Market Overview

Alaska Communications Reports First Quarter 2019 Results

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Alaska Communications Systems Group, Inc. (NASDAQ:ALSK) today reported
financial results for the first quarter of 2019.

"We are pleased to report another quarter of solid performance,
consistent with our plan and expectations. Market demand for our
Enterprise and Carrier business is strong, reflected in our quarterly
Business and Wholesale broadband revenue performance, up 9.9% year over
year. Cost management is receiving continued attention as evidenced by
reduction in the executive team and proposed reductions to the Board of
Directors.

"Growth revenues, combined with stable high cost support revenues, now
stand at 69% of total revenues for the quarter. These combined revenues
continue to outpace declines in legacy revenues, as reflected in our
total revenue growth. This positions us to deliver Adjusted EBITDA
expansion over the long-term. We look forward to reporting progress over
the upcoming quarters," said Anand Vadapalli, president and CEO of
Alaska Communications.

Revenue Highlights: First Quarter 2019 Compared to First Quarter 2018

  • Total revenue:
    • Revenue was $56.9 million, compared to $56.0 million.
    • Total broadband revenue was $32.0 million, compared to $29.7
      million.
  • Business and wholesale:
    • Comprised 64.1 percent of total revenue.
    • Revenue was $36.5 million, compared to $33.8 million.
    • Broadband revenue was $25.5 million, compared to $23.2 million.
  • Consumer:
    • Comprised 16.2 percent of total revenue.
    • Revenue was $9.2 million, compared to $9.4 million.
    • Broadband revenue was flat at $6.5 million.
  • Regulatory:
    • Comprised 19.7 percent of total revenue.
    • Revenue was $11.2 million, compared to $12.8 million.

Financial Metrics: First Quarter 2019 compared to First Quarter 2018

  • Operating income was $5.9 million, compared to $5.3 million.
  • Net income, including $2.8 million loss on extinguishment of debt, was
    $0.2 million, compared to net income of $2.1 million.
  • Net cash provided by operating activities was $15.5 million, compared
    to $13.4 million.
  • Capital expenditures were $8.6 million, compared to $8.7 million.

Balance Sheet Metrics: March 31, 2019 compared to December 31, 2018

  • Cash was $24.5 million, compared to $15.0 million.
  • Net debt was $159.9 million, compared to $161.2 million.
  • Reflects additional assets and liabilities of $81.5 and $81.2 million,
    respectively, from adoption of the new lease accounting standard in
    the first quarter.

Non-GAAP Metrics: First Quarter 2019 compared to First Quarter 2018

  • Adjusted EBITDA was $15.2 million, compared to $14.4 million.
  • Adjusted free cash flow was $3.0 million, compared to $1.8 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.

2019 Guidance

Laurie Butcher, Alaska Communications senior vice-president of finance,
said, "During the quarter, with our refinancing we increased access to
capital, creating greater stability and flexibility in our balance
sheet. We see great opportunity in the market and continue to invest for
long-term growth. Having met our expectations for the first quarter, we
re-affirm guidance for 2019."

The company re-affirms guidance as follows:

  • Total Revenue to be between $230 million and $235 million
  • Adjusted EBITDA to be between $60 million and $62 million
  • Capital Expenditures to be between $40 million and $42 million
  • Adjusted Free Cash Flow to be between $10 million and $12 million

Conference Call

The Company will host a conference call and live webcast on Tuesday, May
7, 2019 at 2:00 p.m. Eastern Time to discuss the results. Parties in the
United States and Canada can access the call at 1-888-378-4398 and enter
pass code 331303. All other parties can access the call at
1-856-344-9295 and use the same code. On the call, the management team
will answer questions submitted in advance.

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 30 days. A telephonic
replay of the conference call will also be available two hours after the
call and will run until June 6, 2019 at 5:00 p.m. Eastern Time. To hear
the replay, parties in the U.S. and Canada can call 1-888-203-1112 and
enter pass code 4054244. All other parties can call 1-719-457-0820 and
enter pass code 4054244.

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.

Non-GAAP Measures

In an effort to provide investors with additional information regarding
our financial results, we have provided certain non-GAAP financial
information, including Adjusted EBITDA, Adjusted Free Cash Flow and Net
Debt. Adjusted EBITDA eliminates the effects of period to period changes
in costs that are not directly attributable to the underlying
performance of the Company's business operations and is used by
Management and the Company's Board of Directors to evaluate current
operating financial performance, analyze and evaluate strategic and
operational decisions and better evaluate comparability between periods.
Adjusted Free Cash Flow is a non-GAAP liquidity measured used by
Management and the Company's Board of Directors to assess the Company's
ability to generate cash and plan for future operating and capital
actions. Adjusted EBITDA and Adjusted Free Cash Flow are common measures
utilized by our peers (other telecommunications companies) and we
believe they provide useful information to investors and analysts about
the Company's operating results, financial condition and cash flows. Net
Debt provides Management and the Company's Board of Directors with a
measure of the Company's current leverage position. The definition and
computation of these non-GAAP measures are provided on Schedules 4, 6
and 9 to this press release. Adjusted EBITDA and Adjusted Free Cash Flow
should not be considered a substitute for Net Income, Net Cash Provided
by Operating Activities and other measures of financial performance
recorded in accordance with GAAP. Reconciliations of our non-GAAP
measures to our nearest GAAP measures can be found in the tables in this
release. Other companies may not calculate non-GAAP measures in the same
manner as Alaska Communications. The Company does not provide
reconciliations of guidance for Adjusted EBITDA to Net Income, and
Adjusted Free Cash Flow to Net Cash from Operating Activities, in
reliance on the unreasonable efforts exception provided under Item
10(e)(1)(i)(B) of Regulation S-K. The Company does not forecast certain
items required to develop the comparable GAAP financial measures. These
items are charges and benefits for uncollectible accounts, certain other
non-cash expenses, unusual items typically excluded from Adjusted EBITDA
and Adjusted Free Cash Flow, and changes in operating assets and
liabilities (generally the most significant of these items, representing
cash inflows of $4.0 million in the three-month period of 2019).

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 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 Northslope and Western Alaska, the effects of competition in our
markets, our relatively small size compared with our competitors, the
Company's ability to compete, manage, integrate, market, maintain, and
attract sufficient customers for its products and services, adverse
changes in labor matters, including workforce levels, labor
negotiations, employee benefit costs, our ability to control other
operating costs, disruption of our supplier's provisioning of critical
products or services, the actions of activist shareholders, changes in
Company's relationships with large customers, unforeseen changes in
public policies, regulatory changes, our internal control over financial
reporting, and changes in accounting standards or policies, which could
affect reported financial results. For further information regarding
risks and uncertainties associated with the Company's business, please
refer to the Company's SEC filings, including, but not limited to, the
sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our annual
report on Form 10-K and quarterly reports on Form 10-Q. Copies of the
Company's SEC filings may be obtained by contacting its investor
relations department at (907) 564-7556 or by visiting its investor
relations website at www.alsk.com.

 
Schedule 1
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
   
Three Months Ended
March 31,
2019     2018
 
 
Operating revenues $ 56,909 $ 55,972
 
Operating expenses:
Cost of services and sales (excluding depreciation and amortization) 25,627 25,833
Selling, general & administrative 16,656 16,012
Depreciation and amortization 8,679 8,787
Gain on disposal of assets, net   (2 )   (3 )
 
Total operating expenses   50,960     50,629  
 
Operating income 5,949 5,343
 
Other income and (expense):
Interest expense (3,056 ) (3,504 )
Loss on extinguishment of debt (2,799 ) -
Interest income 75 14
Other income, net   122     104  
Total other income and (expense)   (5,658 )   (3,386 )
 
Income before income tax (expense) benefit 291 1,957
 
Income tax (expense) benefit   (98 )   112  
 
Net income 193 2,069
 
Less net loss attributable to noncontrolling interest   (34 )   (32 )
 
Net income attributable to Alaska Communications $ 227   $ 2,101  
 
Net income per share attributable to Alaska Communications:
Net income applicable to common shares $ 227   $ 2,101  
 
Basic and Diluted $ 0.00   $ 0.04  
 
Weighted average shares outstanding:
Basic   53,382     52,681  
Diluted   54,605     53,857  
 

 
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
       
March 31, December 31,
Assets 2019 2018
 
Current assets:
Cash and cash equivalents $ 22,845 $ 13,351
Restricted cash 1,632 1,634
Short-term investments 134 134
Accounts receivable, net of allowance of $4,175 and $3,936 25,659 31,472
Materials and supplies 8,362 6,737
Prepayments and other current assets   12,453     12,169  
Total current assets 71,085 65,497
 
Property, plant and equipment 1,395,150 1,390,622
Less: accumulated depreciation and amortization   (1,021,664 )   (1,017,442 )
Property, plant and equipment, net 373,486 373,180
 
Deferred income taxes 456 498
Operating lease right of use asset 81,455 -
Other assets   15,483     16,010  
Total assets $ 541,965   $ 455,185  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term obligations $ 3,418 $ 2,289
Accounts payable, accrued and other current liabilities 39,153 40,957
Advance billings and customer deposits 4,002 4,024
Operating lease liabilities - current   2,503     -  
Total current liabilities 49,076 47,270
 
Long-term obligations, net of current portion 174,357 168,023
Deferred income taxes 2,336 2,315
Operating lease liabilities - noncurrent 78,662 -
Other long-term liabilities, net of current portion   67,469     67,827  
Total liabilities   371,900     285,435  
Commitments and contingencies
Alaska Communications stockholders' equity:
Common stock, $.01 par value; 145,000 authorized 536 533
Additional paid in capital 160,704 160,514
Retained earnings 10,666 10,439
Accumulated other comprehensive loss   (2,746 )   (2,675 )
Total Alaska Communications stockholders' equity 169,160 168,811
Noncontrolling interest   905     939  
Total stockholders' equity   170,065     169,750  
 
Total liabilities and stockholders' equity $ 541,965   $ 455,185  
 

 
Schedule 3
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
       
Three Months Ended
March 31,
2019 2018
Cash Flows from Operating Activities:
Net income $ 193 $ 2,069

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

Depreciation and amortization 8,679 8,787
Gain on the disposal of assets, net (2 ) (3 )
Amortization of debt issuance costs and debt discount 303 356
Loss on extinguishment of debt 2,799 -
Amortization of deferred capacity revenue (1,126 ) (947 )
Stock-based compensation 498 242
Income tax expense (benefit) 98 (112 )
Charge for uncollectible accounts (697 ) 537
Amortization of ROU asset 565 -
Other non-cash expense, net 121 90
Changes in operating assets and liabilities   4,044     2,402  
Net cash provided by operating activities   15,475     13,421  
 
Cash Flows from Investing Activities:
Capital expenditures (8,563 ) (8,680 )
Capitalized interest (355 ) (420 )
Change in unsettled capital expenditures   (1,121 )   (1,272 )
Net cash used by investing activities   (10,039 )   (10,372 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (171,758 ) (8,807 )
Proceeds from the issuance of long-term debt 180,000 7,000
Debt issuance costs and discounts (2,659 ) -
Cash paid for debt extinguishment (1,222 ) -
Cash proceeds from noncontrolling interest - 40
Payment of withholding taxes on stock-based compensation   (305 )   (410 )
Net cash provided (used) by financing activities   4,056     (2,177 )
 
Change in cash, cash equivalents and restricted cash 9,492 872
 
Cash, cash equivalents and restricted cash, beginning of period   14,985     16,168  
 
Cash, cash equivalents and restricted cash, end of period $ 24,477   $ 17,040  
 
Supplemental Cash Flow Data:
Interest paid $ 3,075 $ 3,441
Income taxes paid, net $ 10 $ -
 

 
Schedule 4
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
       
Three Months Ended
March 31,
2019 2018
 
Net income $ 193 $ 2,069
Add (subtract):
Interest expense 3,056 3,504
Loss on extinguishment of debt 2,799 -
Interest income (75 ) (14 )
Depreciation and amortization 8,679 8,787
Other income, net (122 ) (104 )
Gain on the disposal of assets, net (2 ) (3 )
Income tax expense (benefit) 98 (112 )
Stock-based compensation 498 242
Net loss attributable to noncontrolling interest   34     32  
 
Adjusted EBITDA $ 15,158   $ 14,401  
 

NonGAAP Measures:

The Company provides certain non-GAAP financial information, including
Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt. Adjusted EBITDA
eliminates the effects of period to period changes in costs that are not
directly attributable to the underlying performance of the Company's
business operations and is used by Management and the Company's Board of
Directors to evaluate current operating financial performance, analyze
and evaluate strategic and operational decisions and better evaluate
comparability between periods. Adjusted Free Cash Flow is a non-GAAP
liquidity measure used by Management to assess the Company's ability to
generate cash and plan for future operating and capital actions.
Adjusted EBITDA and Adjusted Free Cash Flow are common measures utilized
by our peers (other telecommunications companies) and we believe they
provide useful information to investors and analysts about the Company's
operating results, financial condition and cash flows. Net Debt provides
Management and the Board of Directors with a measure of the Company's
current leverage position.

The Company does not provide reconciliations of guidance for Adjusted
EBITDA to Net Income, and Adjusted Free Cash Flow to Net Cash Provided
by Operating Activities, in reliance on the unreasonable efforts
exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The
Company does not forecast certain items required to develop the
comparable GAAP financial measures. These items are charges and benefits
for uncollectible accounts, certain other non-cash expenses, unusual
items typically excluded from Adjusted EBITDA and Adjusted Free Cash
Flow, and changes in operating assets and liabilities (generally the
most significant of these items, representing cash inflows of $4.0
million in the three-month period ended March 31, 2019).

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 (loss) 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, and
net loss attributable to noncontrolling interest.

 
Schedule 5
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO
ADJUSTED FREE CASH FLOW

(Unaudited, In Thousands)
 
    Three Months Ended
March 31,
2019     2018
 
Net cash provided by operating activities $ 15,475 $ 13,421

Adjustments to reconcile net cash provided by operating activities
to adjusted free cash flow:

Capital expenditures (8,563 ) (8,680 )
Amortization of deferred capacity revenue 1,126 947
Amortization of GCI capacity revenue (511 ) (511 )
Amortization of debt issuance costs and debt discount (303 ) (356 )
Interest expense 3,056 3,504
Interest paid (3,075 ) (3,441 )
Interest income (75 ) (14 )
Income taxes paid, net (10 ) -
Charge for uncollectible accounts 697 (537 )
Amortization of ROU asset (565 ) -
Other income, net (122 ) (104 )
Net loss attributable to noncontrolling interest 34 32
Other non-cash expense, net (121 ) (90 )
Changes in operating assets and liabilities   (4,044 )   (2,402 )
Adjusted free cash flow $ 2,999   $ 1,769  
 

 
Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
       
Three Months Ended
March 31,
2019 2018
 
Adjusted EBITDA $ 15,158 $ 14,401
 
Less:
Capital expenditures (8,563 ) (8,680 )
Amortization of GCI capacity revenue (511 ) (511 )
Income taxes paid, net (10 ) -
Interest paid   (3,075 )   (3,441 )
Adjusted free cash flow* $ 2,999   $ 1,769  
 
* 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.
 

NonGAAP Measures:

Adjusted Free Cash Flow a non-GAAP liquidity measure and is defined as
Adjusted EBITDA, less recurring operating cash requirements which
include capital expenditures, less cash income taxes refunded or paid,
cash interest paid, amortization of GCI capacity revenue and cash
receipts and payments. 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 provided (used) by financing
activities.

See Schedule 5 for the reconciliation of net cash provided by operating
activities to Adjusted Free Cash Flow.

 
Schedule 7
 
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE BY CUSTOMER GROUP
(Unaudited, In Thousands)
       
Three Months Ended
March 31,
2019 2018
Business and wholesale revenue
Business broadband $ 15,267 $ 13,659
Business voice and other 7,001 6,851
Managed IT services 1,659 1,265
Equipment sales and installations 880 922
Wholesale broadband 10,262 9,578
Wholesale voice and other   1,426     1,488
 
Total business and wholesale revenue   36,495     33,763
Growth in business and wholesale 8.1 %
Consumer revenue
Broadband 6,468 6,492
Voice and other   2,733     2,877
 
Total consumer revenue   9,201     9,369
 
Total business, wholesale, and consumer revenue   45,696     43,132
Growth in business, wholesale and consumer revenue 5.9 %
Growth in broadband revenue 7.6 %
 
Regulatory revenue
Access 6,289 7,917
High cost support   4,924     4,923
 
Total regulatory revenue   11,213     12,840
 
Total revenue $ 56,909   $ 55,972
Growth in total revenue 1.7 %
 

Growth Revenues: Business broadband, Managed IT services,
Equipment sales and installations, Wholesale broadband, Consumer
broadband

 

Legacy Revenues: Business voice and other, Wholesale voice and
other, Consumer voice and other, and Access

 
CAF II Revenue: High Cost Support
 

 
Schedule 8
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
    Three Months Ended
March 31,     December 31,     March 31,
2019 2018 2018
 
Voice:
Business access lines 68,788 69,382 71,002
Consumer access lines 25,156 25,784 28,221
 
Voice ARPU business $ 25.21 $ 25.64 $ 24.76
Voice ARPU consumer $ 33.77 $ 34.04 $ 31.57
 
Broadband:
Business connections 15,126 15,234 15,306
Consumer connections 32,840 32,793 33,675
 
Broadband ARPU business $ 334.94 $ 324.37 $ 297.38
Broadband ARPU consumer $ 65.39 $ 65.00 $ 63.77
 
Monthly Average Churn:
Business voice 1.1 % 1.0 % 1.0 %
Consumer broadband 2.2 % 2.3 % 2.4 %
Consumer voice 1.1 % 1.2 % 1.5 %
 

 
Schedule 9
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
LONG TERM DEBT AND NET DEBT
(Unaudited, In Thousands)
       
March 31, December 31,
2019 2018
2019 senior secured credit facility due 2025 $ 180,000 $ -
Debt discount - 2019 senior secured credit facilities due 2025 (2,226 ) -
Debt issuance costs - 2019 senior secured credit facilities due 2025 (2,759 ) -
2017 senior secured credit facility due 2023 - 171,750
Debt discount - 2017 senior secured credit facilities due 2023 - (2,024 )
Debt issuance costs - 2017 senior secured credit facilities due 2023 - (2,182 )
Capital leases and other long-term obligations   2,760     2,768  
Total debt 177,775 170,312
Less current portion   (3,418 )   (2,289 )
Long-term obligations, net of current portion $ 174,357   $ 168,023  
 
Total debt $ 177,775 $ 170,312
Plus debt discounts and debt issuance costs   4,985     4,206  
Gross debt 182,760 174,518
Cash and cash equivalents   (22,845 )   (13,351 )
Net debt $ 159,915   $ 161,167  
 

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