10 Mar Alaska Communications Reports Fourth Quarter and Year-end 2019 Results
Delivers Strong Fourth Quarter Leading 2019 to Meet or Exceed Guidance
Reports Revenue of $231.7 Million and Net Income of $4.9 Million
Increases Adjusted EBITDA to $62.7 Million, Up from $60.2 Million in 2018
Posts Adjusted Free Cash Flow of $16.0 Million, Up from $7.2 Million in 2018
Increases in Fiber Miles 12% across Statewide Network in 2019 vs. 2018
The Board Approves One-time Dividend of $0.09 per share totaling ~$5 Million
ANCHORAGE, Alaska–(BUSINESS WIRE)–Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the fourth quarter and full year ended December 31, 2019.
“We are pleased with strong 2019 results and achievements, driven by demand for fiber infrastructure and high-performance broadband growth. Our strategic initiatives contributed to better than expected Adjusted EBITDA and Adjusted Free Cash Flow. As a result, the Board approved a one-time $0.09 per share dividend, while continuing to invest in attractive value creating projects.
“With our customer centric approach and prefunded projects, we have accelerated our fiber footprint expansion by over 16,000 fiber miles in 2019, increasing to 146,000 fiber miles across Alaska and the Pacific Northwest. In 2020, we expect the strength of our fiber footprint and relationships to continue to improve results and sustain long-term growth for our shareholders,” said Bill Bishop, President & CEO.
Fourth Quarter 2019 Compared to Fourth Quarter 2018
Total revenue was $58.3 million, compared to $58.7 million, a decrease of 0.7%
Business and wholesale revenue was $38.3 million, compared to $37.0 million, up 3.5%.
Consumer revenue was steady at $9.2 million for both periods.
Regulatory revenue was $10.8 million, compared to $12.5 million, a decrease of 13.6%, as expected due to the restructuring of the Alaska Universal Service program.
Operating expenses were $51.3 million, compared to $53.8 million.
Operating income was $7.0 million, compared to $4.9 million.
Net income was $2.6 million, compared to $1.7 million.
Capital expenditures excluding prefunded projects were $10.0 million, compared to $12.5 million, which includes planned investments to continue our 5G wireless backhaul project.
Adjusted EBITDA was $17.9 million, compared to $14.1 million.
Adjusted Free Cash Flow was $9.7 million, including a tax refund of $5.1 million, compared to adjusted free cash outflow of $3.0 million.
Full Year 2019 Compared to Full Year 2018
Total revenue was $231.7 million, compared to $232.5 million, a decrease of 0.3%.
Business and wholesale revenue was $150.6 million, compared to $144.6 million, up 4.1%.
Consumer revenue was $37.0 million, compared to $37.3 million, a decrease of 0.8%.
Regulatory revenue was $44.1 million, compared to $50.6 million, a decrease of 12.8%, as expected due to the restructuring of the Alaska Universal Service program.
Operating expenses were $209.8 million, compared to $208.2 million.
Operating income was $22.0 million, compared to $24.3 million.
Net income was $4.9 million, compared to $9.1 million.
Capital expenditures excluding prefunded projects were $41.4 million, compared to $38.0 million, which includes planned investments to continue our 5G wireless backhaul project.
Adjusted EBITDA was $62.7 million, compared to $60.2 million.
Adjusted Free Cash Flow was $16.0 million, including a tax refund of $5.1 million, compared to $7.2 million. Compared to guidance, which was without prefunded projects or CEO severance, the company achieved $12.1 million.
Balance Sheet Highlights
Cash was $28.3 million at December 31, 2019, compared to $15.0 million at December 31, 2018.
Net debt was $153.8 million at December 31, 2019, compared to $161.2 million at December 31, 2018.
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 or exceeded our guidance in all areas for 2019. Business and wholesale revenue growth of 4.1% substantially offset anticipated decreases in regulatory revenue. Regulatory revenue declines are expected to have less of an impact in 2020 and future years.
“Also, in 2019, cost initiatives contributed to a 4.3% increase in Adjusted EBITDA and, combined with the AMT tax refund and net cash inflows associated with prefunded projects, drove an $8.7 million increase in Adjusted Free Cash Flow year over year. Our guidance for 2020 reflects our confidence for continued growth in total revenue and Adjusted EBITDA, while maintaining consistent capital expenditures, exclusive of prefunded projects.”
2019 Performance and 2020 Guidance
Operating Statement ($ in M)
2019 Guidance
2019 Performance
2020 Guidance
Total Revenue
$230 – $235
$231.7
$232 – $237
Adjusted EBITDA
$60 – $62
$62.7
$63 – $65
Capital Expenditures
(excluding prefunded projects)
$40 – $42
$41.4
$39 – $43
Adjusted Free Cash Flow
(excl. prefunded projects and CEO severance)
$10 – $12
$12.1
$8 – $10
Conference Call
The Company will host a conference call and live webcast on Wednesday, March 11, 2020 at 2:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-888-220-8474 and enter pass code 5227203. All other parties can access the call at 1-323-794-2588 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 April 10, 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 5227203. All other parties can call 1-719-457-0820 and enter pass code 5227203.
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.
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 $12.3 million in the twelve-month period of 2019).
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 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
Twelve Months Ended
December 31,
December 31,
2019
2018
2019
2018
Operating revenues
$
58,262
$
58,689
$
231,694
$
232,468
Operating expenses:
Cost of services and sales (excluding depreciation and amortization)
26,847
27,914
105,615
107,509
Selling, general & administrative
14,512
17,249
66,718
66,647
Depreciation and amortization
9,851
8,572
37,276
33,908
Loss on disposal of assets, net
55
69
156
125
Total operating expenses
51,265
53,804
209,765
208,189
Operating income
6,997
4,885
21,929
24,279
Other income and (expense):
Interest expense
(2,910
)
(3,238
)
(12,059
)
(13,429
)
Loss on extinguishment of debt
–
–
(2,830
)
–
Interest income
94
82
385
156
Other (expense) income, net
(17
)
(56
)
175
23
Total other income and (expense)
(2,833
)
(3,212
)
(14,329
)
(13,250
)
Income before income tax expense
4,164
1,673
7,600
11,029
Income tax (expense) benefit
(1,537
)
39
(2,765
)
(2,041
)
Net income
2,627
1,712
4,835
8,988
Less net loss attributable to noncontrolling interest
(17
)
(8
)
(93
)
(92
)
Net income attributable to Alaska Communications
$
2,644
$
1,720
$
4,928
$
9,080
Net income per share attributable to Alaska Communications:
Net income applicable to common shares
$
2,644
$
1,720
$
4,928
$
9,080
Basic and Diluted
$
0.05
$
0.03
$
0.09
$
0.17
Weighted average shares outstanding:
Basic
53,012
53,185
53,379
53,042
Diluted
53,975
54,277
54,277
53,840
Schedule 2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
December 31,
December 31,
Assets
2019
2018
Current assets:
Cash and cash equivalents
$
26,662
$
13,351
Restricted cash
1,631
1,634
Short-term investments
134
134
Accounts receivable, net of allowance of $4,627 and $3,936
34,354
31,472
Materials and supplies
8,900
6,737
Prepayments and other current assets
9,617
12,169
Total current assets
81,298
65,497
Property, plant and equipment
1,424,904
1,390,622
Less: accumulated depreciation and amortization
(1,042,546
)
(1,017,442
)
Property, plant and equipment, net
382,358
373,180
Deferred income taxes
–
498
Operating lease right of use assets
80,991
–
Other assets
12,598
16,010
Total assets
$
557,245
$
455,185
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term obligations
$
8,906
$
2,289
Accounts payable, accrued and other current liabilities
39,108
40,957
Advance billings and customer deposits
3,761
4,024
Operating lease liabilities – current
2,795
–
Total current liabilities
54,570
47,270
Long-term obligations, net of current portion
167,476
168,023
Deferred income taxes
4,403
2,315
Operating lease liabilities – noncurrent
78,767
–
Other long-term liabilities, net of current portion
78,520
67,827
Total liabilities
383,736
285,435
Commitments and contingencies
Alaska Communications stockholders’ equity:
Common stock, $.01 par value; 145,000 authorized
541
533
Treasury stock, 1,000 shares at cost
(1,812
)
–
Additional paid in capital
161,844
160,514
Retained earnings
15,367
10,439
Accumulated other comprehensive loss
(3,277
)
(2,675
)
Total Alaska Communications stockholders’ equity
172,663
168,811
Noncontrolling interest
846
939
Total stockholders’ equity
173,509
169,750
Total liabilities and stockholders’ equity
$
557,245
$
455,185
Schedule 3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2019
2018
2019
2018
Cash Flows from Operating Activities:
Net income
$
2,627
$
1,712
$
4,835
$
8,988
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
9,851
8,572
37,276
33,908
Loss on disposal of assets, net
55
69
156
125
Amortization of debt issuance costs and debt discount
304
331
1,215
1,353
Loss on extinguishment of debt
–
–
2,830
–
Amortization of deferred capacity revenue
(1,255
)
(1,101
)
(4,655
)
(4,098
)
Stock-based compensation
814
548
1,580
1,757
Deferred income tax expense
1,385
658
2,919
2,767
Charge for uncollectible accounts
(18
)
374
257
2,745
Other non-cash expense, net
18
57
70
225
Changes in operating assets and liabilities
2,414
(1,904
)
12,332
8,425
Net cash provided by operating activities
16,195
9,316
58,815
56,195
Cash Flows from Investing Activities:
Capital expenditures
(13,208
)
(12,525
)
(44,764
)
(37,957
)
Capitalized interest
(396
)
(545
)
(1,379
)
(2,001
)
Change in unsettled capital expenditures
57
1,584
640
(227
)
Proceeds on sale of assets
5
–
25
1
Net cash used by investing activities
(13,542
)
(11,486
)
(45,478
)
(40,184
)
Cash Flows from Financing Activities:
Repayments of long-term debt
(1,137
)
(1,866
)
(174,040
)
(31,030
)
Proceeds from the issuance of long-term debt
–
–
180,000
14,000
Debt issuance costs and discounts
–
–
(2,683
)
–
Cash paid for debt extinguishment
–
–
(1,252
)
–
Cash proceeds from noncontrolling interest
–
–
–
40
Payment of withholding taxes on stock-based compensation
(5
)
(5
)
(453
)
(415
)
Purchases of treasury stock
–
–
(1,812
)
–
Proceeds from issuance of common stock
105
100
211
211
Net cash used by financing activities
(1,037
)
(1,771
)
(29
)
(17,194
)
Change in cash, cash equivalents and restricted cash
1,616
(3,941
)
13,308
(1,183
)
Cash, cash equivalents and restricted cash, beginning of period
26,677
18,926
14,985
16,168
Cash, cash equivalents and restricted cash, end of period
$
28,293
$
14,985
$
28,293
$
14,985
Supplemental Cash Flow Data:
Interest paid
$
2,992
$
3,531
$
12,228
$
14,254
Income taxes (refunded) paid, net
$
(5,051
)
$
(1
)
$
(5,041
)
$
3
Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2019
2018
2019
2018
Net income
$
2,627
$
1,712
$
4,835
$
8,988
Add (subtract):
Interest expense
2,910
3,238
12,059
13,429
Loss on extinguishment of debt
–
–
2,830
–
Interest income
(94
)
(82
)
(385
)
(156
)
Depreciation and amortization
9,851
8,572
37,276
33,908
Other expense (income), net
17
56
(175
)
(23
)
Loss on disposal of assets, net
55
69
156
125
Income tax expense (benefit)
1,537
(39
)
2,765
2,041
Stock-based compensation
814
548
1,580
1,757
Cash severance expense
120
–
1,715
–
Net loss attributable to noncontrolling interest
17
8
93
92
Adjusted EBITDA
$
17,854
$
14,082
$
62,749
$
60,161
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 $12.3 million in the twelve-month period ended December 31, 2019).
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, cash severance expense for the Company’s former Chief Executive Officer 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
Twelve Months Ended
December 31,
December 31,
2019
2018
2019
2018
Net cash provided by operating activities
$
16,195
$
9,316
$
58,815
$
56,195
Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow:
Capital expenditures excluding prefunded projects
(9,981
)
(12,525
)
(41,355
)
(37,957
)
Capital expenditures for prefunded projects
(3,227
)
–
(3,409
)
–
Milestone payments received for prefunded projects
3,785
–
9,070
1,850
Deferred cost of sales for prefunded projects
–
(500
)
–
(500
)
Amortization of revenue for prefunded projects
(113
)
–
(113
)
–
Amortization of deferred capacity revenue
1,255
1,101
4,655
4,098
Amortization of GCI capacity revenue
(522
)
(522
)
(2,071
)
(2,071
)
Amortization of debt issuance costs and debt discount
(304
)
(331
)
(1,215
)
(1,353
)
Interest expense
2,910
3,238
12,059
13,429
Interest paid
(2,992
)
(3,531
)
(12,228
)
(14,254
)
Interest income
(94
)
(82
)
(385
)
(156
)
Deferred income tax expense
(1,385
)
(658
)
(2,919
)
(2,767
)
Income tax expense (benefit)
1,537
(39
)
2,765
2,041
Income taxes refunded (paid), net
5,051
1
5,041
(3
)
Charge for uncollectible accounts
18
(374
)
(257
)
(2,745
)
Other expense (income), net
17
56
(175
)
(23
)
Net loss attributable to noncontrolling interest
17
8
93
92
Other non-cash expense, net
(18
)
(57
)
(70
)
(225
)
Changes in operating assets and liabilities
(2,414
)
1,904
(12,332
)
(8,425
)
Adjusted free cash flow
$
9,735
$
(2,995
)
$
15,969
$
7,226
Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2019
2018
2019
2018
Adjusted EBITDA
$
17,854
$
14,082
$
62,749
$
60,161
Less:
Capital expenditures excluding prefunded projects
(9,981
)
(12,525
)
(41,355
)
(37,957
)
Amortization of GCI capacity revenue
(522
)
(522
)
(2,071
)
(2,071
)
Cash severance expense
(120
)
–
(1,715
)
–
Income taxes refunded (paid), net
5,051
1
5,041
(3
)
Interest paid
(2,992
)
(3,531
)
(12,228
)
(14,254
)
9,290
(2,495
)
10,421
5,876
Impact of prefunded projects:
Capital expenditures for prefunded projects
(3,227
)
–
(3,409
)
–
Milestone payments received for prefunded projects
3,785
–
9,070
1,850
Deferred cost of sales for prefunded projects
–
(500
)
–
(500
)
Amortization of revenue for prefunded projects
(113
)
–
(113
)
–
445
(500
)
5,548
1,350
Adjusted free cash flow*
$
9,735
$
(2,995
)
$
15,969
$
7,226
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
[email protected]
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