671 56,383
Cost of services and sales, affiliates - - - 4,961
Selling, general & administrative 17,586 22,611 34,926 50,595
Depreciation and amortization 8,640 8,075 17,160 17,016
Loss (gain) on disposal of assets, net 128 (724 ) 152 (39,386 )
Earnings from equity method investments   -     -     -     (3,056 )
 
Total operating expenses   51,897     60,040     103,909     86,513  
 
Operating income (loss) 4,365 (4,375 ) 8,681 34,938
 
Other income and (expense):
Interest expense (3,852 ) (4,257 ) (7,721 ) (11,676 )
Loss on extinguishment of debt - - (336 ) (2,628 )
Interest income   6     17     11     42  
Total other income and (expense)   (3,846 )   (4,240 )

 

  (8,046 )   (14,262 )
 
Income before income tax (expense) benefit 519 (8,615 ) 635 20,676
 
Income tax (expense) benefit   (236 )   3,755     (299 )   (9,319 )
 
Net income (loss) 283 (4,860 ) 336 11,357
 
Less net loss attributable to noncontrolling interest   (34 )   (19 )   (67 )   (19 )
 
Net income (loss) attributable to Alaska Communications $ 317   $ (4,841 ) $ 403   $ 11,376  
 
Basic $ 0.01   $ (0.10 ) $ 0.01   $ 0.23  
Diluted $ 0.01   $ (0.10 ) $ 0.01   $ 0.22  
 
Weighted average shares outstanding:
Basic   51,231     50,252     50,986     50,085  
Diluted   52,138     50,252     52,006     51,082  
 

   
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
June 30, December 31,
Assets   2016     2015  
 
Current assets:
Cash and cash equivalents $ 22,248 $ 36,001
Restricted cash 1,811 1,824
Accounts receivable, net of allowance of $1,215 and $1,693 23,348 25,225
Materials and supplies 4,984 4,674
Prepayments and other current assets   4,280     8,068  
Total current assets 56,671 75,792
 
Property, plant and equipment 1,346,470 1,337,098
Less: accumulated depreciation and amortization   (979,952 )   (967,776 )
Property, plant and equipment, net 366,518 369,322
 
Deferred income taxes 16,063 16,660
Other assets   1,762     1,827  
Total assets $ 441,014   $ 463,601  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term obligations $ 4,018 $ 3,671
Accounts payable, accrued and other current liabilities 38,381 51,275
Advance billings and customer deposits   4,052     4,513  
Total current liabilities 46,451 59,459
 
Long-term obligations, net of current portion 175,483 185,018
Other long-term liabilities, net of current portion   63,622     65,265  
Total liabilities   285,556     309,742  
Commitments and contingencies
Alaska Communications stockholders' equity:
Common stock, $.01 par value; 145,000 authorized 513 505
Additional paid in capital 157,954 156,971
Accumulated deficit (1,231 ) (1,634 )
Accumulated other comprehensive loss   (2,889 )   (3,086 )
Total Alaska Communications stockholders' equity   154,347     152,756  
Noncontrolling interest   1,111     1,103  
Total stockholders' equity   155,458     153,859  
 
Total liabilities and stockholders' equity $ 441,014   $ 463,601  
 

         
Schedule 3
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
Cash Flows from Operating Activities:
Net income (loss) $ 283 $ (4,860 ) $ 336 $ 11,357

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

Depreciation and amortization 8,640 8,075 17,160 17,016
Gain on wireless sale - (1,421 ) - (41,140 )
Loss on the disposal of assets, net 128 697 152 1,754
Unrealized gain on ineffective hedge - (275 ) - (542 )
Amortization of debt issuance costs and debt discount 1,005 990 2,021 2,043
Amortization of ineffective hedge - 10 - 1,970
Loss on extinguishment of debt - - 336 2,628
Amortization of deferred capacity revenue (855 ) (694 ) (1,702 ) (1,469 )
Stock-based compensation 642 795 1,447 1,279
Deferred income tax expense (benefit) 228 (136 ) 495 (3,394 )
Charge (benefit) for uncollectible accounts 209 (204 ) 77 1,319
Cash distribution from equity method investments - - - 3,056
Earnings from equity method investments - - - (3,056 )
Other non-cash expense, net 197 273 414 543
Income taxes payable (receivable) 8 (5,574 ) (722 ) 8,038
Changes in operating assets and liabilities   (1,780 )   (7,303 )   (1,077 )   (9,648 )
Net cash provided (used) by operating activities   8,705     (9,627 )   18,937     (8,246 )
 
Cash Flows from Investing Activities:
Capital expenditures (8,487 ) (20,233 ) (13,662 ) (26,133 )
Capitalized interest (245 ) (297 ) (548 ) (788 )
Change in unsettled capital expenditures (4,931 ) 5,117 (9,156 ) 674
Proceeds on wireless sale - 1,680 - 278,068
Proceeds on sale of assets - 3,126 2,663 3,126
Return of capital from equity investment - - - 1,875
Net change in restricted cash   (86 )   -     13     -  
Net cash (used) provided by investing activities   (13,749 )   (10,607 )   (20,690 )   256,822  
 
Cash Flows from Financing Activities:
Repayments of long-term debt (869 ) (1,119 ) (11,486 ) (242,837 )
Debt issuance costs (7 ) (15 ) (44 ) (1,042 )
Cash paid for debt extinguishment - - (150 ) -
Cash paid in acquisition of business - - - (291 )
Cash proceeds from non-controlling interest 75 250 75 250
Payment of withholding taxes on stock-based compensation - (3 ) (472 ) (402 )
Excess tax (expense) benefit from share-based payments - (10 ) (51 ) 733
Proceeds from issuance of common stock   128     135     128     135  
Net cash used by financing activities   (673 )   (762 )   (12,000 )   (243,454 )
 
Change in cash and cash equivalents (5,717 ) (20,996 ) (13,753 ) 5,122
 
Cash and cash equivalents, beginning of period   27,965     57,827     36,001     31,709  
 
Cash and cash equivalents, end of period $ 22,248   $ 36,831   $ 22,248   $ 36,831  
 
Supplemental Cash Flow Data:
Interest paid $ 4,562 $ 5,557 $ 6,359 $ 8,941
Income taxes paid, net $ - $ 1,965 $ 577 $ 3,942
 

           
Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
 
Net cash provided (used) by operating activities $ 8,705 $ (9,627 ) $ 18,937 $ (8,246 )

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

Depreciation and amortization 8,640 8,075 17,160 17,016
Gain on wireless sale - (1,421 ) - (41,140 )
Loss on the disposal of assets, net 128 697 152 1,754
Unrealized gain on ineffective hedge - (275 ) - (542 )
Amortization of debt issuance costs and debt discount 1,005 990 2,021 2,043
Amortization of ineffective hedge - 10 - 1,970
Loss on extinguishment of debt - - 336 2,628
Amortization of deferred capacity revenue (855 ) (694 ) (1,702 ) (1,469 )
Stock-based compensation 642 795 1,447 1,279
Deferred income tax expense (benefit) 228 (136 ) 495 (3,394 )
Charge (benefit) for uncollectible accounts 209 (204 ) 77 1,319
Cash distribution from equity method investments - - - 3,056
Earnings from equity method investments - - - (3,056 )
Other non-cash expense, net 197 273 414 543
Income taxes payable (receivable) 8 (5,574 ) (722 ) 8,038
Changes in operating assets and liabilities   (1,780 )   (7,303 )   (1,077 )   (9,648 )
Net income (loss) $ 283 $ (4,860 ) $ 336 $ 11,357
Add (subtract):
Interest expense 3,852 4,257 7,721 11,676
Loss on extinguishment of debt - - 336 2,628
Interest income (6 ) (17 ) (11 ) (42 )
Depreciation and amortization 8,640 8,075 17,160 17,016
Loss (gain) on disposal of assets, net 128 (724 ) 152 (39,386 )
Earnings from equity method investments - - - (3,056 )
AWN distributions received/receivable, net - - - 765
Income tax (expense) benefit 236 (3,755 ) 299 9,319
Stock-based compensation 642 795 1,447 1,279
Long-term cash incentives 194 308 405 642
Pension adjustment 20 - 41 -
Net loss attributable to noncontrolling interest 34 19 67 19
Wireless sale transaction-related and wind down costs   -     6,962     -     11,308  
 
Adjusted EBITDA $ 14,023   $ 11,060   $ 27,953   $ 23,525  
 
 

Non-GAAP 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 recurring performance and believes provides useful information to investors regarding baseline operating results.

 

The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, gain or loss on asset purchases or disposals including the gain on the sale of our wireless operations, earnings from equity method investments, taxes, wireless transaction-related costs, loss attributable to noncontrolling interest, stock-based compensation, pension adjustments, 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.

 

         
Schedule 5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
FREE CASH FLOW
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
 
Adjusted EBITDA $ 14,023   $ 11,060   $ 27,953   $ 23,525  
 
Less:
Capital expenditures excluding acquisition price of North Slope fiber network (8,487 ) (9,233 ) (13,662 ) (15,133 )
Milestone billings for fiber build project for a carrier customer   -     -     -     2,500  
Net capital expenditures   (8,487 )   (9,233 )   (13,662 )   (12,633 )
 
Purchase of North Slope fiber network
Acquisition price - (11,000 ) - (11,000 )
(Paid) less: 50% due in 2016 (5,500 ) 5,500 (5,500 ) 5,500
Proceeds on sale of fiber to joint venture partner - 2,650 2,650 2,650
Less: other cash proceeds   -     400     -     400  
Net North Slope purchase   (5,500 )   (2,450 )   (2,850 )   (2,450 )
 
Amortization of GCI/AWN capacity revenue (516 ) (514 ) (1,025 ) (1,129 )
Interest paid   (4,562 )   (5,557 )   (6,359 )   (8,941 )
 
Free cash flow* $ (5,042 ) $ (6,694 ) $ 4,057   $ (1,628 )
 
 
* Quarterly FCF fluctuates and should not be viewed as an indicator of annual performance. While onetime events, seasonality of capital spend and the timing of interest payments may result in negative FCF in one or more quarters, we reaffirm our guidance for annual FCF.
 
 

Non-GAAP 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 recurring performance and believes provides useful information to investors regarding baseline operating results.

 

Free cash flow ("FCF") is defined as Adjusted EBITDA, less recurring operating cash requirements which include capital expenditures, net of cash received for a fiber build for a carrier customer, less cash interest expense, significant non-cash revenue associated with our interconnection agreement with AWN and GCI, and proceeds on sale of fiber to our joint venture partner.

 
Alaska Communications continues to have net operating losses and is not a significant taxpayer on ordinary income. Income taxes paid in 2015 and 2016 are related to the Wireless retail sale and are not included in free cash flow.
 
See Schedule 3 for Net cash provided (used) by operating activities, Net cash (used) provided by investing activities, and Net cash used by financing activities.
 

         
Schedule 6
 
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH FROM CONTINUING OPERATIONS
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2016   2015   2016   2015
Business and wholesale revenue
Business broadband $ 14,392 $ 12,618 $ 28,572 $ 24,420
Business voice and other 7,022 7,240 14,112 14,175
Managed IT services 818 810 1,899 1,539
Equipment sales and installations 2,097 1,305 3,684 2,853
Wholesale broadband 7,791 6,984 15,389 13,600
Wholesale voice and other   1,743   2,216   3,758   4,566
 
Total business and wholesale revenue   33,863   31,173   67,414   61,153
Growth in business and wholesale 8.6% 10.2%
Consumer revenue
Broadband 6,234 6,621 12,376 13,259
Voice and other   3,259   3,519   6,641   7,126
 
Total consumer revenue   9,493   10,140   19,017   20,385
 
Total business, wholesale, and consumer revenue   43,356   41,313   86,431   81,538
Growth in business, wholesale and consumer revenue 4.9% 6.0%
Growth in broadband revenue 8.4% 9.9%
 
Regulatory revenue
Access 7,986 8,471 16,158 17,057
High cost support   4,920   4,920   10,001   9,841
 
Total regulatory revenue   12,906   13,391   26,159   26,898
 
Total wireline revenue   56,262   54,704   112,590   108,436
Growth in wireline revenue 2.8% 3.8%
 
Total wireless & AWN related revenue   -   961   -   13,015
 
Total revenue $ 56,262 $ 55,665 $ 112,590 $ 121,451
 

         
Schedule 7
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
Three Months Ended
June 30, March 31, June 30,
  2016   2016   2015
 
Voice:
Business access lines 75,646 76,302 78,544
Consumer access lines 35,600 36,567 40,888
 
Voice ARPU business $ 23.79 $ 23.35 $ 23.53
Voice ARPU consumer $ 28.61 $ 28.39 $ 26.73
 
Broadband:
Business connections (1) 15,347 15,189 15,781
Consumer connections 33,913 33,850 34,895
 
Broadband ARPU business (1) $ 314.31 $ 309.36 $ 267.97
Broadband ARPU consumer $ 60.91 $ 60.59 $ 61.28
 
Churn:
Business voice 1.0% 1.0% 0.8%
Consumer broadband 2.5% 2.2% 2.9%
Consumer voice 1.5% 1.6% 1.8%
 
   
(1) How we calculate broadband connections has changed to exclude certain internal use circuits.
Historical amounts have been restated to reflect appropriate comparisons period over period.
 

   
Schedule 8
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt and Net Debt
(Unaudited, In Thousands)
 
June 30, December 31,
  2016     2015  
2015 senior secured credit facilities due 2018 $ 88,250 $ 89,750
Debt issuance costs - 2015 senior secured credit facilities due 2018 (2,584 ) (3,406 )
6.25% convertible notes due 2018 94,000 104,000
Debt discount - 6.25% convertible notes due 2018 (3,240 ) (4,641 )
Debt issuance costs - 6.25% convertible notes due 2018 (685 ) (1,010 )
Capital leases and other long-term obligations   3,760     3,996  
Total debt 179,501 188,689
Less current portion   (4,018 )   (3,671 )
Long-term obligations, net of current portion $ 175,483   $ 185,018  
 
Total debt $ 179,501 $ 188,689
Plus debt discounts and debt issuance costs   6,509     9,057  
Gross debt 186,010 197,746
Cash and cash equivalents   (22,248 )   (36,001 )
Net debt $ 163,762   $ 161,745  
 

Alaska Communications Systems Group, Inc.
Investor Contact:
Tiffany Dunn, 907-297-3103
Manager, Board and Investor Relations
investors@acsalaska.com
or
Media Contact:
Hannah Blankenship, 907-564-1326
Associate Manager, Corporate Communications
Hannah.Blankenship@acsalaska.com

Source: Alaska Communications Systems Group, Inc.

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