ALSK Alaska Communications Systems Group Inc

Posted Total Wireline Revenues of $56.3 million, a 4.8% increase

Reported Business and Wholesale Revenue growth of 11.9%

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the first quarter of 2016.

“We are expanding our position as the premier broadband and IT managed services provider in Alaska and broadening our scope to be the leading cloud enabler for business. In the first quarter, we continued to take share in the market with strategic customer wins and delivered solid results aligned with our growth plan. Our total wireline revenue performance was robust, growing 4.8 percent. Business and wholesale grew 11.9 percent, ahead of our long-term directional guidance. We recently became the only Microsoft ExpressRoute partner in Alaska, building on the core strength of our network and creating momentum for our cloud enablement strategy,” Anand Vadapalli, president and CEO of Alaska Communications, said.

Revenue Highlights: First Quarter 2016 Compared to First Quarter 2015

• Total Wireline revenues:
  • Revenue increased to $56.3 million from $53.7 million, up 4.8 percent.
  • Total broadband revenue reached $27.9 million from $25.1 million, up 11.4 percent.
• Business and wholesale:
  • Comprised 59.6 percent of total wireline revenue.
  • Revenue grew to $33.6 million from $30.0 million, up 11.9 percent.
  • Broadband revenues reached $21.8 million from $18.4 million, up 18.2 percent.
• Consumer:
  • Comprised 16.9 percent of total wireline revenue.
  • Revenue was $9.5 million, down 7.0 percent from $10.2 million.
  • Broadband revenue was $6.1 million, down 7.5 percent from $6.6 million.
• Regulatory:
  • Comprised 23.5 percent of total wireline revenue.
  • Revenue was $13.3 million, down 1.9 percent from $13.5 million.

Financial Highlights: First Quarter 2016 Compared to First Quarter 2015

• Adjusted EBITDA was $13.9 million, compared to $12.5 million.
• Free cash flow of $9.1 million was high for the quarter, reflecting one-time events and seasonality of the business.
• Net capital expenditures were $5.2 million for the quarter.
• Net debt was $158.9 million, down from $161.7 million at December 31, 2015.
• Repurchased $10 million of convertible notes in January, 2016.
• Cash remained strong at $28.0 million at March 31, 2016.

Laurie Butcher, Alaska Communications senior vice-president of finance, said, “Continuing to realize the benefits of our new cost structure, we remain committed to Adjusted EBITDA and free cash flow growth. We maintained a strong cash balance at the end of the quarter, while reducing debt with the repurchase of $10 million of convertible notes.”

2016 Guidance:

The company reaffirmed 2016 guidance as follows:

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

Conference Call

The Company will host a conference call and live webcast on Monday, May 9, 2016 at 2:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-888-466-4440 and enter pass code 894855. All other parties can access the call at 1-719-785-1758 and use the same code.

The live webcast of the conference call will be accessible from the "Events Calendar" section of the Company's website (www.alsk.com). The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until June 10, 2016 at 5:00 p.m. Eastern Time. To hear the replay, please go to https://jsp.premiereglobal.com/webrsvp and enter pass code 2524152.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is the leading provider of advanced broadband and IT managed services for businesses and consumers in Alaska. The company operates a highly reliable, advanced statewide data network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous U.S. For more information, visit www.alaskacommunications.com or www.alsk.com.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Free Cash Flow and Net Debt, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedules 4 and 5 to this press release. Adjusted EBITDA, and Free Cash Flow are non-GAAP measures and should not be considered a substitute for net 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 the Company’s 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 as required, labor negotiations, employee benefit costs, our ability to control other operating costs, disruption of our supplier’s provisioning of critical products or services, the impact of natural or man-made disasters, changes in Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, changes in technology and standards, 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,   2016     2015     Operating revenues: Operating revenues, non-affiliates $ 56,328 $ 65,211 Operating revenues, affiliates   -     575   Total operating revenues   56,328     65,786     Operating expenses: Cost of services and sales, non-affiliates 26,128 26,305 Cost of services and sales, affiliates - 4,961 Selling, general & administrative 17,340 27,984 Depreciation and amortization 8,520 8,941 Loss (gain) on disposal of assets, net 24 (38,662 ) Earnings from equity method investments   -     (3,056 )   Total operating expenses   52,012     26,473     Operating income 4,316 39,313   Other income and (expense): Interest expense (3,869 ) (7,419 ) Loss on extinguishment of debt (336 ) (2,628 ) Interest income   5     25   Total other income and (expense)   (4,200 )   (10,022 )   Income before income tax expense 116 29,291   Income tax expense   (63 )   (13,074 )   Net income 53 16,217   Less net loss attributable to noncontrolling interest   (33 )   -     Net income attributable to Alaska Communications $ 86   $ 16,217     Net income per share attributable to Alaska Communications: Basic and Diluted $ 0.00   $ 0.32     Weighted average shares outstanding: Basic   50,742     49,916   Diluted   51,637     50,695           Schedule 2   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)   March 31, December 31, Assets   2016     2015     Current assets: Cash and cash equivalents $ 27,965 $ 36,001 Restricted cash 1,725 1,824 Accounts receivable, net of allowance of $1,233 and $1,693 26,462 25,225 Materials and supplies 5,286 4,674 Prepayments and other current assets   5,927     8,068   Total current assets 67,365 75,792   Property, plant and equipment 1,340,157 1,337,098 Less: accumulated depreciation and amortization   (973,778 )   (967,776 ) Property, plant and equipment, net 366,379 369,322   Deferred income taxes 16,377 16,660 Other assets   1,793     1,827   Total assets $ 451,914   $ 463,601     Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term obligations $ 3,862 $ 3,671 Accounts payable, accrued and other current liabilities 49,629 51,275 Advance billings and customer deposits   4,294     4,513   Total current liabilities 57,785 59,459   Long-term obligations, net of current portion 175,506 185,018 Other long-term liabilities, net of current portion   64,415     65,265   Total liabilities   297,706     309,742   Commitments and contingencies Alaska Communications stockholders' equity: Common stock, $.01 par value; 145,000 authorized 512 505 Additional paid in capital 157,185 156,971 Accumulated deficit (1,548 ) (1,634 ) Accumulated other comprehensive loss   (3,011 )   (3,086 ) Total Alaska Communications stockholders' equity   153,138     152,756   Noncontrolling interest   1,070     1,103   Total stockholders' equity   154,208     153,859     Total liabilities and stockholders' equity $ 451,914   $ 463,601           Schedule 3   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, In Thousands)   Three Months Ended March 31,   2016     2015   Cash Flows from Operating Activities: Net income $ 53 $ 16,217

Adjustments to reconcile net income to net cash provided by operating activities:

  Depreciation and amortization 8,520 8,941 Gain on wireless sale - (39,719 ) Loss on the disposal of assets, net 24 1,057 Unrealized gain on ineffective hedge - (267 ) Amortization of debt issuance costs and debt discount 1,016 1,053 Amortization of ineffective hedge - 1,960 Loss on extinguishment of debt 336 2,628 Amortization of deferred capacity revenue (847 ) (775 ) Stock-based compensation 805 484 Deferred income tax expense (benefit) 267 (3,258 ) (Benefit) charge for uncollectible accounts (132 ) 1,523 Cash distribution from equity method investments - 3,056 Earnings from equity method investments - (3,056 ) Other non-cash expense, net 217 270 Income taxes (receivable) payable (730 ) 13,612 Changes in operating assets and liabilities   703     (2,345 ) Net cash provided by operating activities   10,232     1,381     Cash Flows from Investing Activities: Capital expenditures (5,175 ) (5,900 ) Capitalized interest (303 ) (491 ) Change in unsettled capital expenditures (4,225 ) (4,443 ) Proceeds on wireless sale - 276,388 Proceeds on sale of assets 2,663 - Return of capital from equity investment - 1,875 Net change in restricted cash   99     -   Net cash (used) provided by investing activities   (6,941 )   267,429     Cash Flows from Financing Activities: Repayments of long-term debt (10,617 ) (241,718 ) Debt issuance costs (37 ) (1,027 ) Cash paid for debt extinguishment (150 ) - Cash paid in acquisition of business - (291 ) Payment of withholding taxes on stock-based compensation (472 ) (399 ) Excess tax (expense) benefit from share-based payments   (51 )   743   Net cash used by financing activities   (11,327 )   (242,692 )   Change in cash and cash equivalents (8,036 ) 26,118   Cash and cash equivalents, beginning of period   36,001     31,709     Cash and cash equivalents, end of period $ 27,965   $ 57,827     Supplemental Cash Flow Data: Interest paid $ 1,797 $ 3,384 Income taxes paid, net $ 577 $ 1,977         Schedule 4   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. ADJUSTED EBITDA (Unaudited, In Thousands)   Three Months Ended March 31,   2016     2015     Net income $ 53 $ 16,217 Add (subtract): Interest expense 3,869 7,419 Loss on extinguishment of debt 336 2,628 Interest income (5 ) (25 ) Depreciation and amortization 8,520 8,941 Loss (gain) on disposal of assets, net 24 (38,662 ) Earnings from equity method investments - (3,056 ) AWN distributions received/receivable, net - 765 Income tax expense 63 13,074 Stock-based compensation 805 484 Long-term cash incentives 211 334 Pension adjustment 21 - Net loss attributable to noncontrolling interest 33 - Wireless sale transaction-related and wind down costs   -     4,346     Adjusted EBITDA $ 13,930   $ 12,465      

Non-GAAP Measures:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results.

 

The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, gain or loss on asset purchases or disposals including the gain on the sale of our wireless operations, earnings from equity method investments, taxes, wireless transaction-related costs, loss attributable to noncontrolling interest, stock-based compensation, pension adjustments, and expenses under the Company’s long-term cash incentive plan (“LTCI”). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA.

        Schedule 5   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. FREE CASH FLOW (Unaudited, In Thousands)   Three Months Ended March 31,   2016     2015     Adjusted EBITDA $ 13,930   $ 12,465     Less: Capital expenditures (5,175 ) (5,900 ) Milestone billings for fiber build project for a carrier customer   -     2,500   Net capital expenditures   (5,175 )   (3,400 )   Proceeds on sale of fiber to joint venture partner 2,650 - Amortization of GCI/AWN capacity revenue (509 ) (615 ) Cash interest expense   (1,797 )   (3,384 )   Free cash flow* $ 9,099   $ 5,066     * Quarterly FCF fluctuates and should not be viewed as an indicator of annual performance. While onetime events, seasonality of capital spend and the timing of interest payments may result in negative FCF in one or more quarters, we reaffirm our guidance for annual FCF.    

Non-GAAP Measures:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results.

 

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

  Alaska Communications continues to have net operating losses and is not a significant taxpayer on ordinary income. Income taxes paid in 2015 and 2016 are related to the Wireless retail sale and are not included in free cash flow.    

Schedule 6

  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. REVENUE GROWTH (Unaudited, In Thousands)       Three Months Ended March 31, 2016 2015 Business and wholesale Business broadband $ 14,180 $ 11,802 Business voice and other 7,090 6,935 Managed IT services 1,081 729 Equipment sales and installations 1,587 1,548 Wholesale broadband 7,598 6,616 Wholesale voice and other   2,015   2,350   Total business and wholesale   33,551   29,980 Growth in business and wholesale 11.9% Consumer Broadband 6,142 6,638 Voice and other   3,382   3,607   Total consumer   9,524   10,245   Total business, wholesale, and consumer revenue   43,075   40,225 Growth in business, wholesale and consumer revenue 7.1% Growth in broadband revenue 11.4%   Regulatory revenue Access 8,172 8,586 High cost support   5,081   4,921   Total regulatory revenue   13,253   13,507   Total wireline revenue   56,328   53,732 Growth in wireline revenue 4.8%   Total wireless & AWN related revenue   -   12,054   Total revenue $ 56,328 $ 65,786             Schedule 7   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited)   Three Months Ended March 31, December 31, March 31, 2016 2015 2015   Voice: Consumer access lines 36,567 37,683 42,492 Business access lines 76,302 76,598 78,734   Voice ARPU consumer $ 28.39 $ 28.45 $ 26.49 Voice ARPU business $ 23.35 $ 23.37 $ 22.93   Broadband: Consumer connections 33,850 33,275 36,612 Business connections (1) 15,394 15,376 15,584   Broadband ARPU consumer $ 60.59 $ 60.75 $ 59.33 Broadband ARPU business (1) $ 306.93 $ 297.47 $ 251.51   Churn: Consumer voice 1.6% 1.7% 1.4% Consumer broadband 2.2% 2.4% 2.3% Business voice 1.0% 1.2% 0.8%     (1)  

How we calculate broadband connections has changed to exclude certain internal use circuits. Historical amounts have been restated to reflect appropriate comparisons period over period.

        Schedule 8   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Long Term Debt and Net Debt (Unaudited, In Thousands)   March 31, December 31,   2016     2015   2015 senior secured credit facilities due 2018 $ 89,000 $ 89,750 Debt issuance costs - 2015 senior secured credit facilities due 2018 (2,996 ) (3,406 ) 6.25% convertible notes due 2018 94,000 104,000 Debt discount - 6.25% convertible notes due 2018 (3,723 ) (4,641 ) Debt issuance costs - 6.25% convertible notes due 2018 (792 ) (1,010 ) Capital leases and other long-term obligations   3,879     3,996   Total debt 179,368 188,689 Less current portion   (3,862 )   (3,671 ) Long-term obligations, net of current portion $ 175,506   $ 185,018     Total debt $ 179,368 $ 188,689 Plus debt discounts and debt issuance costs   7,511     9,057   Gross debt 186,879 197,746 Cash and cash equivalents   (27,965 )   (36,001 ) Net debt $ 158,914   $ 161,745  

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