1st Quarter 2020 Earnings Results
May 2020
Participants
Bill Bishop: President and Chief Executive Officer
Laurie Butcher: Chief Financial Officer
Leonard Steinberg: SVP, General Counsel
Tiffany Smith: Manager, Investor and Board Relations
2 | Alaska Communications
Safe Harbor Statement
Forward-Looking Statements
We have included in this presentation 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. Such statements include all statements regarding our review of our current long-term business plan against a broad range of alternatives that have the potential to enhance shareholder value, the timing of such review, the possible outcomes of such review, our exploration of strategic options to address scale and geographic diversification, our current and projected financial and operating performance and all guidance related thereto, and any plans and initiatives to enhance shareholder value. You 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 risks, uncertainties and other factors, many of which are outside Alaska Communications' control.
For further information regarding risks and uncertainties associated with Alaska Communications' business, please refer to the Alaska Communications' SEC filings, including, but not limited to, our annual report on Form 10-K and amendments filed thereto, quarterly reports on Form 10-Q filed subsequently, and other filings with the SEC, included under headings such as "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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 Free Cash Flow and Net Debt, which management utilizes to assess performance and believes provides useful information to investors. The definition and computation of these non-GAAP measures are on Schedules 4, 6, and 9 of our earnings press release. Adjusted EBITDA, and Adjusted Free Cash Flow are non-GAAP measures and should not be considered a substitute for Net Income, Net Cash Provided (Used) 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 at the end of this presentation. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications. We do not provide guidance for Net Income and Net Cash Provided (Used) By Operating Activities.
3 | Alaska Communications
2020 Outlook
Bill Bishop: President and Chief Executive Officer
4 | Alaska Communications
Alaska Communications
Infrastructure Technology
- Statewide network coverage
- 146K fiber miles
- 15 cable landing stations owned or managed
- 29 PoPs in 6 states
- Microwave and satellite networks
- Managed IT Services
- First to market technology and services
Business & Wholesale
Broadband Equipment
Voice | IT Managed |
Services |
Consumer
BroadbandVoice
Locations Served
- 6,600+ Multi-dwelling units (MDUs) locations
- 13,500+ FiWi® locations
- 885+ Fiber fed commercial/ government buildings
- ~100K locations DSL available
- 95 markets served across 11 states
~600 customer centric employees across 19 states
5 | Alaska Communications
Growth Revenues Continue to Perform
Business and Wholesale growth driven by broadband and backhaul
Construction and installation
phase of Prefunded Project 2 is complete
Consumer growth strategy driven by expanded
footprint and increased demand for MDUs and FiWi
Business and Wholesale | Consumer |
Oil & Gas | Federal | Education | Wholesale State & Local | Health Care | Multi-Dwelling | Fi-Wi |
Government | Units (MDUs) | Fixed Wireless |
6 | Alaska Communications
COVID-19: Priorities in Action
Employee,
Customer and
Community Safety
Continuity
of Operations
Customer
Retention
Customer
Acquisition
- Maintaining regular cadence of communications
- "No-Contact"installation procedures and support
- Implemented remote work policies and procedures
- Working with government emergency response teams
- Supported FCC's Keep America Connected pledge
- Providing RHC upgrades to support telehealth
- Increasing demand for new bandwidth
- Supporting schools, teachers and students
7 | Alaska Communications
Review of First Quarter 2020 Results
Laurie Butcher: Chief Financial Officer
8 | Alaska Communications
Revenue Q1 2019 - Q1 2020 (millions)
Total | Business and Wholesale | |||||||
$56.9 | $57.4 | $59.1 | $58.3 | $58.3 | $37.0 | $38.7 | $38.3 | $38.8 |
$36.5 | ||||||||
$8.4 | $8.6 | $9.1 | $8.1 | $8.5 | ||||
$28.1 | $28.4 | $29.6 | $30.2 | $30.3 |
Q1 '19 | Q2 '19 | Q3 '19 | Q4 '19 | Q1 '20 | |||||
Consumer | Regulatory | ||||||||
$9.2 | $9.3 | $9.3 | $9.2 | $9.1 | $11.2 | $11.0 | $11.1 | $10.8 | $10.3 |
$6.3 | $6.1 | $6.2 | $5.9 | $5.4 | |||||
$4.9 | $4.9 | $4.9 | $4.9 | $4.9 |
Q1 '19 | Q2 '19 | Q3 '19 | Q4 '19 | Q1 '20 |
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 | |
9 | Alaska Communications | High Cost Support: CAF II Revenues |
Financial Highlights (millions)
Total Revenue | Adjusted EBITDA1 | |||
$227 | $227 | $232 | $232 | $233 |
$52 | $51 | $50 | $44 | $43 |
$38 | $37 | $37 | $37 | $37 |
$137 | $139 | $145 | $151 | $153 |
2016 | 2017 | 2018 | 2019 | TTM |
Business/Wholesale | Consumer | Regulatory | ||
Total Net Debt and Leverage2 | Total Capex |
$200 | 4.00 | ||||
2.82x | 3.15x | 2.79x | |||
2.71x | |||||
$150 | 2.68x | ||||
$100 | $177 | ||||
$163 | $161 | $154 | |||
$143 | |||||
$50 | |||||
$0 | 0.00 | ||||
2016 | 2017 | 2018 | 2019 | Q1 '20 | |
Net Debt | Net Total Leverage | ||||
33
- Reconciliations of non-GAAP measures to the nearest GAAP measures can be found in the Appendix. The company does not provide guidance for Net Income and Net Cash Provided By Operating Activities.
- Net Debt includes the addition of debt discounts and debt issuance costs to total debt, and subtracts only cash and cash equivalents. Net leverage is calculated based on current credit agreement.
- Capital expenditures less special projects
10 | Alaska Communications
Committed to Maximizing Shareholder Value
Connecting the people and businesses
of Alaska and beyond
- Delivering essential services
- With increasing amounts of remote work, our solutions are even more critical
- Supporting employees and our communities including tele- health, distance learning and remote work
- Capturing growing broadband demand with increased usage for cloud services, 5G wireless backhaul, and the overall need for more streaming capacity
- Investing in network modernization, 5G build, Fi-Wi expansion, Carrier build program, and lighting MDUs
11 | Alaska Communications
Use of 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 used 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.
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, cash severance expense for the Company's former CEO and net loss attributable to noncontrolling interest.
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, less cash income taxes refunded or paid, cash interest paid, amortization of GCI capacity revenue, cash severance expense for the Company's former CEO, 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. Items associated with certain prefunded special projects as defined in the 2019 Senior Credit Facility are excluded from Adjusted Free Cash Flow primarily due to the magnitude and timing of the cash receipts relative to the subsequent recognition of revenue and expense.
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 Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $9.9 million in the three-month period of 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 below 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.
The following tables provide the computation of Adjusted EBITDA and reconciliation to Net Income, and the computation of Adjusted Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities for the three month periods ended March 31, 2020 and 2019.
12 | Alaska Communications
Reconciliation of Non-GAAP Measures
Adjusted EBITDA
Three Months Ended
March 31,
2020 | 2019 | |||||||
Net income | $ | 2,369 | $ | 193 | ||||
Add (subtract): | ||||||||
Interest expense | 2,959 | 3,056 | ||||||
Loss on extinguishment of debt | - | 2,799 | ||||||
Interest income | (75) | (75) | ||||||
Depreciation and amortization | 9,840 | 8,679 | ||||||
Other income, net | (381) | (122) | ||||||
Loss on disposal of assets, net | 86 | (2) | ||||||
Income tax expense | 960 | 98 | ||||||
Stock-based compensation | 309 | 498 | ||||||
Net | loss attributable to noncontrolling interest | 18 | 34 | |||||
Adjusted EBITDA | $ | 16,085 | $ | 15,158 | ||||
13 | Alaska Communications
Reconciliation of Non-GAAP Measures
Cash from Operating Activities to Adjusted Free Cash Flow
Three Months Ended
March 31,
2020 | 2019 | ||||||||
Net cash provided by operating activities | $ | 22,362 | $ | 15,475 | |||||
Adjustments to reconcile net cash provided by operating | |||||||||
activities to adjusted free cash flow: | |||||||||
Capital expenditures excluding prefunded projects | (6,836) | (8,563) | |||||||
Capital expenditures for prefunded projects | (627) | - | |||||||
Milestone payments received for prefunded projects | 5,140 | - | |||||||
Amortization of revenue for prefunded projects | (227) | - | |||||||
Amortization of deferred capacity revenue | 1,360 | 1,126 | |||||||
Amortization of GCI capacity revenue | (516) | (511) | |||||||
Amortization of debt issuance costs and debt discount | (350) | (303) | |||||||
Interest expense | 2,959 | 3,056 | |||||||
Interest paid | (2,919) | (3,075) | |||||||
Interest income | (75) | (75) | |||||||
Deferred income tax expense | (636) | (92) | |||||||
Income tax expense | 960 | 98 | |||||||
Income taxes paid, net | - | (10) | |||||||
Charge for uncollectible accounts | 229 | 697 | |||||||
Amortization of ROU asset | (521) | (565) | |||||||
Other income, net | (381) | (122) | |||||||
Net loss attributable to noncontrolling interest | 18 | 34 | |||||||
Other non-cash expense, net | 33 | (121) | |||||||
Changes in operating assets and liabilities | (9,873) | (4,050) | |||||||
Adjusted free cash flow | $ | 10,100 | $ | 2,999 | |||||
14 | Alaska Communications
Reconciliation of Non-GAAP Measures
Adjusted Free Cash Flow
Three Months Ended
March 31,
2020 | 2019 | |||||||
Adjusted EBITDA | $ | 16,085 | $ | 15,158 | ||||
Less: | ||||||||
Capital expenditures excluding prefunded projects | (6,836) | (8,563) | ||||||
Amortization of GCI capacity revenue | (516) | (511) | ||||||
Income taxes paid, net | - | (10) | ||||||
Interest paid | (2,919) | (3,075) | ||||||
5,814 | 2,999 | |||||||
Impact of prefunded projects: | ||||||||
Capital expenditures for prefunded projects | (627) | - | ||||||
Milestone payments received for prefunded projects | 5,140 | - | ||||||
Amortization of revenue for prefunded projects | (227) | - | ||||||
4,286 | - | |||||||
Adjusted free cash flow* | $ | 10,100 | $ | 2,999 | ||||
* 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.
15 | Alaska Communications
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Alaska Communications Systems Group Inc. published this content on 07 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 May 2020 18:28:11 UTC