ALSK Alaska Communications Systems Group Inc

-Continued Industry Leading Revenue Growth, Posting 10.1 Percent Total Broadband Revenue Increase-

-Acquired Terrestrial Fiber Network on the North Slope to Accelerate Growth-

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the first quarter of 2015.

“We delivered yet another quarter of industry leading growth. Our business is performing well across all categories, and we continue to turn-up services for an increasing array of customers. In February, we closed the sale of our wireless operations. Then in April, we completed the wireless transition services ahead of schedule. We are on track to achieve targeted synergies and run-rate Adjusted EBITDA exiting 2015,” President and CEO Anand Vadapalli said.

“Additionally in April, we made a strategic acquisition of a fiber optic network on the North Slope from ConocoPhillips that opens up a new set of opportunities in broadband and IT managed services. We expect this investment to be accretive to our growth over the years to come. Concurrently, we entered into a multi-year services agreement with ConocoPhillips, establishing an anchor tenant on the network.

“We are positioned as a strong and focused broadband provider, continuing our proven track record of creating value for our shareholders.”

First Quarter 2015 Revenue Highlights Compared to First Quarter 2014

• Total service and other:
  • Revenue increased to $53.7 million from $52.7 million, up 2.0 percent.
  • Total broadband revenue reached $18.1 million from $16.5 million, up 10.1 percent.
• Business and wholesale service:
  • Revenue grew to $28.4 million from $26.4 million, up 7.7 percent.
  • Broadband revenues reached $11.6 from $10.6, up 9.6 percent.
• Consumer service:
  • Revenue was consistent at $10.2 million, increasing 0.6 percent.
  • Broadband revenues increased to $6.5 million, from $5.9 million up 10.9 percent.
  • Consumer broadband average revenue per user grew $2.16, to $58.07 or 3.9 percent sequentially

First Quarter 2015 Earnings Highlights:

• Adjusted EBITDA was $12.5 million, consistent with expectations.
• Free cash flow was solid, at $5.1 million.
• Net capital expenditures were $3.4 million.

March 31, 2015 Balance Sheet Highlights

• Cash balances stand at $57.8 million, compared to $31.7 million at Dec. 31, 2014. Cash balances are high to fund costs for the wind down of the wireless operations which will take place this year.
• Debt balances were reduced significantly. The company received $276.4 in proceeds from the wireless sale and used $240.5 million of the proceeds to pay down debt. Total debt now stands at $192.7 million.

2015 Operational Highlights:

• Purchased a fiber optic network on the North Slope on April 2 and concurrently entered into a long-term commercial relationship with the first anchor tenant, ConocoPhillips, to provide broadband and IT managed services.
• Entered into a joint venture to provide additional carrier services over the North Slope network.
• Closed the wireless sale on Feb. 2, and completed the wireless transition services on April 17 ahead of schedule.

“With the wireless sale now complete, we are focused on refinancing activities,” Chief Financial Officer Wayne Graham said. “We are pursuing a strategy of replacing our existing term loan facility, with a new facility in the range of $100 million to $120 million. We look forward to completing this process in the next few months.”

2015 Guidance:

The company reaffirmed guidance for the year as follows:

• Total service and other revenue of approximately $220 million
• Run rate Adjusted EBITDA exiting 2015 of $54 million to $56 million
• Net capital expenditures range of $34 million to $36 million, inclusive of $16 million of success based capital
• Net debt at year end of approximately $159 million

Conference Call

The company will host a conference call and live webcast on Friday, May 8, 2015 at 1:00 p.m. Eastern Standard Time to discuss the results. The live webcast will include a slide presentation. Parties in the U.S. and Canada can access the call at 1-888-461-2030 and enter pass code 933823. All other parties can access the call at 1-719-457-2704.

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 90 days. A replay of the call will be available two hours after the call and will run until June 9, 2015, at 4:00 p.m. EDT. To hear the replay, parties in the U.S. and Canada can call 1-888-203-1112 and enter pass code 2186769. All other parties can call 1-719-457-0820 and enter pass code 2186769.

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, 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 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 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 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 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, our ability to realize targeted synergies following the sale of our wireless operations, Universal Service Fund changes adverse economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, including the refinancing of our senior credit facility maturing in October 2016, and 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, 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 customers, unforeseen changes in public policies, and changes in accounting policies, which could result in an impact on earnings. 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,   2015     2014     Operating revenues: Operating revenues, non-affiliates $ 65,211 $ 76,545 Operating revenues, affiliates *   575     1,786   Total operating revenues   65,786     78,331     Operating expenses: Cost of services and sales, non-affiliates 26,305 30,058 Cost of services and sales, affiliates * 4,961 14,760 Selling, general & administrative 27,984 24,595 Depreciation and amortization 8,941 8,790 (Gain) loss on disposal of assets, net (38,662 ) 401 Earnings from equity method investments   (3,056 )   (8,523 )   Total operating expenses   26,473     70,081     Operating income 39,313 8,250   Other income and expense: Interest expense (10,047 ) (8,857 ) Interest income   25     8   Total other income and expense   (10,022 )   (8,849 )

 

  Income (loss) before income tax (expense) benefit 29,291 (599 )   Income tax (expense) benefit   (13,074 )   214     Net income (loss) $ 16,217   $ (385 )   Basic and diluted $ 0.32   $ (0.01 )   Weighted average shares outstanding: Basic   49,916     48,913   Diluted   50,695     48,913     * Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary. On February 2, 2015 we sold our interest in AWN.           Schedule 2   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)   March 31, December 31, Assets   2015     2014     Current assets: Cash and cash equivalents $ 57,827 $ 31,709 Restricted cash 9,467 467 Accounts receivable-trade, net 28,552 30,900 Materials and supplies 4,687 4,321 Prepayments and other current assets 7,939 6,575 Deferred income taxes 13,071 104,245 Current assets held-for-sale   -     9,565   Total current assets 121,543 187,782   Property, plant and equipment 1,321,745 1,333,134 Less: accumulated depreciation and amortization   (969,549 )   (976,401 ) Property, plant and equipment, net 352,196 356,733   Debt issuance costs 2,212 4,469 Deferred income taxes 12,157 - Equity method investments - 252,067 Non-current assets held-for-sale 2,523 14,664 Other assets   253     301   Total assets $ 490,884   $ 816,016     Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 4,384 $ 15,521 Accounts payable, accrued and other current liabilities, non-affiliates 75,873 54,373 Accounts payable, accrued and other current liabilities, affiliates, net * - 4,853 Advance billings and customer deposits 4,672 4,490 Current liabilities held-for-sale   299     18,728   Total current liabilities 85,228 97,965   Long-term obligations, net of current portion 188,358 418,447 Deferred income taxes - 81,267 Other long-term liabilities 22,739 24,370 Non-current liabilities held-for-sale 2,050 2,107 Deferred GCI/AWN capacity revenue, net of current portion   38,893     56,734   Total liabilities   337,268     680,890   Commitments and contingencies Stockholders' equity (deficit): Common stock, $.01 par value; 145,000 authorized 503 497 Additional paid in capital 155,190 154,368 Accumulated earnings (deficit) 1,629 (14,588 ) Accumulated other comprehensive loss   (3,706 )   (5,151 ) Total stockholders' equity   153,616     135,126     Total liabilities and stockholders' equity $ 490,884   $ 816,016     * Affiliate balances are related to activity with our equity method investment in AWN. On February 2, 2015 we sold our interest in AWN.               Schedule 3   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, In Thousands)   Three Months Ended March 31,   2015     2014   Cash Flows from Operating Activities: Net income (loss) $ 16,217 $ (385 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,941 8,790 Gain on wireless sale (39,719 ) - Loss on the disposal of assets, net 1,057 401 Unrealized gain on ineffective hedge (267 ) - Amortization of debt issuance costs and debt discount 3,681 1,398 Amortization of ineffective hedge 1,960 607 Amortization of GCI/AWN deferred capacity revenue (615 ) (841 ) Stock-based compensation 484 653 Deferred income tax benefit (2,515 ) (227 ) Provision for uncollectible accounts 1,523 565 Cash distribution from equity method investments 3,056 8,523 Earnings from equity method investments (3,056 ) (8,523 ) Other non-cash expense (income), net 270 (3 ) Income taxes payable 13,612 - Changes in operating assets and liabilities   (2,505 )   2,868   Net cash provided by operating activities   2,124     13,826     Cash Flows from Investing Activities: Capital expenditures (5,900 ) (7,164 ) Capitalized interest (491 ) (738 ) Change in unsettled capital expenditures (4,443 ) (7,186 ) Cash received in acquisition of business - 68 Proceeds on wireless sale 276,388 - Return of capital from equity investment   1,875     4,010   Net cash provided (used) by investing activities   267,429     (11,010 )   Cash Flows from Financing Activities: Repayments of long-term debt (241,718 ) (13,354 ) Debt issuance costs (1,027 ) - Cash paid in acquisition of business (291 ) - Payment of withholding taxes on stock-based compensation   (399 )   (581 ) Net cash used by financing activities   (243,435 )   (13,935 )   Change in cash and cash equivalents 26,118 (11,119 )   Cash and cash equivalents, beginning of period   31,709     43,039     Cash and cash equivalents, end of period $ 57,827   $ 31,920     Supplemental Cash Flow Data: Interest paid $ 3,384 $ 6,562 Income taxes paid $ 1,977 $ 13   Supplemental Non-cash Transactions: Property acquired under capital leases $ 20 $ 44 Additions to ARO asset $ 3 $ 214 Accrued acquisition purchase price $ (291 ) $ 1,086 Contingent sale proceeds held in escrow $ 9,000 $ - Net change in restricted cash $ (9,000 ) $ -             Schedule 4 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. ADJUSTED EBITDA (Unaudited, In Thousands)   Three Months Ended March 31,   2015     2014     Net income (loss) $ 16,217 $ (385 ) Add (subtract): Interest expense 10,047 8,857 Interest income (25 ) (8 ) Depreciation and amortization 8,941 8,790 Loss on disposal of assets, net 1,057 401 Earnings from equity method investment in TekMate - (12 ) Earnings from equity method investment in AWN (3,056 ) (8,511 ) Gain on sale of assets (39,719 ) - AWN distributions received/receivable, net 765 12,500 Income tax expense (benefit) 13,074 (214 ) Stock-based compensation 484 653 Long-term cash incentives 334 684 Formation of AWN and wireless sale transaction-related costs   4,346     172     Adjusted EBITDA $ 12,465   $ 22,927  

 

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

 

The Company has disclosed Adjusted EBITDA as net income before interest, depreciation and amortization, gain or loss on asset purchases or disposals, earnings on equity method investments, gain on the sale of our wireless operations, provisions for taxes, 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.

          Schedule 5 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. FREE CASH FLOW (Unaudited, In Thousands)   Three Months Ended March 31,   2015     2014     Adjusted EBITDA $ 12,465   $ 22,927     Less: Capital spending Incurred capital expenditures (5,900 ) (7,164 ) Milestone billings for fiber build project for a carrier customer   2,500     -   Net capital spending (3,400 ) (7,164 )   Amortization of GCI/AWN capacity revenue (615 ) (841 ) Cash interest expense   (3,384 )   (6,562 )   Free cash flow $ 5,066   $ 8,360     ACS continues to have net operating losses and is not a significant taxpayer on ordinary income, therefore Income taxes paid are not included on this schedule.   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 recurring performance and believes provides useful information to investors regarding baseline operating results.

 

Free cash flow ("FCF") is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), plus milestone billings for a fiber build project for a carrier customer, less amortization of capacity revenue (which is a non cash revenue item), less cash interest expense. Note that incurred capital spending includes the costs associated with a two year fiber build project with a strategic customer however we are adding back the cash we receive from the customer for the funding of that project to FCF. Accordingly, our capital spending will be elevated because of this project, but the project will be accretive to FCF.

    Schedule 6     ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. REVENUE GROWTH (Unaudited, In Thousands)   Three Months Ended March 31, Service revenue:   2015     2014 Business and wholesale customers Voice $ 5,430 $ 5,611 Broadband 11,632 10,611 IT Services 729 588 Other 1,699 1,681 Wholesale   8,942     7,913 Business and wholesale service revenue   28,432     26,404   Consumer customers Voice 3,428 3,876 Broadband 6,499 5,861 Other   289     423 Consumer service revenue 10,216 10,160   Total service revenue   38,648     36,564 Growth in service revenue 5.7 % Growth in broadband service revenue 10.1 %   Other revenue: Equipment sales 1,577 837 Access 8,586 8,993 High cost support   4,921     6,274 Total service and other revenue   53,732     52,668 Growth in service and other revenue 2.0 % Growth excluding equipment sales 0.6 %   Wireless and AWN related revenue: Service revenue, equipment sales and other 6,058 19,477 Transition services 4,050 - CETC 1,654 5,345 Amortization of deferred AWN capacity revenue   292     841 Total wireless & AWN related revenue   12,054     25,663   Total revenue $ 65,786   $ 78,331

 

 

 

 

 

 

Schedule 7

 

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited)   Three Months Ended March 31, December 31, March 31,   2015     2014     2014     Voice: Consumer access lines 42,492 43,773 48,165 Business access lines 78,734 79,168 79,841   Voice ARPU consumer $ 26.49 $ 26.48 $ 26.51 Voice ARPU business $ 22.93 $ 23.31 $ 23.43   Broadband: Consumer connections 36,612 37,412 39,468 Business connections (2) 19,270 19,234 18,763   ARPU consumer $ 58.07 $ 55.91 $ 49.46 ARPU business (1) (2) $ 201.08 $ 192.64 $ 188.26   Wireless: Postpaid connections N/A 74,839 86,238 Lifeline connections N/A 7,232 6,510 Prepaid connections   N/A     21,267     15,227   Total (3)   N/A     103,338     107,975     Churn: Voice connections 1.0 % 1.2 % 1.0 % Broadband connections 2.0 % 2.4 % 1.9 %   (1 ) Business broadband ARPU was restated to reflect the movement of IT services revenue into a separate category. (2 ) 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. (3 ) The wireless business was sold to GCI on February 2, 2015.             Schedule 8   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Long Term Debt (Unaudited, In Thousands)  

March 31,

December 31,   2015     2014   2010 senior credit facility term loan due 2016 $ 81,292 $ 322,700 Debt discount - 2010 senior credit facility term loan due 2016 (1,156 ) (1,014 ) 6.25% convertible notes due 2018 114,000 114,000 Debt discount - 6.25% convertible notes due 2018 (6,712 ) (7,242 ) Capital leases and other long-term obligations   5,318     5,524   192,742 433,968 Less current portion   (4,384 )   (15,521 ) Long-term obligations, net of current portion $ 188,358   $ 418,447  

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