Alaska Communications Reports Fourth Quarter and Year-end 2018 Results

ANCHORAGE, Alaska–(BUSINESS WIRE)–Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported
financial results for the fourth quarter and full year ended December
31, 2018.

“Our 2018 results are robust with total revenue growth of 2.5% for full
year 2018 and annual adjusted EBITDA growth of 4.9%. Free cash flow
performance was strong at $7.2 million while our capital expenditures
position us for continued growth in future years.

“These results reflect our continued performance in Business and
Wholesale, driven by our growth engine of the larger Enterprise and
Carrier customers. Our technology differentiation was further
strengthened by investments in Fixed Wireless, satellite, and Software
Defined Networking, along with continued investments in our fiber
network particularly in support of 5G wireless backhaul.

“Attention to prudent cost management has been and will continue to be a
focus reflecting our commitment to adjusted EBITDA and adjusted free
cash flow improvements.

“With clear line of sight to continued growth in our Enterprise and
Carrier customer segment, combined with the recent balance sheet
refinancing work, we have conviction about high quality future operating
results, while we continue to explore all strategic opportunities for
shareholder value creation,” said Anand Vadapalli, president and CEO of
Alaska Communications.

Revenue Highlights

  • Total revenue:

    • Revenue grew to $58.7 million for the fourth quarter of 2018,
      compared to $54.9 in the fourth quarter of 2017. Annual revenue
      grew to $232.5 million for 2018, from $226.9 million in 2017.
    • Total broadband revenue was $31.5 million for the fourth quarter
      of 2018, compared to $28.4 million for the fourth quarter of 2017,
      and was $125.4 million for 2018, compared to $123.1 million for
      2017.
  • Business and wholesale:

    • Business and wholesale revenue was $37.0 million for the fourth
      quarter of 2018, compared to $33.1 million for the fourth quarter
      of 2017. 2018 revenue was $144.6 million, comprising 62.2 percent
      of total revenue, compared to $139.1 million for 2017, comprising
      61.3 percent of total revenue.
    • Business and wholesale broadband revenue was $25.0 million for the
      fourth quarter of 2018 compared to $22.1 million for the fourth
      quarter of 2017, and was $99.3 million for 2018, compared to $97.6
      million for 2017.
  • Consumer:

    • Consumer revenue was $9.2 million for the fourth quarters of 2018
      and 2017. 2018 revenue was $37.3 million, comprising 16.0 percent
      of total revenue, compared to $37.1 million for 2017, comprising
      16.4 percent of total revenue.
    • Consumer broadband revenue was $6.4 million for the fourth quarter
      of 2018, compared to $6.2 million for the fourth quarter of 2017,
      and was $26.1 million for 2018, compared to $25.4 million for 2017.
  • Regulatory:

    • Regulatory revenue was $12.5 million for the fourth quarter of
      2018, compared to $12.6 million for the fourth quarter of 2017.
      2018 revenue was $50.6 million, comprising 21.8 percent of total
      revenue, compared to $50.7 million for 2017, comprising 22.3
      percent of total revenue.

Financial Metrics

  • Net income for the fourth quarter of 2018 was $1.7 million, compared
    to net loss of $2.9 million in the fourth quarter of 2017. 2018 net
    income was $9.1 million, compared to net loss of $6.1 million for 2017.
  • Net cash provided by operating activities for the fourth quarter of
    2018 was $9.3 million, compared to $4.7 million in the fourth quarter
    of 2017. 2018 cash provided by operating activities was $56.2 million,
    compared to $30.4 million for 2017.
  • Capital expenditures for the fourth quarter of 2018 were $12.5
    million, compared to $8.9 million fourth quarter of 2017. 2018
    capital expenditures were $38.0 million, compared to $32.9 million in
    2017.

Non-GAAP Metrics:

  • Adjusted EBITDA for the fourth quarter of 2018 was $14.1 million,
    compared to $15.0 million for the fourth quarter of 2017. 2018
    Adjusted EBITDA was $60.2 million, compared to $57.3 million for 2017.
  • Adjusted free cash outflow for the fourth quarter of 2018 was $3.0
    million, compared to free cash inflow of $2.3 million for the fourth
    quarter of 2017. 2018 Adjusted free cash flow was $7.2 million,
    compared to $8.8 million for 2017.

Reconciliations of non-GAAP financial measures to GAAP financial
measures can be found in tables at the end of this release.

Balance Sheet Metrics

  • Cash was $15.0 million at December 31, 2018, compared to $16.2 million
    at December 31, 2017.
  • Net debt was $161.2 million at December 31, 2018, compared to $177.2
    million at December 31, 2017.

Laurie Butcher, Alaska Communications senior vice-president of finance,
said, “We are pleased to report that we met or exceeded our guidance in
all areas for 2018. Additionally, on January 15, 2019 we closed a
transaction securing favorable terms for a new senior credit facility in
a volatile market, while increasing access to capital. As we enter 2019,
we are well positioned to perform to our business plan which is expected
to generate attractive adjusted free cash flow for the year.”

2019 Guidance

The company sets 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 Thursday,
March 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 1-888-205-6786
and enter pass code 366695. All other parties can access the call at
1-856-344-9315 and use the same code. There will be a live question and
answer session after the prepared remarks.

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 April 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 8903679. All other parties can call 1-719-457-0820 and
enter pass code 8903679.

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 $9.9 million in the twelve-month period of 2018).

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, Federal and Alaska
Universal Service Fund changes, funding through the rural health care
universal service support mechanism and our ability to comply with the
regulatory requirements to receive those support payments, adverse
economic conditions, 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, our ability to service our
debt and refinance as required, 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, the impact of natural or man-made disasters,
changes in Company’s relationships with large customers, unforeseen
changes in public policies, regulatory changes, changes in technology
and standards, 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 Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
 
 
Operating revenues $ 58,689 $ 54,935 $ 232,468 $ 226,905
 
Operating expenses:
Cost of services and sales (excluding depreciation and amortization) 27,914 26,318 107,509 104,604
Selling, general & administrative 17,249 14,281 66,647 66,612
Depreciation and amortization 8,572 9,193 33,908 36,317
Loss (gain) on disposal of assets, net   69     (23 )   125     50  
 
Total operating expenses   53,804     49,769     208,189     207,583  
 
Operating income 4,885 5,166 24,279 19,322
 
Other income and (expense):
Interest expense (3,238 ) (3,525 ) (13,429 ) (14,860 )
Loss on extinguishment of debt (7,527 )
Interest income 82 7 156 34
Other (expense) income, net   (56 )   (154 )   23     (615 )
Total other income and (expense)   (3,212 )   (3,672 )   (13,250 )   (22,968 )
 
Income (loss) before income tax benefit (expense) 1,673 1,494 11,029 (3,646 )
 
Income tax benefit (expense)   39     (4,470 )   (2,041 )   (2,584 )
 
Net income (loss) 1,712 (2,976 ) 8,988 (6,230 )
 
Less net loss attributable to noncontrolling interest   (8 )   (29 )   (92 )   (129 )
 
Net income (loss) attributable to Alaska Communications $ 1,720   $ (2,947 ) $ 9,080   $ (6,101 )
 
Net income (loss) per share attributable to Alaska Communications:
Net income (loss) applicable to common shares $ 1,720   $ (2,947 ) $ 9,080   $ (6,101 )
 
Basic and Diluted $ 0.03   $ (0.06 ) $ 0.17   $ (0.12 )
 
Weighted average shares outstanding:
Basic   53,185     52,448     53,042     52,232  
Diluted   54,277     52,448     53,840     52,232  
 
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
   
December 31, December 31,
Assets 2018 2017
 
Current assets:
Cash and cash equivalents $ 13,351 $ 4,354
Restricted cash 1,634 11,814
Short-term investments 134
Accounts receivable, net of allowance of $3,936 and $2,729 31,472 32,535
Materials and supplies 6,737 7,046
Prepayments and other current assets   12,169     6,115  
Total current assets 65,497 61,864
 
Property, plant and equipment 1,390,622 1,357,929
Less: accumulated depreciation and amortization   (1,017,442 )   (991,816 )
Property, plant and equipment, net 373,180 366,113
 
Deferred income taxes 498 3,394
Other assets   16,010     11,415  
Total assets $ 455,185   $ 442,786  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term obligations $ 2,289 $ 17,030
Accounts payable, accrued and other current liabilities 40,957 36,148
Advance billings and customer deposits   4,024     4,213  
Total current liabilities 47,270 57,391
 
Long-term obligations, net of current portion 168,023 168,959
Deferred income taxes 2,315 596
Other long-term liabilities, net of current portion   67,827     61,330  
Total liabilities   285,435     288,276  
Commitments and contingencies
Alaska Communications stockholders’ equity:
Common stock, $.01 par value; 145,000 authorized 533 525
Additional paid in capital 160,514 158,969
Retained earnings (accumulated deficit) 10,439 (3,579 )
Accumulated other comprehensive loss   (2,675 )   (2,396 )
Total Alaska Communications stockholders’ equity 168,811 153,519
Noncontrolling interest   939     991  
Total stockholders’ equity   169,750     154,510  
 
Total liabilities and stockholders’ equity $ 455,185   $ 442,786  
 
Schedule 3
       
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
Cash Flows from Operating Activities:
Net income (loss) $ 1,712 $ (2,976 ) $ 8,988 $ (6,230 )

Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Depreciation and amortization 8,572 9,193 33,908 36,317
Loss (gain) on the disposal of assets, net 69 (23 ) 125 50
Amortization of debt issuance costs and debt discount 331 412 1,353 2,363
Loss on extinguishment of debt 7,527
Amortization of deferred capacity revenue (1,101 ) (911 ) (4,098 ) (3,512 )
Stock-based compensation 548 667 1,757 1,509
Income tax (benefit) expense (39 ) 4,470 2,041 2,584
Charge for uncollectible accounts 374 1,015 2,745 3,577
Other non-cash expense, net 57 145 225 575
Income taxes receivable (692 ) (8,629 ) (729 ) (8,052 )
Changes in operating assets and liabilities   (515 )   1,355     9,880     (6,302 )
Net cash provided by operating activities   9,316     4,718     56,195     30,406  
 
Cash Flows from Investing Activities:
Capital expenditures (12,525 ) (8,891 ) (37,957 ) (32,945 )
Capitalized interest (545 ) (368 ) (2,001 ) (1,140 )
Change in unsettled capital expenditures 1,584 (507 ) (227 ) 1,500
Proceeds on sale of assets       34     1     40  
Net cash used by investing activities   (11,486 )   (9,732 )   (40,184 )   (32,545 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (1,866 ) (2,088 ) (31,030 ) (176,466 )
Proceeds from the issuance of long-term debt 14,000 183,000
Debt issuance costs and discounts (5,559 )
Cash paid for debt extinguishment (5,522 )
Cash proceeds from noncontrolling interest 40 75
Payment of withholding taxes on stock-based compensation (5 ) (4 ) (415 ) (605 )
Proceeds from issuance of common stock   100     123     211     239  
Net cash used by financing activities   (1,771 )   (1,969 )   (17,194 )   (4,838 )
 
Change in cash, cash equivalents and restricted cash (3,941 ) (6,983 ) (1,183 ) (6,977 )
 
Cash, cash equivalents and restricted cash, beginning of period   18,926     23,151     16,168     23,145  
 
Cash, cash equivalents and restricted cash, end of period $ 14,985   $ 16,168   $ 14,985   $ 16,168  
 
Supplemental Cash Flow Data:
Interest paid $ 3,531 $ 3,630 $ 14,254 $ 14,504
Income taxes (refunded) paid, net $ (1 ) $ (322 ) $ 3 $ (946 )
 
Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
 
Net income (loss) $ 1,712 $ (2,976 ) $ 8,988 $ (6,230 )
Add (subtract):
Interest expense 3,238 3,525 13,429 14,860
Loss on extinguishment of debt 7,527
Interest income (82 ) (7 ) (156 ) (34 )
Depreciation and amortization 8,572 9,193 33,908 36,317
Other expense (income), net 56 154 (23 ) 615
Loss (gain) on the disposal of assets, net 69 (23 ) 125 50
Income tax (benefit) expense (39 ) 4,470 2,041 2,584
Stock-based compensation 548 667 1,757 1,509
Net loss attributable to noncontrolling interest   8     29     92     129  
 
Adjusted EBITDA $ 14,082   $ 15,032   $ 60,161   $ 57,327  
 

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 $9.9
million in the twelve-month period ended December 31, 2018).

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 2017 Senior Credit Facility and 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 Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
 
Net cash provided by operating activities $ 9,316 $ 4,718 $ 56,195 $ 30,406

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

Capital expenditures (12,525 ) (8,891 ) (37,957 ) (32,945 )
Milestone payments received for special projects 1,850
Deferred cost of sales for special projects (500 ) (500 )
Amortization of deferred capacity revenue 1,101 911 4,098 3,512
Amortization of GCI capacity revenue (522 ) (523 ) (2,071 ) (2,072 )
Amortization of debt issuance costs and debt discount (331 ) (412 ) (1,353 ) (2,363 )
Interest expense 3,238 3,525 13,429 14,860
Interest paid (3,531 ) (3,630 ) (14,254 ) (14,504 )
Interest income (82 ) (7 ) (156 ) (34 )
Income taxes receivable 692 8,629 729 8,052
Income taxes refunded (paid), net 1 322 (3 ) 946
Charge for uncollectible accounts (374 ) (1,015 ) (2,745 ) (3,577 )
Other expense (income), net 56 154 (23 ) 615
Net loss attributable to noncontrolling interest 8 29 92 129
Other non-cash expense, net (57 ) (145 ) (225 ) (575 )
Changes in operating assets and liabilities   515     (1,355 )   (9,880 )   6,302  
Adjusted free cash flow $ (2,995 ) $ 2,310   $ 7,226   $ 8,752  
 
Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
 
Adjusted EBITDA $ 14,082 $ 15,032 $ 60,161 $ 57,327
 
Less:
Capital expenditures (12,525 ) (8,891 ) (37,957 ) (32,945 )
Amortization of GCI capacity revenue (522 ) (523 ) (2,071 ) (2,072 )
Income taxes refunded (paid), net 1 322 (3 ) 946
Interest paid   (3,531 )   (3,630 )   (14,254 )   (14,504 )
  (2,495 )   2,310     5,876     8,752  
Impact of special projects:
Milestone payments received for special projects 1,850
Deferred cost of sales for special projects   (500 )       (500 )    
  (500 )       1,350      
Adjusted free cash flow* $ (2,995 ) $ 2,310   $ 7,226   $ 8,752  
 
* 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 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 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.

Contacts

Media Contact
Heather Cavanaugh, 907-564-7722
Director,
External Affairs and Corporate Communications

Investor Contact
Tiffany Smith, 907-564-7556
Manager, Board
and Investor Relations
investors@acsalaska.com

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