Press release

Alaska Communications Reports First Quarter 2021 Results

0
Sponsored by Businesswire

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the first quarter of 2021.

“We are pleased with our first quarter 2021 results, showing revenue growth year over year in business and wholesale, consumer and regulatory. Total broadband revenues increased 4.4% year over year, and growth revenues continued to outpace declining legacy revenues. Our fiber footprint and market opportunities continue to increase. In April, we completed our Oregon-based prefunded fiber project, connecting our landing station on the Oregon coast to the main Pacific Northwest fiber corridor. We are currently in the final testing phase of this project. Additionally, we continue to see success in the natural resource sector, with a significant new customer win in the mining industry in Alaska.

“With the approval from our shareholders of the merger agreement, we continue to move forward with the transaction with ATN International, Inc. We anticipate receiving the remaining regulatory approvals over the coming months and expect to close the transaction mid-year,” said Bill Bishop, president & CEO.

First Quarter 2020 Compared to First Quarter 2019

  • Total revenue was $60.7 million, compared to $58.3 million, an increase of 4.1%.

    • Business and wholesale revenue was $41.0 million, compared to $38.8 million, up 5.6%.
    • Consumer revenue was $9.2 million, compared to $9.1 million, an increase of 0.4%.
    • Regulatory revenue was $10.5 million, compared to $10.3 million, an increase of 1.7%.
  • Operating expenses were $57.7 million, compared to $52.4 million.
  • Operating income was $3.0 million, compared to $5.8 million.
  • Net income attributable to Alaska Communications was $0.6 million, compared to $2.4 million.
  • Capital expenditures were $6.9 million, compared to $7.5 million, or excluding prefunded projects were $6.9 million, compared to $6.8 million.
  • Adjusted EBITDA was $15.4 million, compared to $16.1 million.
  • Adjusted Free Cash Flow was $7.4 million, compared to $10.1 million, or excluding prefunded projects was $5.8 million in both periods.

Balance Sheet Highlights

  • Cash was $23.4 million at March 31, 2021, compared to $21.0 million at December 31, 2020.
  • Net debt was $147.2 million at March 31, 2021, compared to $151.9 million at December 31, 2020.

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, “Our first quarter results are in line with our business plan, showing year over year revenue growth in all three of our business lines. Our total revenue showed growth of 4.1%, driven largely by broadband. Net income is lower year over year due in part to the transaction costs incurred in the first quarter of this year. I am pleased with our performance for the quarter, and the foundation that it sets for the year.

Conference Call

Due to the pending transaction, the Company will not hold a conference call.

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 $4.8 million in the three-month period of 2021).

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 North Slope 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,

2021

 

2020

   
   
Operating revenues  

$

60,668

 

 

$

58,266

 

   
Operating expenses:    
Cost of services and sales (excluding depreciation and amortization)  

 

27,366

 

 

 

27,114

 

Selling, general & administrative  

 

18,289

 

 

 

15,394

 

Transaction and termination costs  

 

923

 

 

 

 

Depreciation and amortization  

 

11,048

 

 

 

9,840

 

Loss on disposal of assets, net  

 

84

 

 

 

86

 

   
Total operating expenses  

 

57,710

 

 

 

52,434

 

   
Operating income  

 

2,958

 

 

 

5,832

 

   
Other income and (expense):    
Interest expense  

 

(2,652

)

 

 

(2,959

)

Interest income  

 

3

 

 

 

75

 

Other income, net  

 

393

 

 

 

381

 

Total other income and (expense)  

 

(2,256

)

 

 

(2,503

)

   
Income before income tax expense  

 

702

 

 

 

3,329

 

   
Income tax expense  

 

(118

)

 

 

(960

)

   
Net income  

 

584

 

 

 

2,369

 

   
Less net loss attributable to noncontrolling interest  

 

(22

)

 

 

(18

)

   
Net income attributable to Alaska Communications  

$

606

 

 

$

2,387

 

   
Net income per share attributable to Alaska Communications:    
Net income applicable to common shares  

$

606

 

 

$

2,387

 

   
Basic  

$

0.01

 

 

$

0.04

 

Diluted  

$

0.01

 

 

$

0.04

 

   
Weighted average shares outstanding:    
Basic  

 

54,145

 

 

 

53,186

 

Diluted  

 

54,872

 

 

 

54,237

 

   

Schedule 2

     
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
     
  March 31,   December 31,
Assets  

2021

 

2020

     
Current assets:    
Cash and cash equivalents  

$

22,114

 

 

$

19,644

 

Restricted cash  

 

1,326

 

 

 

1,326

 

Short-term investments  

 

434

 

 

 

434

 

Accounts receivable, net of allowance of $4,290 and $4,060  

 

40,284

 

 

 

41,893

 

Materials and supplies  

 

9,093

 

 

 

7,624

 

Prepayments and other current assets  

 

7,217

 

 

 

6,404

 

Total current assets  

 

80,468

 

 

 

77,325

 

     
Property, plant and equipment  

 

1,457,458

 

 

 

1,452,943

 

Less: accumulated depreciation and amortization  

 

(1,070,449

)

 

 

(1,062,027

)

Property, plant and equipment, net  

 

387,009

 

 

 

390,916

 

     
Operating lease right of use assets  

 

88,135

 

 

 

89,821

 

Other assets  

 

11,873

 

 

 

11,370

 

Total assets  

$

567,485

 

 

$

569,432

 

     
Liabilities and Stockholders’ Equity    
Current liabilities:    
Current portion of long-term obligations  

$

9,071

 

 

$

9,067

 

Accounts payable, accrued and other current liabilities  

 

51,355

 

 

 

49,700

 

Operating lease liabilities – current  

 

3,276

 

 

 

3,392

 

Total current liabilities  

 

63,702

 

 

 

62,159

 

     
Long-term obligations, net of current portion  

 

157,630

 

 

 

159,641

 

Deferred income taxes  

 

6,109

 

 

 

5,846

 

Operating lease liabilities – noncurrent  

 

79,631

 

 

 

81,103

 

Other long-term liabilities, net of current portion  

 

93,821

 

 

 

94,764

 

Total liabilities  

 

400,893

 

 

 

403,513

 

Commitments and contingencies    
Alaska Communications stockholders’ equity:    
Common stock, $.01 par value; 145,000 authorized  

 

553

 

 

 

549

 

Treasury stock, 1,000 shares at cost  

 

(1,812

)

 

 

(1,812

)

Additional paid in capital  

 

163,038

 

 

 

163,317

 

Retained earnings  

 

10,048

 

 

 

9,442

 

Accumulated other comprehensive loss  

 

(5,976

)

 

 

(6,340

)

Total Alaska Communications stockholders’ equity  

 

165,851

 

 

 

165,156

 

Noncontrolling interest  

 

741

 

 

 

763

 

Total stockholders’ equity  

 

166,592

 

 

 

165,919

 

     
Total liabilities and stockholders’ equity  

$

567,485

 

 

$

569,432

 

     
Schedule 3
     
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
     
  Three Months Ended
  March 31,
 

2021

 

2020

Cash Flows from Operating Activities:    
Net income  

$

584

 

 

$

2,369

 

Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  

 

11,048

 

 

 

9,840

 

Loss on disposal of assets, net  

 

84

 

 

 

86

 

Amortization of debt issuance costs and debt discount  

 

258

 

 

 

350

 

Amortization of deferred capacity revenue  

 

(1,741

)

 

 

(1,360

)

Stock-based compensation  

 

389

 

 

 

309

 

Deferred income tax expense  

 

118

 

 

 

954

 

Charge for uncollectible accounts  

 

396

 

 

 

(229

)

Amortization of ROU assets  

 

836

 

 

 

578

 

Other non-cash income, net  

 

(27

)

 

 

(33

)

Changes in operating assets and liabilities  

 

4,765

 

 

 

9,498

 

Net cash provided by operating activities  

 

16,710

 

 

 

22,362

 

     
Cash Flows from Investing Activities:    
Capital expenditures  

 

(6,902

)

 

 

(7,463

)

Capitalized interest  

 

(161

)

 

 

(316

)

Change in unsettled capital expenditures  

 

(4,248

)

 

 

(3,759

)

Net cash used by investing activities  

 

(11,311

)

 

 

(11,538

)

     
Cash Flows from Financing Activities:    
Repayments of long-term debt  

 

(2,265

)

 

 

(3,240

)

Payment of withholding taxes on stock-based compensation  

 

(664

)

 

 

(439

)

Net cash used by financing activities  

 

(2,929

)

 

 

(3,679

)

     
Change in cash, cash equivalents and restricted cash  

 

2,470

 

 

 

7,145

 

     
Cash, cash equivalents and restricted cash, beginning of period  

 

20,970

 

 

 

27,993

 

     
Cash, cash equivalents and restricted cash, end of period  

$

23,440

 

 

$

35,138

 

     
Supplemental Cash Flow Data:    
Interest paid  

$

2,544

 

 

$

2,919

 

Dividends payable at March 31  

$

16

 

 

$

4,852

 

Income taxes refunded  

$

(349

)

 

$

 

     
Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
   
Three Months Ended
March 31,

2021

 

2020

   
Net income

$

584

 

 

$

2,369

 

Add (subtract):  
Interest expense

 

2,652

 

 

 

2,959

 

Interest income

 

(3

)

 

 

(75

)

Depreciation and amortization

 

11,048

 

 

 

9,840

 

Other income, net

 

(393

)

 

 

(381

)

Loss on disposal of assets, net

 

84

 

 

 

86

 

Income tax expense

 

118

 

 

 

960

 

Stock-based compensation

 

389

 

 

 

309

 

Transaction-related costs

 

923

 

 

 

 

Net loss attributable to noncontrolling interest

 

22

 

 

 

18

 

   
Adjusted EBITDA

$

15,424

 

 

$

16,085

 

   

Non-GAAP 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 $4.8 million in the three-month period ended March 31, 2021).

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, depreciation and amortization, other income and expense, gain or loss on asset purchases or disposals, provision for income taxes, stock-based compensation, transaction-related costs, 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,
 

2021

 

2020

     
Net cash provided by operating activities  

$

16,710

 

 

$

22,362

 

Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow:    
Capital expenditures excluding prefunded projects  

 

(6,902

)

 

 

(6,836

)

Capital expenditures for prefunded projects  

 

 

 

 

(627

)

Milestone payments received for prefunded projects  

 

2,500

 

 

 

5,140

 

Milestone payments made for prefunded projects  

 

(600

)

 

 

 

Deferred cost of sales for prefunded projects  

 

175

 

 

 

 

Amortization of revenue for prefunded projects  

 

(524

)

 

 

(227

)

Amortization of deferred capacity revenue  

 

1,741

 

 

 

1,360

 

Amortization of GCI capacity revenue  

 

(511

)

 

 

(516

)

Amortization of debt issuance costs and debt discount  

 

(258

)

 

 

(350

)

Interest expense  

 

2,652

 

 

 

2,959

 

Interest paid  

 

(2,544

)

 

 

(2,919

)

Interest income  

 

(3

)

 

 

(75

)

Deferred income tax expense  

 

(118

)

 

 

(954

)

Income tax expense  

 

118

 

 

 

960

 

Income taxes refunded  

 

349

 

 

 

 

Charge for uncollectible accounts  

 

(396

)

 

 

229

 

Amortization of ROU assets  

 

(836

)

 

 

(578

)

Transaction-related costs  

 

923

 

 

 

 

Other income, net  

 

(393

)

 

 

(381

)

Net loss attributable to noncontrolling interest  

 

22

 

 

 

18

 

Other non-cash income, net  

 

27

 

 

 

33

 

Changes in operating assets and liabilities  

 

(4,765

)

 

 

(9,498

)

Adjusted free cash flow  

$

7,367

 

 

$

10,100

 

     
Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
     
  Three Months Ended
  March 31,
 

2021

 

2020

     
Adjusted EBITDA  

$

15,424

 

 

$

16,085

 

     
Less:    
Capital expenditures excluding prefunded projects  

 

(6,902

)

 

 

(6,836

)

Amortization of GCI capacity revenue  

 

(511

)

 

 

(516

)

Income taxes refunded  

 

349

 

 

 

 

Interest paid  

 

(2,544

)

 

 

(2,919

)

 

 

5,816

 

 

 

5,814

 

Impact of prefunded projects:    
Capital expenditures for prefunded projects  

 

 

 

 

(627

)

Milestone payments received for prefunded projects  

 

2,500

 

 

 

5,140

 

Milestone payments made for prefunded projects  

 

(600

)

 

 

 

Deferred cost of sales for prefunded projects  

 

175

 

 

 

 

Amortization of revenue for prefunded projects  

 

(524

)

 

 

(227

)

 

 

1,551

 

 

 

4,286

 

Adjusted free cash flow*  

$

7,367

 

 

$

10,100

 

     

* 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.

Non-GAAP 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,

2021

 

2020

Business and wholesale revenue    
Business broadband  

$

16,242

 

 

$

15,639

Business voice and other  

 

7,137

 

 

 

7,236

Managed IT services  

 

1,217

 

 

 

1,227

Equipment sales and installations  

 

2,618

 

 

 

1,414

Wholesale broadband  

 

12,636

 

 

 

11,979

Wholesale voice and other  

 

1,121

 

 

 

1,288

   
Total business and wholesale revenue  

 

40,971

 

 

 

38,783

Growth in business and wholesale  

 

5.6

%

 
Consumer revenue  
Broadband

 

6,945

 

 

 

6,692

Voice and other  

 

2,230

 

 

 

2,449

   
Total consumer revenue  

 

9,175

 

 

 

9,141

   
Total business, wholesale, and consumer revenue  

 

50,146

 

 

 

47,924

Growth in business, wholesale and consumer revenue  

 

4.6

%

 

Growth in broadband revenue

4.4

%

 
   
Regulatory revenue  
Access

 

5,599

 

 

 

5,418

High cost support  

 

4,923

 

 

 

4,924

   
Total regulatory revenue  

 

10,522

 

 

 

10,342

   
Total revenue

$

60,668

 

 

$

58,266

Growth in total revenue  

 

4.1

%

 
   

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

Schedule 8

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

LONG TERM DEBT AND NET DEBT

(Unaudited, In Thousands)

     
 

March 31,

 

December 31,

 

2021

 

2020

2019 senior secured credit facility due 2024  

$

166,646

 

 

$

168,896

 

  Debt discount – 2019 senior secured credit facilities due 2024  

 

(1,384

)

 

 

(1,523

)

  Debt issuance costs – 2019 senior secured credit facilities due 2024  

 

(1,222

)

 

 

(1,341

)

Capital leases and other long-term obligations  

 

2,661

 

 

 

2,676

 

Total debt  

 

166,701

 

 

 

168,708

 

  Less current portion  

 

(9,071

)

 

 

(9,067

)

Long-term obligations, net of current portion  

$

157,630

 

 

$

159,641

 

     
Total debt  

$

166,701

 

 

$

168,708

 

  Plus debt discounts and debt issuance costs  

 

2,606

 

 

 

2,864

 

Gross debt  

 

169,307

 

 

 

171,572

 

Cash and cash equivalents  

 

(22,114

)

 

 

(19,644

)

Net debt  

$

147,193

 

 

$

151,928