ANCHORAGE, Alaska--(BUSINESS WIRE)--Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the third quarter of 2020.
“Our results for the third quarter reflect execution of our strategic initiatives to deliver industry-leading telecommunications products and services. Prioritizing superior customer service and fiber-based network solutions, we have established Alaska Communications as a premier provider. We continue to strengthen our fiber infrastructure, to facilitate our multiyear transition to IP-based services, and to evaluate means to increase our access and core network. This includes optical transport network upgrades to our subsea Northstar fiber resulting in a capacity increase of over five times, as well as securing CBRS spectrum in 135 cities ranging from southeast Alaska to the North Slope. Our biggest strengths in 2020 have been to manage the unexpected, quickly offer customers solutions, and continue to drive ahead adding many route miles of fiber. In addition to benefiting our customers, we are creating opportunities.
“Also, after years in development, in October, we went live with our new business and operating systems that will enhance the customer experience through streamlined ordering process; improve business analytics and reporting; and simplify operations that we expect to yield expense savings and drive operational excellence in coming years. We are committed to connecting the people and businesses of Alaska and beyond, investing in our future and driving growth to benefit our constituents. We are very excited about the future,” said Bill Bishop, president & CEO.
Three Months Ended September 30, 2020 Compared to 2019
-
Total revenue was $60.5 million, compared to $59.1 million, an increase of 2.3%.
- Business and wholesale revenue was $40.9 million, compared to $38.7 million, up 5.6%.
- Consumer revenue was steady at $9.3 million for both periods.
- Regulatory revenue was $10.3 million, compared to $11.1 million, a decrease of 7.0%.
- Operating expenses were $54.7 million, compared to $53.4 million.
- Operating income was $5.8 million for both periods.
- Net income attributable to Alaska Communications was $2.3 million, compared to $2.0 million.
- Capital expenditures were $14.5 million, compared to $11.1 million, or excluding prefunded projects $11.7 million, compared to $10.9 million.
- Adjusted EBITDA was $16.6 million, compared to $15.8 million.
- Adjusted Free Cash Outflow was $7.3 million, compared with Adjusted Free Cash Flow of $6.3 million, or excluding prefunded projects Adjusted Free Cash Flow was $1.7 million, compared to $1.2 million.
Balance Sheet Highlights
- Cash was $33.8 million at September 30, 2020, compared to $28.3 million at December 31, 2019.
- Net debt was $141.6 million at September 30, 2020, compared to $153.8 million at December 31, 2019.
Nine Months Ended September 30, 2020 Compared to 2019
-
Total revenue was $178.2 million, compared to $173.4 million, an increase of 2.8%.
- Business and wholesale revenue was $119.7 million, compared to $112.3 million, up 6.6%.
- Consumer revenue was $27.6 million, compared to $27.8 million, a decrease of 0.8%.
- Regulatory revenue was $30.9 million, compared to $33.3 million, a decrease of 7.2%.
- Operating expenses were $160.5 million, compared to $158.5 million.
- Operating income was $17.7 million, compared to $14.9 million.
- Net income attributable to Alaska Communications was $7.1 million, compared to $2.3 million.
- Capital expenditures were $32.9 million, compared to $31.6 million, or excluding prefunded projects $26.3 million, compared to $31.4 million.
- Adjusted EBITDA was $49.2 million, compared to $44.9 million.
- Adjusted Free Cash Flow was $11.4 million, compared with $6.2 million, or excluding prefunded projects was $12.9 million, compared to $1.1 million.
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.
“We continue to grow total revenue, increasing 2.3% for the quarter, year over year. Business and Wholesale revenue grew 5.6%, compared to 2019, and we expanded our Adjusted EBITDA margin to 27.5% in third quarter 2020, up from 26.7% in third quarter 2019. As the new work environment has altered business requirements, customers are both modifying and accelerating their network plans. During the quarter, demand for equipment and managed IT services increased, which led to a net 27.4% increase in revenue, compared to the same period last year. Our results this quarter reflect our strategic plan for growth, and we expect to be at the high end of our guidance for 2020,” said Laurie Butcher, Chief Financial Officer.
2020 Guidance
For full year 2020 guidance, management
- Reaffirms Total Revenue to be between $232 million and $237 million;
- Reaffirms Adjusted EBITDA to be between $63 million and $65 million;
- Adjusts Capital Expenditures excluding prefunded projects to be between $37 million and $39 million; and
- Increases Adjusted Free Cash Flow excluding prefunded projects to be between $14 million and $16 million.
Subsequent Events
On November 3, 2020, Alaska Communications, together with Macquarie Capital and GCM announced a merger agreement through which a Macquarie Capital and GCM, through its Labor Impact Fund, will acquire all outstanding shares of Alaska Communications for $3.00 per share in a cash transaction valued at approximately $300 million, including debt, subject to shareholder and regulatory approval. Additional information can be found in documents filed with the SEC posted at www.sec.gov or alsk.com.
Conference Call
The Company will host a conference call and live webcast on Thursday, November 5, 2020 at 2:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-800-430-8332 and enter code 1313142. All other parties can access the call at 1-323-289-6581 using the same code.
The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's investor website (www.alsk.com). The webcast will be archived for 30 days. A replay of the conference call will also be available two hours after the call ends and will run until December 5, 2020 at 5 p.m. ET. To hear the replay, parties in the U.S. and Canada can call 1-888-203-1112 and enter code 1313142. All other parties can call 1-719-457-0820 and enter code 1313142.
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 $12.4 million in the nine-month period of 2020).
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in connection with the proposed acquisition of the Company by Macquarie Capital and GCM Grosvenor, whereby the Company will become a wholly owned subsidiary of an affiliate of Macquarie Capital and GCM Grosvenor (the “proposed merger”). The proposed merger will be submitted to the Company’s stockholders for their consideration at a special meeting of the stockholders. In connection therewith, the Company intends to file relevant materials with the United States Securities and Exchange Commission (SEC), including a proxy statement on Schedule 14A, which will be mailed or otherwise disseminated to the Company’s stockholders. STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Stockholders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company or the proposed merger, once such documents are filed with the SEC, free of charge at the SEC's website at www.sec.gov, or from Alaska Communications at www.alsk.com or by directing a request to the Company’s Investor Relations Department at investors@acsalaska.com.
Participants in the Solicitation
The Company and certain of its directors and executive officers and other members of management and employees may be deemed to be "participants" in the solicitation of proxies from the Company’s stockholders in connection with the proposed merger. Information about the Company's directors and executive officers and their direct or indirect interests, by security holdings or otherwise, is set forth in the Company’s proxy statement on Schedule 14A for its 2020 annual meeting of stockholders filed with the SEC on April 29, 2020. To the extent holdings of the Company’s securities by such participants (or the identity of such participants) have changed, such information has been or will be reflected on Statements of Change in Ownership on Forms 3 and 4 subsequently filed with the SEC. Additional information regarding the participants in the proxy solicitation and a description of their direct or indirect interests, by security holdings or otherwise, will be included in the definitive proxy statement and may be included in relevant documents filed with the SEC regarding the proposed merger, if and when they become available. Free copies of these materials may be obtained as described in the preceding paragraph.
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 |
|
Nine Months Ended |
||||||||||||||
September 30, |
|
September 30, |
||||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||
| Operating revenues | $ |
60,514 |
|
$ |
59,128 |
|
$ |
178,236 |
|
$ |
173,432 |
|
||||
| Operating expenses: | ||||||||||||||||
| Cost of services and sales (excluding depreciation and amortization) |
|
27,879 |
|
|
26,785 |
|
|
82,127 |
|
|
78,768 |
|
||||
| Selling, general & administrative |
|
16,544 |
|
|
16,832 |
|
|
48,163 |
|
|
52,206 |
|
||||
| Depreciation and amortization |
|
10,234 |
|
|
9,546 |
|
|
30,107 |
|
|
27,425 |
|
||||
| Loss on disposal of assets, net |
|
23 |
|
|
198 |
|
|
123 |
|
|
101 |
|
||||
| Total operating expenses |
|
54,680 |
|
|
53,361 |
|
|
160,520 |
|
|
158,500 |
|
||||
| Operating income |
|
5,834 |
|
|
5,767 |
|
|
17,716 |
|
|
14,932 |
|
||||
| Other income and (expense): | ||||||||||||||||
| Interest expense |
|
(2,659 |
) |
|
(2,997 |
) |
|
(8,357 |
) |
|
(9,149 |
) |
||||
| Loss on extinguishment of debt |
|
- |
|
|
- |
|
|
- |
|
|
(2,830 |
) |
||||
| Interest income |
|
13 |
|
|
121 |
|
|
156 |
|
|
291 |
|
||||
| Other income, net |
|
33 |
|
|
192 |
|
|
447 |
|
|
192 |
|
||||
| Total other income and (expense) |
|
(2,613 |
) |
|
(2,684 |
) |
|
(7,754 |
) |
|
(11,496 |
) |
||||
| Income before income tax expense |
|
3,221 |
|
|
3,083 |
|
|
9,962 |
|
|
3,436 |
|
||||
| Income tax expense |
|
(941 |
) |
|
(1,084 |
) |
|
(2,897 |
) |
|
(1,228 |
) |
||||
| Net income |
|
2,280 |
|
|
1,999 |
|
|
7,065 |
|
|
2,208 |
|
||||
| Less net loss attributable to noncontrolling interest |
|
(22 |
) |
|
(23 |
) |
|
(64 |
) |
|
(76 |
) |
||||
| Net income attributable to Alaska Communications | $ |
2,302 |
|
$ |
2,022 |
|
$ |
7,129 |
|
$ |
2,284 |
|
||||
| Net income per share attributable to Alaska Communications: | ||||||||||||||||
| Net income applicable to common shares | $ |
2,302 |
|
$ |
2,022 |
|
$ |
7,129 |
|
$ |
2,284 |
|
||||
| Basic and Diluted | $ |
0.04 |
|
$ |
0.04 |
|
$ |
0.13 |
|
$ |
0.04 |
|
||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic |
|
54,116 |
|
|
53,328 |
|
|
53,906 |
|
|
53,503 |
|
||||
| Diluted |
|
54,572 |
|
|
53,991 |
|
|
54,393 |
|
|
54,405 |
|
||||
Schedule 2 |
||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited, In Thousands Except Per Share Amounts) | ||||||||
| September 30, | December 31, | |||||||
| Assets | 2020 |
2019 |
||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
32,215 |
|
$ |
26,662 |
|
||
| Restricted cash |
|
1,628 |
|
|
1,631 |
|
||
| Short-term investments |
|
134 |
|
|
134 |
|
||
| Accounts receivable, net of allowance of $3,415 and $4,627 |
|
35,204 |
|
|
34,354 |
|
||
| Materials and supplies |
|
8,090 |
|
|
8,900 |
|
||
| Prepayments and other current assets |
|
11,932 |
|
|
9,617 |
|
||
| Total current assets |
|
89,203 |
|
|
81,298 |
|
||
| Property, plant and equipment |
|
1,448,502 |
|
|
1,424,904 |
|
||
| Less: accumulated depreciation and amortization |
|
(1,062,736 |
) |
|
(1,042,546 |
) |
||
| Property, plant and equipment, net |
|
385,766 |
|
|
382,358 |
|
||
| Operating lease right of use assets |
|
89,517 |
|
|
80,991 |
|
||
| Other assets |
|
11,531 |
|
|
12,598 |
|
||
| Total assets | $ |
576,017 |
|
$ |
557,245 |
|
||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term obligations | $ |
9,063 |
|
$ |
8,906 |
|
||
| Accounts payable, accrued and other current liabilities |
|
45,029 |
|
|
39,108 |
|
||
| Advance billings and customer deposits |
|
3,520 |
|
|
3,761 |
|
||
| Operating lease liabilities - current |
|
3,189 |
|
|
2,795 |
|
||
| Total current liabilities |
|
60,801 |
|
|
54,570 |
|
||
| Long-term obligations, net of current portion |
|
161,620 |
|
|
167,476 |
|
||
| Deferred income taxes |
|
6,495 |
|
|
4,403 |
|
||
| Operating lease liabilities - noncurrent |
|
80,498 |
|
|
78,767 |
|
||
| Other long-term liabilities, net of current portion |
|
91,991 |
|
|
78,520 |
|
||
| Total liabilities |
|
401,405 |
|
|
383,736 |
|
||
| Commitments and contingencies | ||||||||
| Alaska Communications stockholders' equity: | ||||||||
| Common stock, $.01 par value; 145,000 authorized |
|
548 |
|
|
541 |
|
||
| Treasury stock, 1,000 shares at cost |
|
(1,812 |
) |
|
(1,812 |
) |
||
| Additional paid in capital |
|
162,740 |
|
|
161,844 |
|
||
| Retained earnings |
|
17,644 |
|
|
15,367 |
|
||
| Accumulated other comprehensive loss |
|
(5,290 |
) |
|
(3,277 |
) |
||
| Total Alaska Communications stockholders' equity |
|
173,830 |
|
|
172,663 |
|
||
| Noncontrolling interest |
|
782 |
|
|
846 |
|
||
| Total stockholders' equity |
|
174,612 |
|
|
173,509 |
|
||
| Total liabilities and stockholders' equity | $ |
576,017 |
|
$ |
557,245 |
|
||
Schedule 3 |
||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
September 30, |
|
September 30, |
||||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||
| Net income | $ |
2,280 |
|
$ |
1,999 |
|
$ |
7,065 |
|
$ |
2,208 |
|
||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization |
|
10,234 |
|
|
9,546 |
|
|
30,107 |
|
|
27,425 |
|
||||
| Loss on disposal of assets, net |
|
23 |
|
|
198 |
|
|
123 |
|
|
101 |
|
||||
| Amortization of debt issuance costs and debt discount |
|
298 |
|
|
305 |
|
|
942 |
|
|
911 |
|
||||
| Loss on extinguishment of debt |
|
- |
|
|
- |
|
|
- |
|
|
2,830 |
|
||||
| Amortization of deferred capacity revenue |
|
(1,810 |
) |
|
(1,141 |
) |
|
(4,881 |
) |
|
(3,400 |
) |
||||
| Stock-based compensation |
|
500 |
|
|
277 |
|
|
1,218 |
|
|
766 |
|
||||
| Deferred income tax expense |
|
940 |
|
|
1,396 |
|
|
2,890 |
|
|
1,534 |
|
||||
| Charge for uncollectible accounts |
|
(561 |
) |
|
307 |
|
|
(955 |
) |
|
275 |
|
||||
| Amortization of ROU assets |
|
815 |
|
|
568 |
|
|
2,072 |
|
|
1,716 |
|
||||
| Other non-cash (income) expense, net |
|
(33 |
) |
|
(192 |
) |
|
(99 |
) |
|
52 |
|
||||
| Changes in operating assets and liabilities |
|
(8,772 |
) |
|
1,024 |
|
|
12,404 |
|
|
8,202 |
|
||||
| Net cash provided by operating activities |
|
3,914 |
|
|
14,287 |
|
|
50,886 |
|
|
42,620 |
|
||||
| Cash Flows from Investing Activities: | ||||||||||||||||
| Capital expenditures |
|
(14,528 |
) |
|
(11,124 |
) |
|
(32,940 |
) |
|
(31,556 |
) |
||||
| Capitalized interest |
|
(375 |
) |
|
(374 |
) |
|
(1,006 |
) |
|
(983 |
) |
||||
| Change in unsettled capital expenditures |
|
1,104 |
|
|
1,134 |
|
|
402 |
|
|
583 |
|
||||
| Proceeds on sale of assets |
|
- |
|
|
1 |
|
|
- |
|
|
20 |
|
||||
| Net cash used by investing activities |
|
(13,799 |
) |
|
(10,363 |
) |
|
(33,544 |
) |
|
(31,936 |
) |
||||
| Cash Flows from Financing Activities: | ||||||||||||||||
| Repayments of long-term debt |
|
(2,263 |
) |
|
(1,135 |
) |
|
(6,641 |
) |
|
(172,903 |
) |
||||
| Proceeds from the issuance of long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
180,000 |
|
||||
| Debt issuance costs and discounts |
|
- |
|
|
- |
|
|
- |
|
|
(2,683 |
) |
||||
| Cash paid for debt extinguishment |
|
- |
|
|
- |
|
|
- |
|
|
(1,252 |
) |
||||
| Payment of cash dividend on common stock |
|
(16 |
) |
|
- |
|
|
(4,836 |
) |
|
- |
|
||||
| Payment of withholding taxes on stock-based compensation |
|
- |
|
|
- |
|
|
(439 |
) |
|
(448 |
) |
||||
| Purchases of treasury stock |
|
- |
|
|
(1,663 |
) |
|
- |
|
|
(1,812 |
) |
||||
| Proceeds from issuance of common stock |
|
- |
|
|
- |
|
|
124 |
|
|
106 |
|
||||
| Net cash (used) provided by financing activities |
|
(2,279 |
) |
|
(2,798 |
) |
|
(11,792 |
) |
|
1,008 |
|
||||
| Change in cash, cash equivalents and restricted cash |
|
(12,164 |
) |
|
1,126 |
|
|
5,550 |
|
|
11,692 |
|
||||
| Cash, cash equivalents and restricted cash, beginning of period |
|
46,007 |
|
|
25,551 |
|
|
28,293 |
|
|
14,985 |
|
||||
| Cash, cash equivalents and restricted cash, end of period | $ |
33,843 |
|
$ |
26,677 |
|
$ |
33,843 |
|
$ |
26,677 |
|
||||
| Supplemental Cash Flow Data: | ||||||||||||||||
| Interest paid | $ |
2,724 |
|
$ |
3,122 |
|
$ |
8,432 |
|
$ |
9,236 |
|
||||
| Dividends payable at September 30, 2020 | $ |
16 |
|
$ |
- |
|
$ |
16 |
|
$ |
- |
|
||||
| Income taxes paid, net | $ |
4 |
|
$ |
- |
|
$ |
4 |
|
$ |
10 |
|
||||
Schedule 4 |
||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||
| ADJUSTED EBITDA | ||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
September 30, |
|
September 30, |
||||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||
| Net income | $ |
2,280 |
|
$ |
1,999 |
|
$ |
7,065 |
|
$ |
2,208 |
|
||||
| Add (subtract): | ||||||||||||||||
| Interest expense |
|
2,659 |
|
|
2,997 |
|
|
8,357 |
|
|
9,149 |
|
||||
| Loss on extinguishment of debt |
|
- |
|
|
- |
|
|
- |
|
|
2,830 |
|
||||
| Interest income |
|
(13 |
) |
|
(121 |
) |
|
(156 |
) |
|
(291 |
) |
||||
| Depreciation and amortization |
|
10,234 |
|
|
9,546 |
|
|
30,107 |
|
|
27,425 |
|
||||
| Other income, net |
|
(33 |
) |
|
(192 |
) |
|
(447 |
) |
|
(192 |
) |
||||
| Loss on disposal of assets, net |
|
23 |
|
|
198 |
|
|
123 |
|
|
101 |
|
||||
| Income tax expense |
|
941 |
|
|
1,084 |
|
|
2,897 |
|
|
1,228 |
|
||||
| Stock-based compensation |
|
500 |
|
|
277 |
|
|
1,218 |
|
|
766 |
|
||||
| Cash severance expense |
|
- |
|
|
- |
|
|
- |
|
|
1,595 |
|
||||
| Net loss attributable to noncontrolling interest |
|
22 |
|
|
23 |
|
|
64 |
|
|
76 |
|
||||
| Adjusted EBITDA | $ |
16,613 |
|
$ |
15,811 |
|
$ |
49,228 |
|
$ |
44,895 |
|
||||
| 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 $12.4 million in the nine-month period ended September 30, 2020). | ||||||||||||||||
| 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, 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 |
|
Nine Months Ended |
||||||||||||||
September 30, |
|
September 30, |
||||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||
| Net cash provided by operating activities | $ |
3,914 |
|
$ |
14,287 |
|
$ |
50,886 |
|
$ |
42,620 |
|
||||
| Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow: | ||||||||||||||||
| Capital expenditures excluding prefunded projects |
|
(11,682 |
) |
|
(10,942 |
) |
|
(26,345 |
) |
|
(31,374 |
) |
||||
| Capital expenditures for prefunded projects |
|
(2,846 |
) |
|
(182 |
) |
|
(6,595 |
) |
|
(182 |
) |
||||
| Milestone payments received for prefunded projects |
|
2,500 |
|
|
5,285 |
|
|
14,280 |
|
|
5,285 |
|
||||
| Milestone payments made for prefunded projects |
|
(8,250 |
) |
|
- |
|
|
(8,250 |
) |
|
- |
|
||||
| Deferred cost of sales for prefunded projects |
|
175 |
|
|
- |
|
|
350 |
|
|
- |
|
||||
| Amortization of revenue for prefunded projects |
|
(521 |
) |
|
- |
|
|
(1,230 |
) |
|
- |
|
||||
| Amortization of deferred capacity revenue |
|
1,810 |
|
|
1,141 |
|
|
4,881 |
|
|
3,400 |
|
||||
| Amortization of GCI capacity revenue |
|
(522 |
) |
|
(522 |
) |
|
(1,554 |
) |
|
(1,549 |
) |
||||
| Amortization of debt issuance costs and debt discount |
|
(298 |
) |
|
(305 |
) |
|
(942 |
) |
|
(911 |
) |
||||
| Interest expense |
|
2,659 |
|
|
2,997 |
|
|
8,357 |
|
|
9,149 |
|
||||
| Interest paid |
|
(2,724 |
) |
|
(3,122 |
) |
|
(8,432 |
) |
|
(9,236 |
) |
||||
| Interest income |
|
(13 |
) |
|
(121 |
) |
|
(156 |
) |
|
(291 |
) |
||||
Deferred income tax expense |
|
(940 |
) |
|
(1,396 |
) |
|
(2,890 |
) |
|
(1,534 |
) |
||||
Income tax expense |
|
941 |
|
|
1,084 |
|
|
2,897 |
|
|
1,228 |
|
||||
Income taxes paid, net |
|
(4 |
) |
|
- |
|
|
(4 |
) |
|
(10 |
) |
||||
Charge for uncollectible accounts |
|
561 |
|
|
(307 |
) |
|
955 |
|
|
(275 |
) |
||||
Amortization of ROU assets |
|
(815 |
) |
|
(568 |
) |
|
(2,072 |
) |
|
(1,716 |
) |
||||
Other income, net |
|
(33 |
) |
|
(192 |
) |
|
(447 |
) |
|
(192 |
) |
||||
Net loss attributable to noncontrolling interest |
|
22 |
|
|
23 |
|
|
64 |
|
|
76 |
|
||||
Other non-cash income (expense), net |
|
33 |
|
|
192 |
|
|
99 |
|
|
(52 |
) |
||||
Changes in operating assets and liabilities |
|
8,772 |
|
|
(1,024 |
) |
|
(12,404 |
) |
|
(8,202 |
) |
||||
| Adjusted free cash flow | $ |
(7,261 |
) |
$ |
6,328 |
|
$ |
11,448 |
|
$ |
6,234 |
|
||||
Schedule 6 |
||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||
| ADJUSTED FREE CASH FLOW | ||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
September 30, |
|
September 30, |
||||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||
| Adjusted EBITDA | $ |
16,613 |
|
$ |
15,811 |
|
$ |
49,228 |
|
$ |
44,895 |
|
||||
| Less: | ||||||||||||||||
| Capital expenditures excluding prefunded projects |
|
(11,682 |
) |
|
(10,942 |
) |
|
(26,345 |
) |
|
(31,374 |
) |
||||
| Amortization of GCI capacity revenue |
|
(522 |
) |
|
(522 |
) |
|
(1,554 |
) |
|
(1,549 |
) |
||||
| Cash severance expense |
|
- |
|
|
- |
|
|
- |
|
|
(1,595 |
) |
||||
| Income taxes paid, net |
|
(4 |
) |
|
- |
|
|
(4 |
) |
|
(10 |
) |
||||
| Interest paid |
|
(2,724 |
) |
|
(3,122 |
) |
|
(8,432 |
) |
|
(9,236 |
) |
||||
|
1,681 |
|
|
1,225 |
|
|
12,893 |
|
|
1,131 |
|
|||||
| Impact of prefunded projects: | ||||||||||||||||
| Capital expenditures for prefunded projects |
|
(2,846 |
) |
|
(182 |
) |
|
(6,595 |
) |
|
(182 |
) |
||||
| Milestone payments received for prefunded projects |
|
2,500 |
|
|
5,285 |
|
|
14,280 |
|
|
5,285 |
|
||||
| Milestone payments made for prefunded projects |
|
(8,250 |
) |
|
- |
|
|
(8,250 |
) |
|
- |
|
||||
| Deferred cost of sales for prefunded projects |
|
175 |
|
|
- |
|
|
350 |
|
|
- |
|
||||
| Amortization of revenue for prefunded projects |
|
(521 |
) |
|
- |
|
|
(1,230 |
) |
|
- |
|
||||
|
(8,942 |
) |
|
5,103 |
|
|
(1,445 |
) |
|
5,103 |
|
|||||
| Adjusted free cash flow* | $ |
(7,261 |
) |
$ |
6,328 |
|
$ |
11,448 |
|
$ |
6,234 |
|
||||
| * 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) provided 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 |
|
Nine Months Ended |
||||||||||||
September 30, |
|
September 30, |
||||||||||||
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
| Business and wholesale revenue | ||||||||||||||
| Business broadband | $ |
16,053 |
|
$ |
15,654 |
$ |
47,950 |
|
$ |
46,358 |
||||
| Business voice and other |
|
7,331 |
|
|
7,200 |
|
21,747 |
|
|
21,442 |
||||
| Managed IT services |
|
1,377 |
|
|
1,789 |
|
3,904 |
|
|
4,965 |
||||
| Equipment sales and installations |
|
2,102 |
|
|
942 |
|
4,708 |
|
|
2,830 |
||||
| Wholesale broadband |
|
12,693 |
|
|
11,284 |
|
37,422 |
|
|
31,989 |
||||
| Wholesale voice and other |
|
1,342 |
|
|
1,870 |
|
3,974 |
|
|
4,688 |
||||
| Total business and wholesale revenue |
|
40,898 |
|
|
38,739 |
|
119,705 |
|
|
112,272 |
||||
| Growth in business and wholesale |
|
5.6 |
% |
|
6.6 |
% |
||||||||
| Consumer revenue | ||||||||||||||
| Broadband |
|
6,986 |
|
|
6,718 |
|
20,474 |
|
|
19,880 |
||||
| Voice and other |
|
2,305 |
|
|
2,567 |
|
7,134 |
|
|
7,947 |
||||
| Total consumer revenue |
|
9,291 |
|
|
9,285 |
|
27,608 |
|
|
27,827 |
||||
| Total business, wholesale, and consumer revenue |
|
50,189 |
|
|
48,024 |
|
147,313 |
|
|
140,099 |
||||
| Growth in business, wholesale and consumer revenue |
|
4.5 |
% |
|
5.1 |
% |
||||||||
| Growth in broadband revenue |
|
6.2 |
% |
|
7.8 |
% |
||||||||
| Regulatory revenue | ||||||||||||||
| Access |
|
5,402 |
|
|
6,181 |
|
16,153 |
|
|
18,563 |
||||
| High cost support |
|
4,923 |
|
|
4,923 |
|
14,770 |
|
|
14,770 |
||||
| Total regulatory revenue |
|
10,325 |
|
|
11,104 |
|
30,923 |
|
|
33,333 |
||||
| Total revenue | $ |
60,514 |
|
$ |
59,128 |
$ |
178,236 |
|
$ |
173,432 |
||||
| Growth in total revenue |
|
2.3 |
% |
|
2.8 |
% |
||||||||
| 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 | ||||||||||||||
| CAF II Revenues: High Cost Support | ||||||||||||||
Schedule 8 |
||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||
| KEY OPERATING STATISTICS | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended | ||||||||||||
| September 30, | June 30, | September 30, | ||||||||||
2020 |
2020 |
2019 |
||||||||||
| Voice: | ||||||||||||
| Business access lines |
|
66,253 |
|
|
66,939 |
|
|
68,600 |
|
|||
| Consumer access lines |
|
21,229 |
|
|
21,769 |
|
|
23,530 |
|
|||
| Voice ARPU business | $ |
27.98 |
|
$ |
27.68 |
|
$ |
26.71 |
|
|||
| Voice ARPU consumer | $ |
34.13 |
|
$ |
34.35 |
|
$ |
34.03 |
|
|||
| Broadband: | ||||||||||||
| Business connections |
|
14,669 |
|
|
14,661 |
|
|
15,033 |
|
|||
| Consumer connections |
|
32,012 |
|
|
32,115 |
|
|
31,623 |
|
|||
| Broadband ARPU business | $ |
364.09 |
|
$ |
369.14 |
|
$ |
344.88 |
|
|||
| Broadband ARPU consumer | $ |
72.41 |
|
$ |
70.69 |
|
$ |
69.86 |
|
|||
| Monthly Average Churn: | ||||||||||||
| Business voice |
|
0.9 |
% |
|
0.8 |
% |
|
0.7 |
% |
|||
| Consumer broadband |
|
3.0 |
% |
|
2.6 |
% |
|
3.0 |
% |
|||
| Consumer voice |
|
1.1 |
% |
|
1.0 |
% |
|
1.4 |
% |
|||
Schedule 9 |
||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||
| LONG TERM DEBT AND NET DEBT | ||||||||
| (Unaudited, In Thousands) | ||||||||
September 30, |
|
December 31, |
||||||
2020 |
|
2019 |
||||||
| 2019 senior secured credit facility due 2024 | $ |
171,146 |
|
$ |
177,750 |
|
||
| Debt discount - 2019 senior secured credit facilities due 2024 |
|
(1,690 |
) |
|
(2,234 |
) |
||
| Debt issuance costs - 2019 senior secured credit facilities due 2024 |
|
(1,464 |
) |
|
(1,863 |
) |
||
| Capital leases and other long-term obligations |
|
2,691 |
|
|
2,729 |
|
||
| Total debt |
|
170,683 |
|
|
176,382 |
|
||
| Less current portion |
|
(9,063 |
) |
|
(8,906 |
) |
||
| Long-term obligations, net of current portion | $ |
161,620 |
|
$ |
167,476 |
|
||
| Total debt | $ |
170,683 |
|
$ |
176,382 |
|
||
| Plus debt discounts and debt issuance costs |
|
3,154 |
|
|
4,097 |
|
||
| Gross debt |
|
173,837 |
|
|
180,479 |
|
||
| Cash and cash equivalents |
|
(32,215 |
) |
|
(26,662 |
) |
||
| Net debt | $ |
141,622 |
|
$ |
153,817 |
|
||
