ALSK Alaska Communications Systems Group Inc

-Achieved Run-Rate Adjusted EBITDA of $55.4 million, in line with 2015 guidance-

-Posted Total Wireline Revenues of $219.8 million, a 2.2% increase-

-Reported full-year Business and Wholesale Revenue growth of 9.3% -

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for its fourth quarter and full year ended Dec. 31, 2015.

“Alaska Communications set high goals for 2015. We successfully transitioned out of wireless operations and streamlined the business with a focus on areas of maximum opportunity such as a fiber broadband and IT managed services. Business and Wholesale revenue grew 9.3 percent, ahead of our longer term directional guidance and demonstrating our ability to take share. Achieving all of our planned wireless sale synergies, we delivered on our run-rate Adjusted EBITDA guidance.

“We are entering 2016 with momentum, positioning to become the premier cloud enabler for business. We expect to drive increasingly profitable growth and free cash flow expansion to generate long-term shareholder value,” Anand Vadapalli, president and CEO of Alaska Communications said.

Revenue Highlights: Year over Year Fourth Quarter

• Total service and other, representing Total Wireline revenues excluding any stub period wireless revenues:
  • Revenue increased to $56.6 million from $53.5 million, up 5.8 percent.
  • Total broadband revenue reached $19.4 million from $17.5 million, up 10.4 percent.
• Business and wholesale service:
  • Comprised 56.8 percent of total service and other revenue.
  • Revenue grew to $32.2 million from $27.8 million, up 15.7 percent.
  • Broadband revenues reached $13.4 from $11.1, up 20.8 percent.
• Consumer service:
  • Comprised 17.0 percent of total service and other revenue.
  • Revenue was $9.7 million, down 6.3 percent from $10.3 million.
  • Broadband revenue was $5.9 million, down 7.6 percent from $6.4 million.
• Access and Other:
  • Comprised 26.1 percent of total service and other revenue.
  • Revenue was $14.8 million, down 4.0 percent from $15.4 million.

Financial Highlights: Fourth Quarter and Year ended Dec. 31, 2015

• Adjusted EBITDA of $13.8 million, bringing the fourth quarter annual run-rate to $55.4 million.
• Total operating revenue of $56.6 million, bringing the year to $232.8 million, including total service and other revenues of $219.8 million.
• Net capital expenditures were $8.2 million for the quarter and $32.9 million for the year.
• Net debt at year-end of $161.7 million.
• Cash remained strong at $36.0 million.

Laurie Butcher, Alaska Communications senior vice-president of finance, said, “We accomplished all of our guidance targets for 2015. Business revenue was strong at 9.3 percent growth, while consumer revenue declines reflect industry trends and planned reductions in lower speed connections. During the year, we reduced our debt balances by $244 million dollars, making us one of the lowest levered companies in our industry. In 2016, we are committed to growing revenue, Adjusted EBITDA and free cash flow.”

2016 Guidance:

• Total Service and Other 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 CallThe Company will host a conference call and live webcast on Thursday, March 3, 2016 at 3:00 p.m. Eastern Time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-888-466-4440 and enter pass code 857497. All other parties can access the call at 1-719-785-1758.

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 April 4, 2016 at 6:00 p.m. Eastern Time. To hear the replay, parties in the United States and Canada can call 1-888-203-1112 and enter pass code 5646561. All other parties can call 1-719-457-0820 and enter pass code 5646561.

About Alaska CommunicationsAlaska 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 MeasuresIn 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 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 StatementsThis 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, 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 when it comes due, labor negotiations, and benefits 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 Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, changes in technology and standards, 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 Twelve Months Ended December 31, December 31,   2015     2014     2015     2014     Operating revenues: Operating revenues, non-affiliates $ 56,631 $ 75,886 $ 232,242 $ 307,917 Operating revenues, affiliates   -     1,623     575     6,946   Total operating revenues   56,631     77,509     232,817     314,863     Operating expenses: Cost of services and sales, non-affiliates 26,106 32,580 107,162 123,854 Cost of services and sales, affiliates - 13,821 4,961 57,116 Selling, general & administrative 17,407 26,472 88,389 101,398 Depreciation and amortization 8,376 6,733 33,867 32,583 Loss (gain) on disposal of assets, net 112 (486 ) (46,252 ) 126 Loss on impairment of goodwill - 5,986 - 5,986 Earnings from equity method investments   -     (6,713 )   (3,056 )   (35,960 )   Total operating expenses   52,001     78,393     185,071     285,103     Operating income (loss) 4,630 (884 ) 47,746 29,760   Other income and expense: Interest expense (4,088 ) (8,266 ) (19,841 ) (34,410 ) Loss on extinguishment of debt - - (4,878 ) - Interest income   2     41     58     83   Total other income and expense   (4,086 )   (8,225 )

 

  (24,661 )   (34,327 )   Income (loss) before income tax expense 544 (9,109 ) 23,085 (4,567 )   Income tax (expense) benefit   (218 )   3,751     (10,200 )   1,787     Net income (loss) 326 (5,358 ) 12,885 (2,780 )   Less net loss attributable to noncontrolling interest   (13 )   -     (69 )   -    

Net income (loss) attributable to ACS

$ 339   $ (5,358 ) $ 12,954   $ (2,780 )     Basic $ 0.01   $ (0.11 ) $ 0.26   $ (0.06 ) Diluted $ 0.01   $ (0.11 ) $ 0.25   $ (0.06 )   Weighted average shares outstanding: Basic   50,415     49,540     50,247     49,334   Diluted   51,617     49,540     51,368     49,334             Schedule 2   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)   December 31, December 31, Assets   2015     2014     Current assets: Cash and cash equivalents $ 36,001 $ 31,709 Restricted cash 1,824 467 Accounts receivable, net of allowance of $1,693 and $2,338 25,225 30,900 Materials and supplies 4,674 4,321 Prepayments and other current assets 8,068 6,575 Current assets held-for-sale   -   9,565 Total current assets 75,792 83,537   Property, plant and equipment 1,337,098 1,333,134 Less: accumulated depreciation and amortization   (967,776 )   (976,401 ) Property, plant and equipment, net 369,322 356,733   Deferred income taxes 16,660 22,978 Equity method investments - 252,067 Non-current assets held-for-sale - 14,664 Other assets   1,827   301 Total assets $ 463,601 $ 730,280   Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term obligations $ 3,671 $ 15,521 Accounts payable, accrued and other current liabilities, non-affiliates 51,275 54,373 Accounts payable, accrued and other current liabilities, affiliates, net * - 4,853 Advance billings and customer deposits 4,513 4,490 Current liabilities held-for-sale   -   18,728 Total current liabilities 59,459 97,965   Long-term obligations, net of current portion 185,018 413,978 Other long-term liabilities, net of current portion 65,265 24,370 Non-current liabilities held-for-sale - 2,107 Deferred AWN capacity revenue, net of current portion   -   56,734 Total liabilities   309,742   595,154   Commitments and contingencies   ACS stockholders' equity: Common stock, $.01 par value; 145,000 authorized 505 497 Additional paid in capital 156,971 154,368 Accumulated deficit (1,634 ) (14,588 ) Accumulated other comprehensive loss   (3,086 )   (5,151 ) Total ACS stockholders' equity   152,756   135,126 Noncontrolling interest   1,103   - Total stockholders' equity   153,859   135,126   Total liabilities and stockholders' equity $ 463,601 $ 730,280     * 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 Twelve Months Ended December 31, December 31,   2015     2014     2015     2014   Cash Flows from Operating Activities: Net income (loss) $ 326 $ (5,358 ) $ 12,885 $ (2,780 )

 

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

Depreciation and amortization 8,376 6,733 33,867 32,583 Gain on wireless sale - - (48,232 ) - Loss (gain) on the disposal of assets, net 112 (486 ) 1,980 126 Loss on impairment of goodwill - 5,986 - 5,986 Unrealized loss (gain) on ineffective hedge 83 (273 ) (737 ) (273 ) Amortization of debt issuance costs and debt discount 1,052 1,178 4,114 5,104 Amortization of ineffective hedge - 337 1,970 1,613 Loss on extinguishment of debt - - 4,878 - Amortization of deferred capacity revenue (697 ) (976 ) (2,859 ) (3,795 ) Stock-based compensation 110 634 2,008 2,511 Deferred income tax expense (benefit) 1,312 (3,755 ) 4,883 (2,047 ) Provision for uncollectible accounts (127 ) 387 1,258 3,329 Cash distribution from equity method investments - 6,713 3,056 35,960 Earnings from equity method investments - (6,713 ) (3,056 ) (35,960 ) Other non-cash expense, net 117 113 934 431 Changes in operating assets and liabilities   (3,583 )   6,758     (4,368 )   8,381   Net cash provided by operating activities   7,081     11,278     12,581     51,169     Cash Flows from Investing Activities: Capital expenditures (12,698 ) (12,507 ) (50,914 ) (46,423 ) Capitalized interest (326 ) (728 ) (1,558 ) (2,810 ) Change in unsettled capital expenditures 608 (703 ) 3,995 (2,003 ) Cash received in acquisition of business - - - 68 Proceeds on wireless sale - - 285,160 - Proceeds on sale of assets 11 - 3,140 136 Return of capital from equity investment - 5,787 1,875 14,073 Net change in restricted cash   -     -     (1,357 )   -   Net cash (used) provided by investing activities   (12,405 )   (8,151 )   240,341     (36,959 )   Cash Flows from Financing Activities: Repayments of long-term debt (571 ) (397 ) (333,961 ) (24,419 ) Proceeds from the issuance of long-term debt - - 90,061 - Debt issuance costs (346 ) - (4,901 ) -

Cash paid for debt extinguishment

- - (391 ) - Cash paid in acquisition of business - - (291 ) (795 ) Cash proceeds from non-controlling interest - - 250 - Payment of withholding taxes on stock-based compensation (6 ) (7 ) (408 ) (593 ) Excess tax benefit from share-based payments - - 733 - Proceeds from issuance of common stock   144     135     278     267   Net cash used by financing activities   (779 )   (269 )   (248,630 )   (25,540 )   Change in cash and cash equivalents (6,103 ) 2,858 4,292 (11,330 )   Cash and cash equivalents, beginning of period   42,104     28,851     31,709     43,039     Cash and cash equivalents, end of period $ 36,001   $ 31,709   $ 36,001   $ 31,709       Supplemental Cash Flow Data: Interest paid $ 4,981 $ 9,526 $ 16,101 $ 31,562 Income taxes paid, net $ 994 $ 40 $ 4,936 $ 260   Schedule 4   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. ADJUSTED EBITDA (Unaudited, In Thousands)                       Three Months Ended Twelve Months Ended December 31, December 31,   2015     2014     2015     2014     Net income (loss) $ 326 $ (5,358 ) $ 12,885 $ (2,780 ) Add (subtract): Interest expense 4,088 8,266 19,841 34,410 Loss on extinguishment of debt - - 4,878 - Interest income (2 ) (41 ) (58 ) (83 ) Depreciation and amortization 8,376 6,733 33,867 32,583 Loss on impairment of goodwill - 5,986 - 5,986 Loss (gain) on disposal of assets, net 112 (486 ) (46,252 ) 126 Earnings from equity method investments - (6,713 ) (3,056 ) (35,960 ) AWN distributions received/receivable, net - 12,500 765 50,000 Income tax expense (benefit) 218 (3,751 ) 10,200 (1,787 ) Stock-based compensation 110 634 2,008 2,511 Long-term cash incentives 425 470 1,781 2,042 Pension adjustment (76 ) - 134 - Gift of services (388 ) - (388 ) - Earthquake related expense - - - 1,228 Net loss attributable to noncontrolling interest 13 - 69 - Wireless sale transaction-related and wind down costs   643     4,057     13,272     4,297     Adjusted EBITDA $ 13,845   $ 22,297   $ 49,946   $ 92,573     2015 adjusted EBITDA presented on a run rate basis of Q4 times 4 $ 55,380      

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, earnings on equity method investments, gain on the sale of our wireless operations, provisions for taxes, wireless transaction-related costs, loss attributable to noncontrolling interest, stock-based compensation, pension adjustments, earthquake related expenses 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 Twelve Months Ended December 31, December 31,   2015     2014     2015     2014     Adjusted EBITDA $ 13,845   $ 22,297   $ 49,946   $ 92,573     Less: Capital expenditures (12,698 ) (12,507 ) (39,914 ) (46,423 ) Milestone billings for fiber build project for a carrier customer   4,500     3,960     7,000     5,960  

Net capital expenditures

  (8,198 )   (8,547 )   (32,914 )   (40,463 )   Purchase of North Slope fiber network Acquisition price - - (11,000 ) - Less: 50% due in 2016 - - 5,500 - Less: proceeds on sale of fiber to JV partner - - 2,650 - Less: other cash proceeds   -     -     400     -   Net North Slope purchase   -     -     (2,450 )   -     Amortization of GCI/AWN capacity revenue (520 ) (814 ) (2,169 ) (3,151 ) Earthquake related expense - - - (1,228 ) Cash interest expense   (4,981 )   (9,526 )   (16,101 )   (31,562 )   Free cash flow $ 146   $ 3,410   $ (3,688 ) $ 16,169        

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 carrier customer, less cash interest expense, earthquake related expenses, significant non-cash revenue associated with our interconnection agreement with AWN and GCI, and in Q2 2015 the purchase of the North Slope fiber network.

 

ACS continues to have net operating losses and is not a significant taxpayer on ordinary income. Income taxes paid in 2015 are related to the Wireless retail sale and are not included in free cash flow.

  Schedule 6                         ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. REVENUE GROWTH (Unaudited, In Thousands)   Three Months Ended Twelve Months Ended December 31, December 31, Service revenue:   2015     2014   2015     2014   Business and wholesale customers

Voice

$ 5,425 $ 5,551 $ 21,969 $ 22,499

Broadband

13,438 11,125 50,007 43,783

Managed IT services

1,069 952 3,316 3,492

Other

2,381 1,848 8,089 7,104

Wholesale

  9,860     8,320   36,792     33,043  

Business and wholesale service revenue

  32,173     27,796   120,173     109,921     Consumer customers

Voice

3,273 3,533 13,530 14,932

Broadband

5,914 6,400 25,050 24,841

Other

  468     372   1,341     1,563  

Consumer service revenue

9,655 10,305 39,921 41,336   Total service revenue   41,828     38,101   160,094     151,257   Growth in service revenue 9.8 % 5.8 % Growth in broadband service revenue 10.4 % 9.4 %   Other revenue: Equipment sales and installations 1,715 1,900 6,382 5,321 Access 8,167 8,591 33,644 35,323 High cost support   4,921     4,921   19,682     23,192   Total service and other revenue   56,631     53,513   219,802     215,093   Growth in service and other revenue 5.8 % 2.2 % Growth excluding equipment sales 6.4 % 1.7 %   Wireless and AWN related revenue: Service revenue, equipment sales and other - 18,198 6,300 77,054 Transition services - - 4,769 - CETC - 4,984 1,654 19,565 Amortization of deferred AWN capacity revenue   -     814   292     3,151     Total wireless & AWN related revenue   -     23,996   13,015     99,770     Total revenue $ 56,631   $ 77,509 $ 232,817   $ 314,863       Adjusted for prior year access reserve releases: Total service and other revenue 56,631 53,513 219,802 215,093 Prior year access reserve releases   -     -   -     (3,502 ) Adjusted total service and other revenue   56,631     53,513   219,802     211,591   Growth in service and other revenue 5.8 % 3.9 %   Schedule 7   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS

(Unaudited)

                        Three Months Ended December 31, September 30, December 31, 2015 2015 2014   Voice: Consumer access lines 37,683 39,016 43,773 Business access lines 76,598 78,164 79,168   Voice ARPU consumer $ 28.45 $ 29.09 $ 26.48 Voice ARPU business $ 23.37 $ 23.66 $ 23.31   Broadband: Consumer connections 33,275 33,488 37,412 Business connections (1) 18,824 19,125 18,798   ARPU consumer $ 58.63 $ 59.16 $ 55.91 ARPU business (1) $ 235.81 $ 218.54 $ 197.11  

 

 

  (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)   December 31, December 31, 2015 2014   2015 senior secured credit facilities due 2018 $ 89,750 $ - Debt issuance costs - 2015 senior secured credit facilities due 2018 (3,406 ) - 2010 senior credit facility term loan due 2016 - 322,700 Debt discount - 2010 senior credit facility term loan due 2016 - (1,014 ) Debt issuance costs - 2010 senior credit facility term loan due 2016 - (2,810 ) 6.25% convertible notes due 2018 104,000 114,000 Debt discount - 6.25% convertible notes due 2018 (4,641 ) (7,242 ) Debt issuance costs - 6.25% convertible notes due 2018 (1,010 ) (1,659 ) Capital leases and other long-term obligations   3,996     5,524   Total debt 188,689 429,499 Less current portion   (3,671 )   (15,521 ) Long-term obligations, net of current portion $ 185,018   $ 413,978     Total debt $ 188,689 $ 429,499 Plus debt discounts and debt issuance costs   9,057     12,725   Gross debt 197,746 442,224 Cash and cash equivalents   (36,001 )   (31,709 ) Net debt $ 161,745   $ 410,515     Adjusted EBITDA* $ 55,380 $ 92,573   Net debt $ 161,745 $ 410,515   Net leverage^ 2.9 4.4   * 2015 adjusted EBITDA is presented on a run rate basis of Q4 times 4.   ^The leverage ratio calculation methodology specified in our credit agreement differs in certain elements from the methodology above; please refer to the Liquidity and Capital Resource section of Item 7 of the most recent 10K for details on calculations pursuant to the credit agreement.

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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