Q3 2019 Earnings Call
Okay and welcome to the Alaska Communications systems third quarter 2019 earnings call Today's conference is being recorded.
After the presentation, we will open the floor for questions. If you would like to ask a question you May press star one on your telephone keypad.
At this time I would like to turn the conference over to Miss Tiffany Smith manager Investor Relations Ma'am. Please go ahead.
Thank you and welcome to the Alaska Communications third quarter 2019 conference call I'm Chip any Smith manager of Investor Inboard relation with me today are built a shift president and Chief Executive Officer, Laurie Butcher, Chief Financial Officer, and Leonard Steinberg General Counsel.
During this call will be using a flight deck that we'd encourage everyone to have available.
But I was listening to this call via the webcast presentation will be displayed on your screen.
Others, you will find it on our Investor website, Www Dot L.S.K. dot com.
Now please review slide three for our Safe Harbor statement.
During this call company participants will make forward looking statements as defined under U.S. Securities laws.
You are cautioned not to put undue reliance on forward looking statements as actual results could differ materially as a result of a variety of factors many of which are outside the company's control.
Additionally, any non-GAAP measurements referred to during this call happened reconciled to their nearest GAAP measure.
Reconciliations are in the appendix to our presentation.
Following our remarks, well open the line the question.
With that I would like to turn the call over to Bill Bill.
Thanks, Stephanie Hello, and thanks for joining.
First I would like to take a moment congratulate Lori as we recently announced she has been named CFO .
I am honored to have hurt as an accomplished partner and member of our executive team.
Working together that's team produced strong positive results for the quarter.
Our gross revenues outpacing our legacy decline.
Let's turn to slide five.
Thank you for maybe new to the Alaska Communications story.
Slide provides an overview of our business.
We have a state of the yard robust and reliable network.
We continue to expand our presence by developing and winning new opportunities and growing mark.
We now have about 600 employees serving customers in 11 states.
Our assets includes 15 owned and managed cable landing stations.
Over 875 or less building.
29, Paul Thanks.
[noise] license.
In the second quarter, we stated we expected to see the back half a year to be stronger and we are achieving those results.
As I said wholesale continues to drive growth what are you need fiber network capabilities.
Allergies.
At our customer relationships.
Mark this prime for additional growth across a diverse set of fever.
[noise] increased bandwidth utilization and the migration to the cloud continued to be the natural progression [laughter]. We're the only certified Microsoft expressed route provider in Alaska.
I didn't see here [laughter] private connections to the Azure cloud.
Additionally, our data center capabilities provide unique local AD cloud solutions to both capture new customers and to increase our share of wallet.
[laughter], we're always looking for opportunities to expand and augment our fiber network across areas that we serve.
Progress continues on our Fiveg wireless fiber backhaul bill.
As a reminder, this is a multiyear contract 100, [laughter] and we expect this contract to underwrite much of the capital invested towards this program.
As we expand hygiene dot work, that's fiber can be leveraged in Boston.
And consumer markets, we expect to generate additional returns on invested capital.
[noise] as we mentioned last quarter, we signed an additional long term contract within existing carrier customer for yet another prefunded high capacity fiber unsecured network.
This project in close to fiber routes within the state of Alaska.
We expect.
Thank you begin to recognize this revenue kinda first quarter at 2020.
[laughter] our commitment to service, we continue to evaluate our customer c.
We managed to lifecycle and profitability of our legacy based technologies and transition customers to new IP based solution as appropriate.
[laughter] recognizing that many of our remote customers across allows that cannot be served by fiber we use satellite capacity to meet their business needs.
We continue to migrate customers to our own transponder space.
This provides us with both owner's economics, and the ability to customize our solution [noise].
Satellite technology is changing and we continue to stay abreast of Eaton Vance [laughter], we look forward to evaluating additional capabilities provided by the lower orbit or Leo satellites and the 2020.
2021 timeframe.
Slide seven.
No worse refine our revenues from profitability for the company, we continue to develop our consumer business.
Here in the corner remain strong headway expanding into multi dwelling units. We led an additional 2000 M.D. is on military basis and in October we enabled our largest commercial location.
400 to you that unit complex and [laughter]. This brings our total and do you locations. So were 6000, achieving our goal for the year.
Also in the third quarter.
We continued our fixed wireless efforts to accelerate growth.
In rural areas as part of the FCC Connect America program.
Tonight, we have established 26 towers in co located publications like [noise].
Also.
We have a total of approximately 8100 locations past with high way.
What about 4600 offering half too.
We expect to see continuing progress with these efforts as well.
I'm confident in our business plan and our teams smelting, it's I mean our plan.
With that.
And the called and Lori will cover our financial results Laurie.
Thank you Bill.
Turning to slide nine let's review our year over year revenue performance for the quarter ended September Thirtyth 2019, compared to the same period in 2018.
As we stated on our last call, we expected and we're delivering stronger performance in the back half of the year.
Total revenue was 59.1 million up 1.5% led by growth in broadband services.
Total broadband across both our business and consumer markets now represents 56.9% of total revenue growing 7.8% for the quarter.
Business in the wholesale representing 65.5% of our total revenues increased 6.5%.
Schumer, representing 15.7% of our total revenues remain steady.
And regulatory representing 18.8% of total revenues declined as anticipated.
We continue to do expect similar declines in regulatory revenue for the remainder of 2019.
This is largely due to the replacement of the Alaska carrier of last resort program in 2019 with the new program at roughly half the funding levels. We expect the declines in regulatory revenues to be less pronounced in future years.
Turning to slide 10, you can see the annual trends in our business our business in wholesale revenues shows year over year gross and is expected to continue to drive overall performance.
For the quarter adjusted EBITDA was 15.8 million increasing from 14.8 million in 2018, reflecting strong revenue performance.
For the nine month ended September Thirtyth 2019, adjusted EBITDA was 44.9 million compared to 46.1 million in the prior year period.
This decline reflects the impact of 2019 labor increases, which are primarily the result of the reversal of both the furloughs and the temporary wage reduction that we imposed in the first quarter of 2018.
As a reminder, we restored wages and canceled furloughs in the fourth quarter of 2018, so the fourth quarter results will be more comparable.
That we continue to be on track with our adjusted EBITDA expectation.
Adjusted free cash flow was 6.3 million for the quarter up 2 million from the third quarter 2018.
This is primarily driven by an increase of 3.3 million in the net impact from pre funded customer contracts. These are projects for which the company is receiving milestone payments upfront for construction well revenue will be recognized over the term of the contract.
We anticipate completing one of these routes by the end of this year and beginning to recognize revenue by the first quarter of 2020.
For the nine month ended September Thirtyth 2019, adjusted free cash flow was 6.2 million compared to 10.2 million in the prior year period.
This reflects the labor impacts I previously noted 1.6 million of CEO severance costs and increased capital spending for our Fiveg wireless fiber backhaul build.
Subsequent to quarter end in October the company received a federal AOMT tax refund of 4.3 million and we remain comfortable with our free cash flow guidance.
Our balance sheet remains very strong and we continue to be a leader among our peers at September Thirtyth, we had a net debt balance of 156 point Sixmillion and net leverage of 2.9 times.
During the quarter, we used 1.7 million to buy back shares of the company's common stock.
So its purchases we completed the board directors share repurchase buying back 1 million shares with a total average purchase price of $1.81 per share.
Net capital spending for the quarter was 11.1 million and 31.6 million for the nine month ended September Thirtyth 2019.
This compares to 8.4 million and 25.4 million in the prior year period, [laughter] dishes inline with our expectations and includes see additional capital allocated to the Fiveg fiber build.
Cash at September Thirtyth was 26.7 million well, our 20 million dollar revolver and 25 million dollar delayed draw instrument remain undrawn.
As I mentioned earlier in October we received a tax refund of 4.3 million further increasing our cash balance it.
Also in October the board terminated the section 382 tax preservation plan originally implemented in January of 2018 to protect the company's net operating loss balance it [laughter]. The termination. Another plan reflects a detailed analysis of the company stock ownership.
Over the past three years and that determination that the risk of Noel loss was minimal.
In summary, turning to slide 11, I'd like to remind you that operating results can vary by quarter. As a result of many factors. This can include among other things the timing of our sales delivery and associated revenue recognition and higher capital spending due to seasonal work.
We have confidence in our business plan and we are reaffirming our guidance for 2019.
We look forward to reporting our performance for the year on her next call with that let me hand, the call back to Bill Bill. Thanks, Laurie, let's turn to slide 12.
I appreciate the book boards vote of confidence by providing me the opportunity to serve as a permanent president and CEO I.
I stand aside a strong leadership team.
Laurie Butcher as CFO .
Leonard Steinberg at the SVP of legal and regulatory.
In danger Williams as the SVP of operations and people matters.
It is this team along with the dedication to all Alaska communication employees that gives me confidence, we will achieve or exceed our operational and financial goals.
The board working with this management team remains committed to our shareholders and maximizing shareholder value.
That's been evidence by several initiatives in recent quarters [laughter] actions have included completing the share repurchases as well as recently terminating under section 382 tax preservation plan.
The board continues to evaluate all options before it.
To maximize our shareholder value.
Again, our performance for the quarter was strong and I look forward to share in similar up saved in the months in quarters ahead. Thanks again for joining with that I'll open the call for questions. Operator. Thank you. Sir if you would like to ask a question. Please set an all by pressing star one on your telephone.
Keypad. If you are using your speaker phone. Please make sure that your mute function. It's turned off to allow your signaled to reach our but then.
Again, Please press star one last quick question.
Well pause momentarily to allow everyone an opportunity to signal for questions.
Our first question comes from Chris My read with it.
[noise], yes. Good morning. This question is directed to Mr. Bush Oh. This is concerning the 10 million set aside for share buyback and potential dividend payment you.
You views only 1.7 million of this the question I have here is.
You have about 3.33 million why not offer a four cents dividend to enhance shareholder value potentially increase institutional ownership. So only cost the company approximately 2.1 million and gives a stock in effect of yield 2% based on the current price.
Oh, Chris Thanks, Thanks for the question.
No I I, Oh, I'll ask glory to help me answer or some of this question as well, but before I turn it over the Laurie I I do want to make a couple of comments I. Appreciate the question first of all and you know it is it as management's position and management responsibility to drive a and run the business operated the business.
To produce the returns and give our board options to do such as exactly what you're saying here.
I think indicative of our results that we just covered I think that the management team has taken a strong stride.
In that direction.
But at the end of it day it is the board's decision.
To make those calls that that though you're asking us about but you know like I said, if it's our position it's our job to give them options and I know the board continues to evaluate all options and all that considerations that Oh, I think you talked about and more frankly.
On a continuous basis Lori any other thoughts you.
No I would I would just probably clarify that.
I I 10 million dollar basket, we have a long in the terms of our debt agreement, which is actually publicly available out there and the initial 5 million dollar basket I think the 10 million was really related to a I timeframe by which we consider could consider share buybacks.
And within that particular share buyback plan. The board did authorize a million share repurchase and that's what we just spoke to that we have recently committed or completed but we look forward to revealing Oliver options with the board in the upcoming board meeting, we're about to have and.
Really further which path we take because you're you're correct. We do have option and we are performing well right. Now so now it's a chance for us to review the options again and with the board makes determination of what to do with this cash whether its returning it shareholders or investing in the company.
He itself.
Thank you.
Thank you.
[laughter] again to ask your question. Please press star one on your telephone keypad.
[noise] and at this time I'm showing no further questions in the queue. So I would like to turn the call back over to the company for closing remarks.
Thank you and thank you all for joining us on the call today, we always welcome the opportunity to talk with our shareholders. If you're interested in meeting wetter weather by phone or in person on future boat shows. Please reach out to myself, if any Smith and Investor relations. Thank you and good day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect. Please enjoy the rest of your afternoon.
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