Q4 2019 Earnings Call

Good day, ladies and gentlemen, you work on hold for today's conference call.

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Good day, ladies and gentlemen, and welcome to the Alaska Communications systems fourth quarter.

On his call today's conference is being recorded.

Today's presentation, there will be an opportunity to ask questions audio.

We wish to queue for question you signaled by pressing star followed by one.

Let's turn the conference just Tiffany Smith. Please go ahead. Thank you cannot conclude.

Thanks, the timing of ourself delivery and associated revenue recognition.

Kinda conclude.

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Sure these candles and quick.

Thanks, Yes manager of Investor information.

With me today, I feel pitcher President and Chief Executive Officer, Laurie Butcher, Chief Financial Officer, and let Us Steinberg General counsel.

During this call will be using a flight deck that we'd encourage everyone to help available.

I was listening to this call via the webcast. The can compete she won't be displayed on your screen.

Others, you will find good on our Investor website, Www Dot E.L.S.K. dot com.

Well, Chris Profuse like tree 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. That's a result on Friday with Dr., many of which are outside the company's control.

Additionally, any non-GAAP measurements referred to during this call how can reconcile to their nearest GAAP measure.

These reconciliations are in the appendix slide presentation.

Following our remarks, well open the lines for questions with that I'd like to turn the call over to feel good.

Stephanie Hello, and thanks for joining.

Turning to slide five.

2019, what are your transition and nice that whats Catholic meeting and exceeding our business plan.

After a remarkable fourth quarter I'm pleased to report we close the year style.

Doing well exceeding our guidance expectation.

We're also excited to announce the board has declared a one time dividend.

That's fair share.

Proximately $5 million.

Slide six.

Including organic growth of capacity newspaper from factors franchise.

Migration.

I see wireless backhaul, and then maybe somewhat contents training capacity.

And on our hybrid infrastructure and high performance broadband continues to grow.

With that weren't capabilities.

Allergies, and our customer relationships, we've continued to drive growth.

Notably.

Yes, so mark.

[noise] in that regard we have recently concluded that construction and ancillary shape excuse me funded projects high capacity add six here that weren't fibers and to save Alaska.

We continue to expand our I've seen wireless fiber backhaul build.

In fact, our library Scream Tropicana.

Okay, that's left and the consumer market.

That said many of our remote access customers across Alaska cannot be certified partner.

Sure as these customers.

Leading satellite capacity and we continue the process [laughter] migrating customers.

Transcribed or say.

So skyfence harvest economics, and the ability to customize our solutions.

And I like technology evolves.

10 year to evaluate additional capabilities.

It sounded like that or less.

Yes family.

Well, you prioritize winning new customers and have you seen our share of wallet.

I managed IP solutions, along with our data center capabilities.

Even a local cloud actually shipped.

Also deliver six here.

Makes sense truly azure cloud.

That's why we are they hardly Microsofts express Ralph provider in the state of Alaska.

With that customer centric approach that actually could now.

We have accelerated our fiber footprint expansion.

On the 12% because that's a nice pain.

Great. Thanks.

And 46 outside [laughter] added miles across Alaska and stuff like that.

In 2020, we expect to think about fiber footprint and relationships tokens revenue churn from our referral.

And sustain our long term value for shareholders.

Additionally, we have long advocated modernizing telecom regulations and weird.

I ask a state legislature passed that they'll 83.

If you eliminate a tariff and other required Mexico, most intrastate services.

This legislation simplifies that's that's exactly what flexibility when I said.

Terms and conditions.

Turning to slide seven.

We continue to focus our high margin concerned that does this to the first the fire revenues and our profitability.

As previously announced in October.

Within our largest commercial mess I try and you're not location.

I agree with you at complex and acreage.

This brings our year end hurdle and do you still approximately 6000.

That's count more than doubled the approximate 3000 locations cover tapping into 2018.

At year end I penetration right, that's approximately 26%.

And that's continues to increase.

Regarding sex wireless in 2019, not sure how did that came to fruition.

Third quarter, there, we added 10 towers and co location sites increased tend to account for 36 at year end.

We continue our FX could accelerate wrapping all areas, that's kind of the Fccs connect America program.

In 2019, when phrase Firefly locations.

I could be 300.

Ladies approximately 13500 at year end, [laughter], which account for 7500 capital.

It's more than doubles the locations house I may send out 30 Theres 2018.

We expect to see continuing progress with at least efforts I'm confident and I'm, just as fan and our team's ability to meet our plan.

Okay, Let me now and the color the way the will cover our financial results.

Okay.

Thank you Bill turning to slide nine let's review our revenue performance for the quarter ended December 31st 2019 compared to the same corridor in the prior year.

Total revenue was 58.3 million compared to 58.7 million.

Isn't that some wholesale revenue increased 3.5% and consumer revenue remained steady.

Total broadband revenue across both our business and consumer markets grew 6.4% and as expected regulatory revenues declined primarily due to the updated Alaska carrier of last resort program.

Well business and wholesale revenue growth with more than offset by regulatory declines we expect regulatory programs to have lots of any impact in 2020 pack in future years.

Turning to slide 10, you can see the annual trends in our business.

Were pleased to report that we met or exceeded all areas of our guidance for 2019.

Total revenue was 231.7 million.

There's nothing wholesale revenue of 150 point Sixmillion grew 4.1% compared to 2018 again substantially offsetting decreases in regulatory wrapping now.

We are successfully continuing to shift in our revenue contribution.

Due to strong carrier performance, our business and wholesale contribution as a percentage of revenue increased from 62% in 2018, just 65% in 2000 and lighting. Despite a 3% decrease in the wall health care contribution as a percentage of total.

Revenue in that same period.

Consumer revenue was 37 million in 2019 and contributed 16% of our total revenue in both years.

So broad band across both our business and consumer markets as a percentage of total revenue grew to 57% in 2019.

Regulatory revenue was 44.1 million, representing 19% of total revenue down from 22% in 2018.

Adjusted EBITDA for the fourth quarter was strong at 17.9 million increasing from 14.1 million in Q4 2018.

Full year 2019, adjusted EBITDA was 62.7 million up 4.3%, reflecting steady revenues and our focus on cost management initiatives during the year.

For the fourth quarter and full year 2019, adjusted free cash flow was 9.7 million and 16 million respectively, increasing from that cash outflows of 3 million and inflows of 7.2 million in the same period of 2018.

[noise], both quarterly and annual increases reflecting improved adjusted EBITDA performance. The Q4, we see a $5 million A.M.T. tax refund and 4.2 million annual net cash inflows associated with pre funded projects over the prior year.

Compared to guidance, which was net of CEO severance and pre funded projects, we achieved 12.1 million in adjusted free cash flow.

Once again strong performance fortified our balance sheet and we continue to be a leader among our peers.

In 2019, we achieved net debt balance of 153.8 million net leverage of 2.9 times at December 31st 2019.

We used $1.8 million to buy back shares have a common stock and completed our share repurchase program of 1 million shares with a total average purchase price of $1.81 per share.

We invested 41.4 million in net capital spending.

According our pre funded projects compared to 38 million in 28 team.

Oh I want to expectation Capex includes our fiveg wireless fiber backhaul and Caf two network build.

At December 31st 2019, cash was 28.3 million compared to 15 million at December 31st 2018.

And our 20 million dollar revolver and $25 million delayed draw instruments remain undrawn.

Turning to slide 11.

Weve noted we continue to expect growth in our business.

2020, we are setting guidance as follows.

Total revenue of 232 touches 37 million compared to 31.7 million in 2001 night team.

Adjusted EBITDA of 63 to 65 million up from 62.7 million in 2019.

Capital expenditures, excluding pre funded projects to be between 39, and 43 million compared to 41.4 million in 2019.

Adjusted free cash flow, excluding pre funded project to be between eight and $10 million compared to 12.1 million in 2019.

I'd like to remind you that operating results can vary by corridor as a result of many factors. These kind of include among other things the timing of ourself delivery and associated revenue recognition as well as higher capital spending due to seasonal work.

I have confidence in our business plan and we look forward to reporting our performance in future quarters with that let me hand, the call back to Bill.

Thanks, Laurie, let's turn to slide 12.

I am proud of our employees and our leadership team.

Continued to drive that had 15 I'm not sure that's serving customers with our superior network solutions.

Yes, that's process transformation and strong customer relationships.

Hi business is keeping people connected in today's environment as our customers go sheet, increasing amounts of remote or partially centuries unacceptable.

Management and the board are committed to maximizing shareholder value.

2019 weeks later, then million share buyback program and we just announced.

Exactly time.

And set for share or approximately 5 million dollar doing the down.

We are excited about our progress and let further speaking to you in the month in hers.

Thanks, again for dry and then what that I'll open the call for questions.

Operator.

Thank you, ladies and gentlemen, if you would like to ask the question pretty signal by pressing star followed by one on your telephone keypad.

Speakerphone. Please make sure your mute function is turned off to love your signal to reach our equipment again, ladies and gentlemen, Please press star one last question.

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On an opportunity signal for quick.

[noise], we will now take our first question from Barry Sine of Spartan Capital Securities. Please go ahead your line is minimal.

Good afternoon first question I guess Bill will you just left off which is on the 5 million dollar a onetime dividend issue no onetime dividends can be a bit controversial all the share price just tends to go down by the amount of the dividend payment and then the share.

Holders have to pay taxes on receiving that so if you could explain the thought process behind a one time did then why the board thinks that enhances shareholder value in why not just increase your buybacks or why not.

Hey debt down further with that $5 million.

Hey, Barry Thanks, and.

I mean again.

So a very good question and like we have talked on previous calls.

The.

I'll call it really balance.

I will do in shareholder friendly activity versus.

Investing back in the company or the and we've got these conversations continuously well from our 2019 resolves. The board was very comfortable with her and as you heard from the operational for the view very comfortable with a with the recent what these results and wanted to share some of that excess.

With a with a long time and all that I think all shareholders across our entire they [noise].

No. We we did talk about we do understand kind of the controversial or magnitude behind the onetime doing that as you point out.

So as a board at all that's simply we felt that this was the right time and the right thing to do for shareholders in general.

But why onetime did that versus somebody other options you would've had for the cash which presumably you've got to return more value for shareholders. Yep. So we as you know very weak that we Ah we had a 1 billion share buyback a purchase program earlier and ER back in 2019.

Okay.

And really the thought process was we got that in my team and a you know the we're going to try the dividend route at this point.

That was really that was a thought process.

Happy as well as we thought there in the past in touch with ER.

Our board chair or in Europe, or any other of our board members as well Theres upside additional information like on though.

Okay and my next question over the last several years.

You've had some activist.

Investors.

Some of whom I take are now represented on the board at one of the issues you know that they brought up would be a process to sell the company, which you not publicly at least announced I don't know if you could talk about has there been or change in a hard now that they're represent loved the board war.

The environment, just not right and then seem question on the capital spending level levels over the years, you've had criticism from investors about the level of capital spending activity you.

Largely continued capital spending.

Get prior levels WAM. So has there been a change of heart as these investors are now on the board you can see the ROI on this on these capital expenditures.

Great Great question bearing a lot to that so many Ah let me take a step back and try to start or what the first your questions and I work My way through you know as far as active as I'm, calling that my my like all that back to that as we value our relationship that we have at all of her shareholders right and.

It is our job that involves the management team to operate this company to an extent that gives our board options.

On what to do with a free cash flow that we are tactful that we set off from a company and obviously, we trials have already magically appeared that to do the best we can at that area.

From selling the company and mindset of.

Shareholders from that perspective I.

Obviously, I can't speak for shareholders and well ask me for shareholders, all I can say and well say as our outboard continues.

I've got all options.

On how they create largest shareholder value for the company and.

At that weighed the main here you know part of a bigger platform even through selling the company Bard companies.

All options are always on the table.

Ah think conservative vital part of your comment or question was Ralph capital spend.

Yeah, we continue to.

Operate about I think in 19.

I am going into 2020, where our guidance really keep whole capital spend about flat and.

No we came out and night seeing with what's really a slight increase in capital from years past, but that was really due to see Iran and or cap to project.

And as you know we were those projects are both long term alongside tenure project.

We saw the commitment on those both of those projects to that's fair amount of capital level that we've seen and 19.

And what you're worried I will likely stay that 2021 as well.

Okay. My last question is macro question.

As you're aware oil prices have taken quite a double a this week I think around $43 a barrel if you could kind of educate us or remind us what.

The direct and indirect impacts of a lower oil prices are on your business and you know by indirect I'm guessing that flows through the state budget. So we may see lower state expenditures and some impact on the permanent fund dividend oil revenues remained low.

Yeah. Good point, so oil I think on Monday.

Okay right around like he likes you said that $30 barrel oil price point and obviously that's concerning all of US another state as the status heavily Ah.

Played with oil and all revenues, Oh, all related revenues and taxes across across the entire state.

What does that mean for our company.

We entered really in the oil and gas article 2015, and because of that we still have very little marketshare directly what the all companies what what we have found in the last couple of years with that pressure on the oil prices is that forces for companies to do.

To do things differently from an operational point of view.

In many cases that something different is relying on technology. So we've actually seen a lot of opportunities with all companies when they when they're all price of oil goes down.

No, saying that it does have.

Excuse me it does have a tripling that delta call.

Got to me and you know some of those are down to the consumer level and some of those are throughout the what we call the mass market and that's part of business area and that it's really a day to day with with what's happening now it is really a real time.

And something that.

We're managing them.

I'll mention on a day to day basis, our I will tell your our guidance that we set for 2020 includes this role in it and we still see a path to meeting and exceeding guidance at 2020, even with oil prices, where they were are live in a week.

Okay. Thank you very much adult.

Yeah. Thanks for.

Once again, ladies and gentlemen, if you would like to ask the question the signal by pressing star followed by one thought of Star Wars Q for question.

It appears we have no further questions at this time I would note I'm just trying to conference parts. It took me Smith for any additional 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 aren't interested in meeting with us whether by phone or in her so as we travel in the future. Please reach out to Tiffany's Smith and Investor Relations. Thank you and good day.

Ladies and gentlemen, this concludes todays conference call. Thank you for your participation you may now disconnect.

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