Alaska Communications Systems Group, Inc. (“ACS”, “the Company”, “Alaska Communications”) (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2014.
“Our emphasis on broadband solutions has delivered another quarter of broadband revenue growth, with continued industry leading top-line performance for the third quarter of 2014. Combined with exceptional operations and cost controls, we have expanded Adjusted EBITDA margins, all while managing our free cash flow to deleverage our balance sheet.
“We have a growing market opportunity with a unique competitive dynamic that is enabling us to gain share in our target markets of business and wholesale services. As a particularly noteworthy example of taking share, after months of in-depth network capabilities and reliability reviews, we are honored the State of Alaska chose Alaska Communications to be its primary broadband provider for its statewide core network. Our experienced team continues to gain market share due to our deep understanding of the needs of Alaskan businesses matched with quality network solutions, packaging of IT Services, and superior attention to customer service.
“The investments we previously made in technology combined with our steady focus on process improvement enable us to improve customer service while we manage our expenses and improve margins.
“We are focused. Our broadband momentum continues. And, we are very excited about serving our community and shareholders for decades to come,” said Anand Vadapalli, president and CEO of Alaska Communications.
Third Quarter 2014 Highlights
-
Total service and other revenue increased to $53.4 million, up 6.7%
year over year.
- Total broadband revenue reached $17.3 million, up 10.3% year over year.
-
Business and wholesale service:
- Revenue reached $28.0 million, up 11.6% year over year.
- Broadband revenues grew 8.8% year over year.
- Broadband business connections totaled 19,201, increasing 0.6% sequentially.
-
Consumer service:
- Revenue grew to $10.4 million, increasing 2.1% year over year.
- Broadband revenues grew 13.2% year over year.
- Consumer broadband ARPU grew $1.67 or 3.2% sequentially.
Operational Improvements
- Successfully deployed an automated workforce management system to streamline future service delivery and enhance customer experience.
- Installed new inventory management structures in retail stores reducing wireless inventory balances by approximately 40%, or $2.5 million.
Third Quarter and Year to Date Consolidated Financial Results for the periods ended September 30, 2014
- Adjusted EBITDA was $23.5 million for the quarter and stands at $70.3 million year to date.
- Total operating revenue was $78.5 million for the quarter and stands at $237.4 million year to date.
- Free Cash Flow was $1.6 million for the quarter and stands at $12.8 million year to date.
-
Deleveraging continues:
- Debt balances were $434.6 million at the end of the quarter.
- Debt repayments totaled $24.0 million year to date.
- Cash balances remain strong at $28.9 million.
Wayne Graham, ACS chief financial officer, said, “We expect to achieve continued broadband growth, which is reflected in our updated guidance. The incremental economics of adding this revenue to our mix should drive margin improvements going forward. We also remain committed to dedicating free cash flow to deleveraging the balance sheet. All of which is expected to improve value creation to our shareholders.”
2014 Guidance:
The Company updated guidance as follows:
- Increased revenue to approximately $315 million from approximately $310 million.
- Increased Adjusted EBITDA to approximately $92 million from approximately $90 million.
- Confirmed free cash flow of approximately $20 million.
- Confirmed the capital expenditures range of approximately $40 to $45 million which includes $4 to $5 million for a fiber build project with a strategic customer.
Conference Call
The Company will host a conference call and live webcast on Thursday, November 6, 2014 at 5:00 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 1-888-471-3830 and enter pass code 399324. All other parties can access the call at 1-719-457-2706.
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 December 8, 2014 at 4:00 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 1781788. All other parties can call 1-719-457-0820 and enter pass code 1781788.
About Alaska Communications
Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The Company operates a highly reliable, advanced statewide data and voice network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit http://www.alaskacommunications.com or http://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, Adjusted EBITDA Margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedules 4 and 5 to this press release. Adjusted EBITDA, Adjusted EBITDA Margin 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. Other companies may not calculate non-GAAP measures in the same manner as ACS.
Forward-Looking Statements
This press release includes certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside ACS' control. Such factors include, without limitation, Universal Service Fund changes, AWN’s financial and operational performance and the competitiveness of the wholesale plans it offers, adverse economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, and the effects of competition in our markets, the Company’s ability to compete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may derive, adverse changes in labor matters, including workforce levels, labor negotiations, and benefits costs, disruption of our supplier’s provisioning of critical products or services, the impact of natural or man-made disasters, changes in Company's relationships with large customers, unforeseen changes in public policies, and changes in accounting policies, which could result in an impact on earnings. For further information regarding risks and uncertainties associated with ACS' business, please refer to the Company's SEC filings, including, but not limited to, the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q. Copies of the Company's SEC filings may be obtained by contacting its investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com.
Schedule 1 | ||||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||||
| CONSOLIDATED SCHEDULE OF OPERATIONS | ||||||||||||||||||||||||
| (Unaudited, In Thousands Except Per Share Amounts) | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| Operating revenues: | ||||||||||||||||||||||||
| Operating revenues, non-affiliates | $ | 76,683 | $ | 82,427 | $ | 232,031 | $ | 271,122 | ||||||||||||||||
| Operating revenues, affiliates * | 1,782 | 1,414 | 5,323 | 1,535 | ||||||||||||||||||||
| Total operating revenues | 78,465 | 83,841 | 237,354 | 272,657 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of services and sales, non-affiliates | 31,416 | 33,078 | 91,274 | 105,412 | ||||||||||||||||||||
| Cost of services and sales, affiliates * | 13,534 | 11,642 | 43,295 | 11,959 | ||||||||||||||||||||
| Selling, general & administrative | 25,017 | 29,274 | 74,926 | 83,717 | ||||||||||||||||||||
| Depreciation and amortization | 8,585 | 9,209 | 25,850 | 33,291 | ||||||||||||||||||||
| (Gain) loss on disposal of assets, net | (199 | ) | (210,558 | ) | 612 | (209,932 | ) | |||||||||||||||||
| Earnings from equity method investments | (11,556 | ) | (8,082 | ) | (29,247 | ) | (8,061 | ) | ||||||||||||||||
| Total operating expenses | 66,797 | (135,437 | ) | 206,710 | 16,386 | |||||||||||||||||||
| Operating income | 11,668 | 219,278 | 30,644 | 256,271 | ||||||||||||||||||||
| Other income and (expense): | ||||||||||||||||||||||||
| Interest expense | (8,615 | ) | (9,785 | ) | (26,144 | ) | (29,970 | ) | ||||||||||||||||
| Loss on extinguishment of debt | - | (2,094 | ) | - | (2,370 | ) | ||||||||||||||||||
| Interest income | 28 | 19 | 42 | 37 | ||||||||||||||||||||
| Other | - | - | - | (13 | ) | |||||||||||||||||||
| Total other income and (expense) | (8,587 | ) | (11,860 | ) | (26,102 | ) | (32,316 | ) | ||||||||||||||||
| Income before income tax expense | 3,081 | 207,418 | 4,542 | 223,955 | ||||||||||||||||||||
| Income tax expense | (1,203 | ) | (85,421 | ) | (1,964 | ) | (60,796 | ) | ||||||||||||||||
| Net income | $ | 1,878 | $ | 121,997 | $ | 2,578 | $ | 163,159 | ||||||||||||||||
| Net income per share: | ||||||||||||||||||||||||
| Net income applicable to common shares | $ | 1,878 | $ | 121,997 | $ | 2,578 | $ | 163,159 | ||||||||||||||||
| Tax-effected expense attributable to convertible notes | - | 1,485 | - | 4,409 | ||||||||||||||||||||
| Net income assuming dilution | $ | 1,878 | $ | 123,482 | $ | 2,578 | $ | 167,568 | ||||||||||||||||
| Basic | $ | 0.04 | $ | 2.59 | $ | 0.05 | $ | 3.50 | ||||||||||||||||
| Diluted | $ | 0.04 | $ | 2.08 | $ | 0.05 | $ | 2.85 | ||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||
| Basic | 49,498 | 47,159 | 49,265 | 46,592 | ||||||||||||||||||||
| Diluted | 50,155 | 59,359 | 49,730 | 58,816 | ||||||||||||||||||||
| * Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary. |
Schedule 2 | ||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||
| (Unaudited, In Thousands Except Per Share Amounts) | ||||||||||||
| September 30, | December 31, | |||||||||||
| Assets | 2014 | 2013 | ||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 28,851 | $ | 43,039 | ||||||||
| Restricted cash | 467 | 467 | ||||||||||
| Accounts receivable-trade, non-affiliates, net | 38,116 | 34,066 | ||||||||||
| Materials and supplies | 9,591 | 10,131 | ||||||||||
| Prepayments and other current assets | 8,003 | 7,300 | ||||||||||
| Deferred income taxes | 6,694 | 7,144 | ||||||||||
| Total current assets | 91,722 | 102,147 | ||||||||||
| Property, plant and equipment | 1,357,660 | 1,344,949 | ||||||||||
| Less: accumulated depreciation and amortization | (994,358 | ) | (992,936 | ) | ||||||||
| Property, plant and equipment, net | 363,302 | 352,013 | ||||||||||
| Goodwill | 5,986 | 4,650 | ||||||||||
| Debt issuance costs | 5,017 | 6,929 | ||||||||||
| Deferred income taxes | 11,606 | 14,107 | ||||||||||
| Equity method investments | 257,853 | 266,972 | ||||||||||
| Other assets | 349 | 502 | ||||||||||
| Total assets | $ | 735,835 | $ | 747,320 | ||||||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||||||
| Current liabilities: | ||||||||||||
| Current portion of long-term obligations | $ | 11,846 | $ | 14,256 | ||||||||
| Accounts payable, accrued and other current liabilities, non-affiliates | 53,457 | 55,475 | ||||||||||
| Accounts payable, accrued and other current liabilities, affiliates, net * | 22,905 | 14,309 | ||||||||||
| Advance billings and customer deposits | 8,501 | 9,104 | ||||||||||
| Total current liabilities | 96,709 | 93,144 | ||||||||||
| Long-term obligations, net of current portion | 422,796 | 442,001 | ||||||||||
| Other long-term liabilities | 17,736 | 16,947 | ||||||||||
| Deferred AWN capacity revenue, net of current portion | 57,548 | 59,965 | ||||||||||
| Total liabilities | 594,789 | 612,057 | ||||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders' equity (deficit): | ||||||||||||
| Common stock, $.01 par value; 145,000 authorized | 495 | 487 | ||||||||||
| Additional paid in capital | 153,608 | 152,193 | ||||||||||
| Accumulated deficit | (9,230 | ) | (11,808 | ) | ||||||||
| Accumulated other comprehensive loss | (3,827 | ) | (5,609 | ) | ||||||||
| Total stockholders' equity (deficit) | 141,046 | 135,263 | ||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 735,835 | $ | 747,320 | ||||||||
| * Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary. |
Schedule 3 | ||||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||||||
| Net income | $ | 1,878 | $ | 121,997 | $ | 2,578 | $ | 163,159 | ||||||||||||||||
| Adjustments to reconcile net income to net cash provided by | ||||||||||||||||||||||||
| operating activities: | ||||||||||||||||||||||||
| Depreciation and amortization | 8,585 | 9,209 | 25,850 | 33,291 | ||||||||||||||||||||
| Gain on sale/contribution of asset to AWN | - | (210,873 | ) | - | (210,873 | ) | ||||||||||||||||||
| (Gain) loss on the disposal of assets | (199 | ) | 315 | 612 | 941 | |||||||||||||||||||
| Gain on ineffective hedge adjustment | - | 231 | - | (785 | ) | |||||||||||||||||||
| Amortization of debt issuance costs and debt discount | 1,260 | 2,714 | 3,926 | 5,754 | ||||||||||||||||||||
| Amortization of ineffective hedge | 362 | 1,082 | 1,276 | 1,948 | ||||||||||||||||||||
| Amortization of deferred AWN capacity revenue | (647 | ) | (738 | ) | (2,337 | ) | (738 | ) | ||||||||||||||||
| Stock-based compensation | 684 | 550 | 1,877 | 2,268 | ||||||||||||||||||||
| Deferred income tax expense (benefit) | 961 | 84,823 | 1,708 | 60,198 | ||||||||||||||||||||
| Provision for uncollectible accounts | 1,467 | 366 | 2,942 | 805 | ||||||||||||||||||||
| Earnings from equity method investments | (11,556 | ) | (8,082 | ) | (29,247 | ) | (8,061 | ) | ||||||||||||||||
| Cash distribution from equity method investments | 11,556 | 5,389 | 29,247 | 5,389 | ||||||||||||||||||||
| Other non-cash (income) expense, net | (226 | ) | (20 | ) | (384 | ) | 216 | |||||||||||||||||
| Changes in operating assets and liabilities | 4,918 | 7,161 | 1,048 | 6,096 | ||||||||||||||||||||
| Net cash provided by operating activities | 19,043 | 14,124 | 39,096 | 59,608 | ||||||||||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||||||
| Capital expenditures | (16,042 | ) | (13,717 | ) | (33,916 | ) | (27,314 | ) | ||||||||||||||||
| Capitalized interest | (720 | ) | (421 | ) | (2,082 | ) | (1,291 | ) | ||||||||||||||||
| Change in unsettled capital expenditures | 3,114 | 553 | (1,300 | ) | (3,276 | ) | ||||||||||||||||||
| Proceeds on sale of assets | 136 | 2,812 | 136 | 4,747 | ||||||||||||||||||||
| Proceeds on sale/contribution of asset to AWN | - | 100,000 | - | 100,000 | ||||||||||||||||||||
| Return of capital from equity investment | 944 | - | 8,286 | - | ||||||||||||||||||||
| Non-cash acquisition, cash received | - | - | 68 | - | ||||||||||||||||||||
| Net change in short-term investments | - | 525 | - | 2,037 | ||||||||||||||||||||
| Change in unsettled acquisition costs | - | (3,345 | ) | - | (3,345 | ) | ||||||||||||||||||
| Net change in restricted accounts | - | 3,345 | - | 3,393 | ||||||||||||||||||||
| Net cash (used) provided by investing activities | (12,568 | ) | 89,752 | (28,808 | ) | 74,951 | ||||||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||||||
| Repayments of long-term debt | (5,280 | ) | (67,001 | ) | (24,022 | ) | (97,382 | ) | ||||||||||||||||
| Debt issuance costs | - | (25 | ) | - | (206 | ) | ||||||||||||||||||
| Payment of withholding taxes on stock-based compensation | (3 | ) | (2 | ) | (586 | ) | (632 | ) | ||||||||||||||||
| Proceeds from issuance of common stock | - | 2 | 132 | 117 | ||||||||||||||||||||
Net cash used by financing activities | (5,283 | ) | (67,026 | ) | (24,476 | ) | (98,103 | ) | ||||||||||||||||
| Change in cash and cash equivalents | 1,192 | 36,850 | (14,188 | ) | 36,456 | |||||||||||||||||||
| Cash and cash equivalents, beginning of period | 27,659 | 16,445 | 43,039 | 16,839 | ||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 28,851 | $ | 53,295 | $ | 28,851 | $ | 53,295 | ||||||||||||||||
| Supplemental Cash Flow Data: | ||||||||||||||||||||||||
| Interest paid | $ | 6,008 | $ | 6,818 | $ | 22,036 | $ | 25,201 | ||||||||||||||||
| Cash paid on extinguishment of hedging instrument | $ | - | $ | 4,073 | $ | - | $ | 4,073 | ||||||||||||||||
| Income tax paid | $ | 206 | $ | - | $ | 220 | $ | - | ||||||||||||||||
| Supplemental Non-cash Transactions: | ||||||||||||||||||||||||
| Property acquired under capital leases | $ | 346 | $ | (19 | ) | $ | 390 | $ | (17 | ) | ||||||||||||||
| Additions to ARO asset | $ | 17 | $ | 43 | $ | 306 | $ | 180 | ||||||||||||||||
| Exchange of debt with common stock | $ | - | $ | 6,000 | $ | - | $ | 6,000 | ||||||||||||||||
Non-cash acquisition purchase price, net of cash received | $ | - | $ | - | $ | 1,850 | $ | - | ||||||||||||||||
Schedule 4 | ||||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||||
| ADJUSTED EBITDA | ||||||||||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| Net income | $ | 1,878 | $ | 121,997 | $ | 2,578 | $ | 163,159 | ||||||||||||||||
| Add (subtract): | ||||||||||||||||||||||||
| Interest expense | 8,615 | 9,785 | 26,144 | 29,970 | ||||||||||||||||||||
| Loss on extinguishment of debt | - | 2,094 | - | 2,370 | ||||||||||||||||||||
| Interest income | (28 | ) | (19 | ) | (42 | ) | (37 | ) | ||||||||||||||||
| Depreciation and amortization | 8,585 | 9,209 | 25,850 | 33,291 | ||||||||||||||||||||
| Loss on sale of short-term investments | - | - | - | 13 | ||||||||||||||||||||
| (Gain) loss on disposal of assets | (199 | ) | 315 | 612 | 941 | |||||||||||||||||||
| (Earnings) loss from equity method investment in TekMate | - | (18 | ) | (12 | ) | 3 | ||||||||||||||||||
| Earnings from equity method investment in AWN | (11,556 | ) | (8,064 | ) | (29,235 | ) | (8,064 | ) | ||||||||||||||||
| Gain on sale/contribution of asset to AWN | - | (210,873 | ) | - | (210,873 | ) | ||||||||||||||||||
| AWN distributions received | 12,500 | 5,389 | 37,500 | 5,389 | ||||||||||||||||||||
| AWN distributions received for the prior period | (4,167 | ) | - | (4,167 | ) | - | ||||||||||||||||||
| AWN distributions receivable within 12 days | 4,167 | 4,167 | 4,167 | 4,167 | ||||||||||||||||||||
| Income tax expense | 1,203 | 85,421 | 1,964 | 60,796 | ||||||||||||||||||||
| Stock-based compensation | 684 | 550 | 1,877 | 2,268 | ||||||||||||||||||||
| Long-term cash incentives | 587 | 152 | 1,572 | 482 | ||||||||||||||||||||
| Earthquake related expense | 1,228 | - | 1,228 | - | ||||||||||||||||||||
AWN transaction-related costs | 28 | 4,702 | 240 | 5,974 | ||||||||||||||||||||
| Adjusted EBITDA | $ | 23,525 | $ | 24,807 | $ | 70,276 | $ | 89,849 | ||||||||||||||||
| Revenue | 78,465 | 83,841 | 237,354 | 272,657 | ||||||||||||||||||||
| CETC Revenue | (4,720 | ) | (5,139 | ) | (14,581 | ) | (16,093 | ) | ||||||||||||||||
| Net Revenue | $ | 73,745 | $ | 78,702 | $ | 222,773 | $ | 256,564 | ||||||||||||||||
| Adjusted EBITDA Margin | 31.9 | % | 31.5 | % | 31.5 | % | 35.0 | % | ||||||||||||||||
NonGAAP Measures: |
| In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results. |
| The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments or other assets, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, provisions for taxes, transaction-related costs, stock-based compensation, and expenses under the company’s long term cash incentive plan (“LTCI”) including adjustments to TekMate purchase price based upon achieving earn out targets. 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 and Schedule 9 to these press release financials provides additional AWN related financial information. Additionally, in July 2014 an undersea cable serving Juneau, Alaska was impacted by a service disruption associated with an earthquake. The costs associated with restoration and repair of this facility is excluded from Adjusted EBITDA. |
| Due to the AWN structure, ACS receives certain high cost revenues ("CETC") which are reported in operating revenue, non-affiliates, and remits an equal amount to AWN as a component of our consideration for wholesale wireless services, which is reported in Cost of services and sales, affiliated. From a financial reporting perspective CETC grosses up our revenue and expense and has no impact on Adjusted EBITDA, but impacts our core margins. We therefore report Adjusted EBITDA Margin to exclude this impact. |
Schedule 5 | ||||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||||
| FREE CASH FLOW | ||||||||||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 23,525 | $ | 24,807 | $ | 70,276 | $ | 89,849 | ||||||||||||||||
| Less: | ||||||||||||||||||||||||
| Capital spending | ||||||||||||||||||||||||
| Incurred capital expenditures | (16,042 | ) | (13,717 | ) | (33,916 | ) | (27,314 | ) | ||||||||||||||||
| Milestone billings for fiber build project for a carrier customer | 2,000 | - | 2,000 | - | ||||||||||||||||||||
| AWN transaction-related capital costs, net change | - | - | - | (41 | ) | |||||||||||||||||||
| Net capital spending | (14,042 | ) | (13,717 | ) | (31,916 | ) | (27,355 | ) | ||||||||||||||||
| Amortization of AWN capacity revenue | (647 | ) | (738 | ) | (2,337 | ) | (738 | ) | ||||||||||||||||
| Earthquake related expense | (1,228 | ) | - | (1,228 | ) | - | ||||||||||||||||||
| Cash interest expense | (6,008 | ) | (6,818 | ) | (22,036 | ) | (25,201 | ) | ||||||||||||||||
| Free cash flow | $ | 1,600 | $ | 3,534 | $ | 12,759 | $ | 36,555 | ||||||||||||||||
NonGAAP Measures: |
| In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results. |
| Free cash flow ("FCF") is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), plus milestone billings for a fiber build project for a carrier customer, less AWN transaction-related capital costs, less amortization of AWN capacity revenue (which is a non cash revenue item), less earthquake related costs, less cash interest expense. Note that incurred capital spending includes the costs associated with a two year fiber build project with a strategic customer however we are adding back the cash we receive from the customer for the funding of that project to FCF. Accordingly, our capital spending will be elevated because of this project, but the project will be accretive to FCF by 2015. |
Schedule 6 | ||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||
| REVENUE GROWTH | ||||||||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||
| Service revenue: | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||
| Business and wholesale customers | ||||||||||||||||||||||
| Voice | $ | 5,666 | $ | 5,790 | $ | 16,948 | $ | 17,303 | ||||||||||||||
| Broadband | 10,962 | 10,080 | 32,658 | 29,509 | ||||||||||||||||||
| IT Services | 1,007 | - | 2,540 | - | ||||||||||||||||||
| Other | 1,800 | 1,926 | 5,256 | 5,969 | ||||||||||||||||||
| Wholesale | 8,544 | 7,267 | 24,723 | 22,319 | ||||||||||||||||||
| Business and wholesale service revenue | 27,979 | 25,063 | 82,125 | 75,100 | ||||||||||||||||||
| Consumer customers | ||||||||||||||||||||||
| Voice | 3,686 | 4,147 | 11,399 | 12,819 | ||||||||||||||||||
| Broadband | 6,336 | 5,596 | 18,441 | 16,443 | ||||||||||||||||||
| Other | 409 | 478 | 1,191 | 1,275 | ||||||||||||||||||
| Consumer service revenue | 10,431 | 10,221 | 31,031 | 30,537 | ||||||||||||||||||
| Total service revenue | 38,410 | 35,284 | 113,156 | 105,637 | ||||||||||||||||||
| Growth in service revenue | 8.9 | % | 7.1 | % | ||||||||||||||||||
| Growth in broadband service revenue | 10.3 | % | 11.2 | % | ||||||||||||||||||
| Other revenue: | ||||||||||||||||||||||
| Equipment sales | 1,310 | 516 | 3,421 | 1,451 | ||||||||||||||||||
| Access | 8,771 | 9,273 | 26,732 | 28,056 | ||||||||||||||||||
| High cost support | 4,922 | 4,984 | 18,271 | 13,558 | ||||||||||||||||||
| Total service and other revenue | 53,413 | 50,057 | 161,580 | 148,702 | ||||||||||||||||||
| Growth in service and other revenue | 6.7 | % | 8.7 | % | ||||||||||||||||||
| Growth excluding equipment sales | 5.2 | % | 7.4 | % | ||||||||||||||||||
| Wireless revenue: | ||||||||||||||||||||||
| Business and consumer service revenue | 16,413 | 17,673 | 50,598 | 53,607 | ||||||||||||||||||
| Equipment sales | 2,059 | 1,255 | 4,178 | 3,785 | ||||||||||||||||||
| Other | 1,213 | 1,441 | 4,010 | 3,591 | ||||||||||||||||||
| AWN related: | ||||||||||||||||||||||
| Foreign roaming | - | 5,594 | - | 40,029 | ||||||||||||||||||
| Wireless backhaul | - | 1,944 | 70 | 6,112 | ||||||||||||||||||
| CETC | 4,720 | 5,139 | 14,581 | 16,093 | ||||||||||||||||||
| Amortization of deferred AWN capacity revenue | 647 | 738 | 2,337 | 738 | ||||||||||||||||||
| Total AWN related | 5,367 | 13,415 | 16,988 | 62,972 | ||||||||||||||||||
| Total wireless & AWN related revenue | 25,052 | 33,784 | 75,774 | 123,955 | ||||||||||||||||||
| Total revenue | $ | 78,465 | $ | 83,841 | $ | 237,354 | $ | 272,657 | ||||||||||||||
Schedule 7 | ||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||
| KEY OPERATING STATISTICS | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | ||||||||||||||||||
| September 30, | June 30, | September 30, | ||||||||||||||||
| 2014 | 2014 | 2013 | ||||||||||||||||
| Voice: | ||||||||||||||||||
| Consumer access lines | 45,177 | 46,740 | 50,722 | |||||||||||||||
| Business access lines | 79,563 | 80,172 | 80,071 | |||||||||||||||
| Voice ARPU consumer | $ | 26.73 | $ | 26.95 | $ | 26.81 | ||||||||||||
| Voice ARPU business | $ | 23.65 | $ | 23.63 | $ | 24.04 | ||||||||||||
| Broadband: | ||||||||||||||||||
| Consumer connections | 38,257 | 39,022 | 38,117 | |||||||||||||||
| Business connections (2) | 19,201 | 19,077 | 18,700 | |||||||||||||||
| ARPU consumer | $ | 54.18 | $ | 52.51 | $ | 48.63 | ||||||||||||
| ARPU business (1) (2) | $ | 190.60 | $ | 194.96 | $ | 180.15 | ||||||||||||
| Wireless: | ||||||||||||||||||
| Postpaid connections | 79,963 | 83,468 | 86,423 | |||||||||||||||
| Lifeline connections | 7,637 | 7,447 | 9,077 | |||||||||||||||
| Prepaid connections | 21,463 | 18,663 | 16,614 | |||||||||||||||
| Total | 109,063 | 109,578 | 112,114 | |||||||||||||||
| Retail wireless ARPU | $ | 50.10 | $ | 52.55 | $ | 52.08 | ||||||||||||
| Churn: | ||||||||||||||||||
| Voice connections | 1.5 | % | 1.9 | % | 1.4 | % | ||||||||||||
| Broadband connections (2) | 2.6 | % | 2.4 | % | 2.3 | % | ||||||||||||
| Wireless connections | 2.9 | % | 2.4 | % | 3.2 | % | ||||||||||||
| (1) | Business broadband ARPU was restated to reflect the movement of IT services revenue into a separate category. | |||
| (2) | How we calculate broadband connections has changed to exclude certain internal use circuits. Historical amounts have been restated to reflect appropriate comparisons period over period. | |||
Schedule 8 | ||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | ||||||||||||||||||||||
| Long Term Debt | ||||||||||||||||||||||
| (Unaudited, In Thousands) | ||||||||||||||||||||||
| September 30, | December 31, | September 30, | ||||||||||||||||||||
| 2014 | 2013 | 2013 | ||||||||||||||||||||
| 2010 senior credit facility term loan due 2016 | $ | 322,700 | $ | 345,900 | $ | 347,725 | ||||||||||||||||
| Debt discount - 2010 senior credit facility term loan due 2016 | (1,155 | ) | (1,687 | ) | (1,838 | ) | ||||||||||||||||
| 6.25% convertible notes due 2018 | 114,000 | 114,000 | 114,000 | |||||||||||||||||||
| Debt discount - 6.25% convertible notes due 2018 | (7,731 | ) | (9,213 | ) | (9,666 | ) | ||||||||||||||||
| Capital leases and other long-term obligations | 6,828 | 7,257 | 7,426 | |||||||||||||||||||
| 434,642 | 456,257 | 457,647 | ||||||||||||||||||||
| Less current portion | (11,846 | ) | (14,256 | ) | (12,865 | ) | ||||||||||||||||
| Long-term obligations, net of current portion | $ | 422,796 | $ | 442,001 | $ | 444,782 | ||||||||||||||||
| Maturities | ||||||||||||||||||||||
| 2014 (October 1 - December 31) | $ | 286 | ||||||||||||||||||||
| 2015 (January 1 - December 31) | 15,422 | |||||||||||||||||||||
| 2016 (January 1 - December 31) | 308,792 | |||||||||||||||||||||
| 2017 (January 1 - December 31) | 510 | |||||||||||||||||||||
| 2018 (January 1 - December 31) | 114,292 | |||||||||||||||||||||
| 2019 (January 1 - December 31) | 283 | |||||||||||||||||||||
| Thereafter | 3,943 | |||||||||||||||||||||
| $ | 443,528 | |||||||||||||||||||||
Schedule 9 | |||||||||||||||||||||||||||
| ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. | |||||||||||||||||||||||||||
| Summary AWN information | |||||||||||||||||||||||||||
| (Unaudited, In Thousands) | |||||||||||||||||||||||||||
| Alaska Wireless Network, LLC | |||||||||||||||||||||||||||
| Stand Alone Selected Operating Results | |||||||||||||||||||||||||||
| Q1 - 2014 | Q2 - 2014 | Q3 - 2014 | YTD - 2014 | ||||||||||||||||||||||||
| Operating revenues | $ | 63,037 | $ | 64,665 | $ | 70,424 | $ | 198,126 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||
| Cost of services and sales | 19,119 | 18,880 | 18,049 | 56,048 | |||||||||||||||||||||||
| Selling, general & administrative | 5,954 | 5,898 | 5,337 | 17,189 | |||||||||||||||||||||||
| Depreciation and amortization | 10,995 | 10,644 | 11,097 | 32,736 | |||||||||||||||||||||||
| Total operating expenses | 36,068 | 35,422 | 34,483 | 105,973 | |||||||||||||||||||||||
| Operating income | 26,969 | 29,243 | 35,941 | 92,153 | |||||||||||||||||||||||
| Other income and (expense) | (92 | ) | (88 | ) | (94 | ) | (274 | ) | |||||||||||||||||||
| Net income | 26,877 | 29,155 | 35,847 | 91,879 | |||||||||||||||||||||||
| Plus: | Depreciation Expense | 10,995 | 10,644 | 11,097 | 32,736 | ||||||||||||||||||||||
| Other, net | 1,706 | 1,631 | 1,420 | 4,757 | |||||||||||||||||||||||
| Minus: | Capital Spending | 3,639 | 7,110 | 21,141 | 31,890 | ||||||||||||||||||||||
| Management Fee to GCI | 1,438 | 1,372 | 1,089 | 3,899 | |||||||||||||||||||||||
| Adjusted Free Cash Flow | $ | 34,501 | $ | 32,948 | $ | 26,134 | $ | 93,583 | |||||||||||||||||||
| Distributions paid to ACS: | 12,500 | 12,500 | 12,500 | 37,500 | |||||||||||||||||||||||
| Distributions to ACS as a proportion of FCF: | 36.2 | % | 37.9 | % | 47.8 | % | 40.1 | % | |||||||||||||||||||
| The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings. | |||||||||||||||||||||||||||
| Wholesale Margin: | |||||||||||||||||||||||||||
| Q1 - 2014 | Q2 - 2014 | Q3 - 2014 | YTD - 2014 | ||||||||||||||||||||||||
| Wireless business and consumer service revenue | $ | 17,056 | $ | 17,129 | $ | 16,413 | $ | 50,598 | |||||||||||||||||||
| AWN wholesale charges * | $ | 11,905 | $ | 12,750 | $ | 11,210 | $ | 35,865 | |||||||||||||||||||
| Handset subsidy support * | (2,664 | ) | (3,095 | ) | (2,256 | ) | (8,015 | ) | |||||||||||||||||||
| Equipment subsidy | 3,127 | 3,358 | 1,875 | 8,360 | |||||||||||||||||||||||
| Other * | 235 | 830 | (141 | ) | 924 | ||||||||||||||||||||||
| Total | $ | 12,603 | $ | 13,843 | $ | 10,688 | $ | 37,134 | |||||||||||||||||||
| Wholesale Margin | $ | 4,453 | $ | 3,286 | $ | 5,725 | $ | 13,464 | 27 | % | |||||||||||||||||
| * Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN. | |||||||||||||||||||||||||||
| Key AWN Results included in the ACS Consolidated Income Statement: | |||||||||||||||||||||||||||
| Q1 - 2014 | Q2 - 2014 | Q3 - 2014 | YTD - 2014 | ||||||||||||||||||||||||
| AWN net income | $ | 26,877 | $ | 29,155 | $ | 35,847 | $ | 91,879 | |||||||||||||||||||
| Adjusted for step-up in GCI assets | (1,345 | ) | (1,650 | ) | (1,180 | ) | (4,175 | ) | |||||||||||||||||||
| AWN stepped-up earnings | $ | 25,532 | $ | 27,505 | $ | 34,667 | $ | 87,704 | |||||||||||||||||||
| ACS ownership percentage of AWN | 33.33 | % | 33.33 | % | 33.33 | % | 33.33 | % | |||||||||||||||||||
| "Adjusted for step-up"(B) reflects the step up in basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements. | |||||||||||||||||||||||||||
| Earnings on equity method investment in AWN | $ | 8,511 | $ | 9,168 | $ | 11,556 | $ | 29,235 | |||||||||||||||||||
| AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage. | |||||||||||||||||||||||||||
| Key AWN Results Included in the ACS Non GAAP financial measures: | |||||||||||||||||||||||||||
| Q1 - 2014 | Q2 - 2014 | Q3 - 2014 | YTD - 2014 | ||||||||||||||||||||||||
| Cash distributions received during the quarter | $ | 12,500 | $ | 12,500 | $ | 12,500 | $ | 37,500 | |||||||||||||||||||
Less: | Distributions received during the quarter related to the previous period | (4,167 | ) | (4,167 | ) | (4,167 | ) | (4,167 | ) | ||||||||||||||||||
| Plus: | Distributions received within 14 business days of quarter-end | 4,167 | 4,167 | 4,167 | 4,167 | ||||||||||||||||||||||
| Amortization of deferred AWN capacity revenue | 841 | 849 | 647 | 2,337 | |||||||||||||||||||||||
| Equals | AWN impact to Adjusted EBITDA | $ | 13,341 | $ | 13,349 | $ | 13,147 | $ | 39,837 | ||||||||||||||||||
Less: | Amortization of deferred AWN capacity revenue | 841 | 849 | 647 | 2,337 | ||||||||||||||||||||||
| Equals | AWN impact to Free Cash Flow | $ | 12,500 | $ | 12,500 | $ | 12,500 | $ | 37,500 | ||||||||||||||||||
| In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days. | |||||||||||||||||||||||||||
Contacts:
Tiffany Dunn
Manager,
Board and Investor Relations
907-297-3103
investors@acsalaska.com
