Alaska Communications Reports First Quarter 2021 Results

Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the first quarter of 2021.

“We are pleased with our first quarter 2021 results, showing revenue growth year over year in business and wholesale, consumer and regulatory. Total broadband revenues increased 4.4% year over year, and growth revenues continued to outpace declining legacy revenues. Our fiber footprint and market opportunities continue to increase. In April, we completed our Oregon-based prefunded fiber project, connecting our landing station on the Oregon coast to the main Pacific Northwest fiber corridor. We are currently in the final testing phase of this project. Additionally, we continue to see success in the natural resource sector, with a significant new customer win in the mining industry in Alaska.

“With the approval from our shareholders of the merger agreement, we continue to move forward with the transaction with ATN International, Inc. We anticipate receiving the remaining regulatory approvals over the coming months and expect to close the transaction mid-year,” said Bill Bishop, president & CEO.

First Quarter 2020 Compared to First Quarter 2019

• Total revenue was $60.7 million, compared to $58.3 million, an increase of 4.1%.
  • Business and wholesale revenue was $41.0 million, compared to $38.8 million, up 5.6%.
  • Consumer revenue was $9.2 million, compared to $9.1 million, an increase of 0.4%.
  • Regulatory revenue was $10.5 million, compared to $10.3 million, an increase of 1.7%.
• Operating expenses were $57.7 million, compared to $52.4 million.
• Operating income was $3.0 million, compared to $5.8 million.
• Net income attributable to Alaska Communications was $0.6 million, compared to $2.4 million.
• Capital expenditures were $6.9 million, compared to $7.5 million, or excluding prefunded projects were $6.9 million, compared to $6.8 million.
• Adjusted EBITDA was $15.4 million, compared to $16.1 million.
• Adjusted Free Cash Flow was $7.4 million, compared to $10.1 million, or excluding prefunded projects was $5.8 million in both periods.

Balance Sheet Highlights

• Cash was $23.4 million at March 31, 2021, compared to $21.0 million at December 31, 2020.
• Net debt was $147.2 million at March 31, 2021, compared to $151.9 million at December 31, 2020.

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.

Laurie Butcher, Alaska Communications chief financial officer, said, “Our first quarter results are in line with our business plan, showing year over year revenue growth in all three of our business lines. Our total revenue showed growth of 4.1%, driven largely by broadband. Net income is lower year over year due in part to the transaction costs incurred in the first quarter of this year. I am pleased with our performance for the quarter, and the foundation that it sets for the year.

Conference Call

Due to the pending transaction, the Company will not hold a conference call.

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 $4.8 million in the three-month period of 2021).

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 [phone] 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,
			2021				2020
Operating revenues			$	60,668			$	58,266
Operating expenses:
	Cost of services and sales (excluding depreciation and amortization)			27,366				27,114
	Selling, general & administrative			18,289				15,394
	Transaction and termination costs			923				-
	Depreciation and amortization			11,048				9,840
	Loss on disposal of assets, net			84				86
Total operating expenses				57,710				52,434
Operating income				2,958				5,832
Other income and (expense):
	Interest expense			(2,652	)			(2,959	)
	Interest income			3				75
	Other income, net			393				381
Total other income and (expense)				(2,256	)			(2,503	)
Income before income tax expense				702				3,329
	Income tax expense			(118	)			(960	)
Net income				584				2,369
Less net loss attributable to noncontrolling interest				(22	)			(18	)
Net income attributable to Alaska Communications			$	606			$	2,387
Net income per share attributable to Alaska Communications:
	Net income applicable to common shares		$	606			$	2,387
	Basic		$	0.01			$	0.04
	Diluted		$	0.01			$	0.04
Weighted average shares outstanding:
	Basic			54,145				53,186
	Diluted			54,872				54,237

Schedule 2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
				March 31,				December 31,
Assets				2021				2020
Current assets:
	Cash and cash equivalents			$	22,114			$	19,644
	Restricted cash				1,326				1,326
	Short-term investments				434				434
	Accounts receivable, net of allowance of $4,290 and $4,060				40,284				41,893
	Materials and supplies				9,093				7,624
	Prepayments and other current assets				7,217				6,404
		Total current assets			80,468				77,325
Property, plant and equipment					1,457,458				1,452,943
Less: accumulated depreciation and amortization					(1,070,449	)			(1,062,027	)
	Property, plant and equipment, net				387,009				390,916
Operating lease right of use assets					88,135				89,821
Other assets					11,873				11,370
Total assets				$	567,485			$	569,432
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term obligations			$	9,071			$	9,067
	Accounts payable, accrued and other current liabilities				51,355				49,700
	Operating lease liabilities - current				3,276				3,392
		Total current liabilities			63,702				62,159
Long-term obligations, net of current portion					157,630				159,641
Deferred income taxes					6,109				5,846
Operating lease liabilities - noncurrent					79,631				81,103
Other long-term liabilities, net of current portion					93,821				94,764
Total liabilities					400,893				403,513
Commitments and contingencies
Alaska Communications stockholders' equity:
	Common stock, $.01 par value; 145,000 authorized				553				549
	Treasury stock, 1,000 shares at cost				(1,812	)			(1,812	)
	Additional paid in capital				163,038				163,317
	Retained earnings				10,048				9,442
	Accumulated other comprehensive loss				(5,976	)			(6,340	)
		Total Alaska Communications stockholders' equity			165,851				165,156
	Noncontrolling interest				741				763
		Total stockholders' equity			166,592				165,919
Total liabilities and stockholders' equity				$	567,485			$	569,432

Schedule 3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
						Three Months Ended
						March 31,
						2021				2020
Cash Flows from Operating Activities:
	Net income					$	584			$	2,369
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization					11,048				9,840
		Loss on disposal of assets, net					84				86
		Amortization of debt issuance costs and debt discount					258				350
		Amortization of deferred capacity revenue					(1,741	)			(1,360	)
		Stock-based compensation					389				309
		Deferred income tax expense					118				954
		Charge for uncollectible accounts					396				(229	)
		Amortization of ROU assets					836				578
		Other non-cash income, net					(27	)			(33	)
		Changes in operating assets and liabilities					4,765				9,498
	Net cash provided by operating activities						16,710				22,362
Cash Flows from Investing Activities:
		Capital expenditures					(6,902	)			(7,463	)
		Capitalized interest					(161	)			(316	)
		Change in unsettled capital expenditures					(4,248	)			(3,759	)
	Net cash used by investing activities						(11,311	)			(11,538	)
Cash Flows from Financing Activities:
		Repayments of long-term debt					(2,265	)			(3,240	)
		Payment of withholding taxes on stock-based compensation					(664	)			(439	)
	Net cash used by financing activities						(2,929	)			(3,679	)
Change in cash, cash equivalents and restricted cash							2,470				7,145
Cash, cash equivalents and restricted cash, beginning of period							20,970				27,993
Cash, cash equivalents and restricted cash, end of period						$	23,440			$	35,138
Supplemental Cash Flow Data:
	Interest paid					$	2,544			$	2,919
	Dividends payable at March 31					$	16			$	4,852
	Income taxes refunded					$	(349	)		$	-

Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
				Three Months Ended
				March 31,
				2021				2020
Net income				$	584			$	2,369
	Add (subtract):
		Interest expense			2,652				2,959
		Interest income			(3	)			(75	)
		Depreciation and amortization			11,048				9,840
		Other income, net			(393	)			(381	)
		Loss on disposal of assets, net			84				86
		Income tax expense			118				960
		Stock-based compensation			389				309
		Transaction-related costs			923				-
		Net loss attributable to noncontrolling interest			22				18
Adjusted EBITDA				$	15,424			$	16,085

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 $4.8 million in the three-month period ended March 31, 2021).

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, depreciation and amortization, other income and expense, gain or loss on asset purchases or disposals, provision for income taxes, stock-based compensation, transaction-related costs, 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,
					2021				2020
Net cash provided by operating activities					$	16,710			$	22,362
	Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow:
		Capital expenditures excluding prefunded projects				(6,902	)			(6,836	)
		Capital expenditures for prefunded projects				-				(627	)
		Milestone payments received for prefunded projects				2,500				5,140
		Milestone payments made for prefunded projects				(600	)			-
		Deferred cost of sales for prefunded projects				175				-
		Amortization of revenue for prefunded projects				(524	)			(227	)
		Amortization of deferred capacity revenue				1,741				1,360
		Amortization of GCI capacity revenue				(511	)			(516	)
		Amortization of debt issuance costs and debt discount				(258	)			(350	)
		Interest expense				2,652				2,959
		Interest paid				(2,544	)			(2,919	)
		Interest income				(3	)			(75	)
		Deferred income tax expense				(118	)			(954	)
		Income tax expense				118				960
		Income taxes refunded				349				-
		Charge for uncollectible accounts				(396	)			229
		Amortization of ROU assets				(836	)			(578	)
		Transaction-related costs				923				-
		Other income, net				(393	)			(381	)
		Net loss attributable to noncontrolling interest				22				18
		Other non-cash income, net				27				33
		Changes in operating assets and liabilities				(4,765	)			(9,498	)
Adjusted free cash flow					$	7,367			$	10,100

Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
				Three Months Ended
				March 31,
				2021				2020
Adjusted EBITDA				$	15,424			$	16,085
	Less:
		Capital expenditures excluding prefunded projects			(6,902	)			(6,836	)
		Amortization of GCI capacity revenue			(511	)			(516	)
		Income taxes refunded			349				-
		Interest paid			(2,544	)			(2,919	)
					5,816				5,814
	Impact of prefunded projects:
		Capital expenditures for prefunded projects			-				(627	)
		Milestone payments received for prefunded projects			2,500				5,140
		Milestone payments made for prefunded projects			(600	)			-
		Deferred cost of sales for prefunded projects			175				-
		Amortization of revenue for prefunded projects			(524	)			(227	)
					1,551				4,286
	Adjusted free cash flow*			$	7,367			$	10,100

* 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 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,
			2021				2020
Business and wholesale revenue
	Business broadband		$	16,242			$	15,639
	Business voice and other			7,137				7,236
	Managed IT services			1,217				1,227
	Equipment sales and installations			2,618				1,414
	Wholesale broadband			12,636				11,979
	Wholesale voice and other			1,121				1,288
	Total business and wholesale revenue			40,971				38,783
	Growth in business and wholesale			5.6	%
Consumer revenue
	Broadband			6,945				6,692
	Voice and other			2,230				2,449
	Total consumer revenue			9,175				9,141
Total business, wholesale, and consumer revenue				50,146				47,924
Growth in business, wholesale and consumer revenue				4.6	%
Growth in broadband revenue				4.4	%
Regulatory revenue
	Access			5,599				5,418
	High cost support			4,923				4,924
	Total regulatory revenue			10,522				10,342
Total revenue			$	60,668			$	58,266
Growth in total revenue				4.1	%

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

Schedule 8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
LONG TERM DEBT AND NET DEBT
(Unaudited, In Thousands)
			March 31,				December 31,
			2021				2020
2019 senior secured credit facility due 2024			$	166,646			$	168,896
	Debt discount - 2019 senior secured credit facilities due 2024			(1,384	)			(1,523	)
	Debt issuance costs - 2019 senior secured credit facilities due 2024			(1,222	)			(1,341	)
Capital leases and other long-term obligations				2,661				2,676
Total debt				166,701				168,708
	Less current portion			(9,071	)			(9,067	)
Long-term obligations, net of current portion			$	157,630			$	159,641
Total debt			$	166,701			$	168,708
	Plus debt discounts and debt issuance costs			2,606				2,864
Gross debt				169,307				171,572
Cash and cash equivalents				(22,114	)			(19,644	)
Net debt			$	147,193			$	151,928

 

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