Q2 2020 Alaska Communications Systems Group Inc Earnings Call

Well stay last attraction second quarter 2020 earnings call at this time listening to this audience will tend to be underway. Shortly I. Appreciate your patience. Please remain alive.

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Please standby.

Welcome to Alaska Communications second quarter 2020 earnings call today's conference is being recorded.

Question to me press Star one on the telephone keypad.

Just wanted to turn converts Naismith manager Investor Relations. Please go ahead.

Thank you and welcome to the Alaska Communications second quarter 2020 conference call on Tiffany's, Yes manager of Investor in Fourq relationship with me today, I don't Fischer, President and Chief Executive Officer.

Laurie Butcher Chief Financial Officer.

Patrick Williams Senior Vice President took operations and Leonard Steinberg General Counsel.

During this call will be using a slide deck, we'd encourage everyone to have available.

For those listening to this call via the webcast presentation won't be displayed on your screen.

For others, you will find it on our Investor website, Www Dot E.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 <unk> actual results could differ materially. That's a result of a variety of doctors many of which are outside the company's control.

Additionally, any non-GAAP measurements refer to during this call African reconciled to their nearest GAAP measure.

These reconciliations are in the appendix to our presentation.

Following our remarks, well open the line for questions with that I would like to turn the call over to Bill Bill.

Thanks, just saying Hello, and thanks, everyone for joining.

Turning to slide four.

We're excited to report our second quarter results, which demonstrates our fiber strategy.

Total revenue increased 3.6% year over year.

That's that's in wholesale broadband girls.

Look like 1% year over year.

That's a testament to our customers.

That's good communication Stanley.

Continuing.

I'm certain times.

I am proud of our employees for continuing to provide exceptional customer service, while working remotely.

And for maintaining a strong network that enables our customers shifting back to their businesses.

Without interruption.

Sure. It's corridor, we continued to strengthen schlemmer fiber infrastructure.

We sold our first hundred gig circuit on her steps you fiber it completed churn and I'm sure it's Jordan anchored on.

On our Prefunded high capacity fiber network and Alaska.

We pride ourselves from being first to market.

Our June so once again like renewed the Microsoft Azure stock.

I will ask them.

We continue the path of investing in our fiber networks, that's taken on several initiatives.

Yeah.

I would like to introduce Peter <unk>, our senior Vice President of operations to give you more details piedra.

Thank you Bill turning to slide five.

And that's on this slide shows our current fiber network, which includes a complete fiber ring around the state of Alaska meshed infrastructure in the metropolitan areas dual fiber entrances into the large military bases and Q undersea cables to the lower 48 throughout the Pacific Northwest.

I just wonder the largest fiber providers in Alaska, we continue to strategically augment our existing fiber based network and part of our fiber initiatives. This year include upgrades to our Alaska fiber written.

Well as our subsea optical transport network.

This work enables us to increased bandwidth capacity in our existing fiber rate.

To be conducting customers between Duncan circus across Alaska and that the specific northwest.

Turning to slide six.

As Bill mentioned in the second quarter, we turned up service for anchor customer on one of our pre funded high capacity hydro projects in Alaska.

This was just one prefunded fiber project with which the company that's been bulk workers in progress on another Prefunded Piper built from the coach to work in the Interstate five fiber corridor.

This project is expected to be complete by the ended the year.

Well it provides capacity for the anchor tenants. The company has additional capacity on the fiber available for incremental revenue opportunities.

Also the company is still actively deploying fiber to the Fiveg wireless backhaul built in fact, so far this year, an additional 24 psyche 8000 fiber bottles were added to our network.

This isn't multiyear built remains a priority for us.

It is another opportunity were fiber built for the anchor 'cause. It also creates future opportunities in both the business and consumer markets.

Another exciting opportunity. This year is expanding our partnership with Microsoft to bring hybrid cloud solutions to Alaska, but as you're stuck hub.

With a shift to a remote work environment, providing a secure network and eliminating the need to maintain on premise infrastructure is top of mind for money if our customers.

As you're stuck hub will give customers in the state of Alaska, the ability to achieve low latency and confidence at the local presence for sensitive applications.

We're combining as your stock hub with Azure Expressroute to give Alaska enterprise and government agencies to confidence to moves to the cloud and realize the associated benefits.

Across the Alaska, we're not all communities can be served by fiber service via satellite is imperative.

We now serve our customers with our own satellite Earth station, reducing our costs increasing available capacity for our customers.

Fixed wireless or five body is another piece and the expansion of our consumer broadband network footprint.

It is a fundamental component of our world broadband strategy and we are actively evaluating urban solutions at this time.

An additional area of focus is on fiber to the home, particularly for multi dwelling units.

We continue to increase that crushing and now offers such high speed connectivity to approximately 6700 locations Cushing higher broadband speeds that connectivity further into our consumer markets.

I am excited about the projects an opportunity so we had before us and 2020.

The demand for broadband continues to increase and we're committed to providing the most advanced fiber network that meets the needs of our customers both now and in future.

With this let me now hand, the call to Lori will cover our financial results Laurie.

Thank you deidre.

Turning to slide seven let's review our revenue performance for the second quarter of 2020 compared to the same corridor in the prior year.

Total revenue was 59.5 million compared to 57.4 million up 3.6%.

Looking at our individual customer group business in wholesale revenue was 40 million an increased 8.1%.

<unk> revenue was 9.2 million with increased broadband revenue, partially offsetting lower Blake's revenues.

And as expected regulatory revenue of 10.3 million moderately decline.

Our total gross revenues, which consist of business wholesale and consumer broadband equipment sales and installation and managed IP services increased 9.1% year over year.

Broadband revenue alone, which represented 93.5% of our growth revenues and 16.2% of our total revenues grew 9.9%.

While our results are good the cold 19 pandemic has had some impact on our business.

On the revenue side, we've seen a few customers just been services or delay equipment purchases, while others are purchasing additional bandwidth.

Responding to community needed in the first half of the here Weve provided over a million dollars of free services to healthcare and education customers as they navigate remote caregiving and learning environment.

On the expense side, we incurred approximately 800000 incremental operating expenses.

Overall, even with these increased costs, we grew revenue adjusted EBITDA and adjusted free cash flow.

However, we recognize that situations can change and we continue to monitor the impacts of Colgate 19 on the business.

Turning to slide eight adjusted EBITDA for the second quarter was very strong at 16.5 million increasing from 13.9 million in Q2 2019.

In the second quarter, we benefited from several projects that positively impacted our bottom line as well is focused cost management.

In the second half a year, we believe we'll continue to deliver steady performance and as such we're maintaining our adjusted EBITDA guidance.

Our second quarter cap spending was 7.8 million, excluding pre funded projects compared to 11.9 million in Q2 of 2019.

In 2020, we've taken a measured approach to capex and during the quarter. We began some major projects that will be implemented over the course of the next several quarters.

Well, it's bad year to date has been lower than 2019, Capex. We continue to expect it stands between 39 and $43 million for the year, excluding our pre funded projects.

Capex for pre funded projects during the quarter was 3.1 million compared to nine for the same period in 2019.

As a reminder, these projects are pre paid by the customer while we retain ownership of the asset.

For the second quarter adjusted free cash flow was 8.6 million or 5.4 million. Excluding pre funded projects. This compares to an adjusted free cash flow outflow of 3.1 million in 2019.

The increase primarily reflects the improvement in EBITDA, the conservative Capex strategy today, and the non Murray occurrence of executive severance paid in the prior year.

At June Thirtyth 2020, cash was 46 million compared to 28.3 million at December 31st 2019.

Our $20 million revolver, and 25 million dollar delayed draw instrument remain undrawn.

We ended the quarter with net debt on the balance sheet of 131.7 million and net leverage of 2.54 times as calculated under that agreement.

At this time turning to slide nine we are reaffirming 2020 guidance as follows.

Total revenue to be between $232 million to $237 million adjusted EBITDA to be between 63 could $65 million.

Capital expenditures, excluding pre funded projects could be between 39 and $43 million.

An adjusted free cash flow, excluding pre funded projects to be between eight and $10 million.

I look forward to reporting our performance to these targets in future quarters with that let me hand, the call back to Bill Bill.

Thanks, Laurie, let's turn to slide.

As I stated before I'm proud of how our employees have committed themselves to ensure our customers have outstanding service and network capabilities.

So again, they have risen situation and make sure parks.

As Lori noted despite kind of thinking.

We grew revenue.

Even though.

Free cash flow Julian reaffirms, our got huge.

Drought like we're delivering on revenue generating fiber projects, creating more opportunity to do the same into future [noise].

Our strong performance has resulted in rewards for both the company.

And our shareholders.

For shareholders the company.

And she doesn't take your special dividend nine cents per share.

Selling approximately $4.8 million.

For the company.

He became a member of the small cap Russell 2000 syntax.

Sure.

And exposure should investors.

We continue to have Hopscotched and our long term business plan.

So they need to drive shareholder value [noise].

We're excited about our progress and we look forward to keep you updated.

Again, thanks for joining.

The call for questions.

Operator.

Thank you if you'd like to ask the question you said, what the press star one and the telephone keypad.

There's no speakerphone. Please make sure your mute function has turned off to lives lottery try equipment again press star one to ask a question.

Well take our first question a day from Barry Sine, what Spartan capital Securities.

Hi, good afternoon, or I guess could wanting their acreage you guys had a great quarter enough business at wholesale Wow, So naturally I'm going to ask about the consumer side of the business and they'll use discuss with me in the past how on the consumer if you could just stabilize that revenue stream.

It has a pretty significant impact on consolidated results and doing that it really is driven by the network and de jure I thought you did great job with yeah. The data you gave us on the state of the network I just was high that altogether. So a couple of questions on that do you have a total all homes passed.

Number and then I break that into what I'm doing this right for technology buckets, you got caught a slow copper DSL, which speeds I guess below 10.

10, megabit, that's not all that competitive if there's cable there you've got the fiber, you're saying fiber to the home I thought you get a fiber to the node architecture. So that 6700, you've got the wife I Oh, That's 14500 I'm correct me for Omar I believe that should mainly in a in the U.S apartment buildings.

And then your new fixed wireless funded by cash it's 16000.

So if I add all those numbers together like you had about 136000 homes past could you kind of wrap all that together and kinda correct any my math I got to me that wall.

Hey.

Hey, various Phil Thanks, Thanks for the question a good to hear from yet Yeah. You are your math is approximately a spot on.

You know a a horse a large percentage of that number as you, though that is still a then sever copper DSL network and as we'd like to the theater that as a those whatever area of our network that we would like to to to improve upon.

Okay, and then in terms of improving upon that in the past when I talk to you at that.

Economics, just really haven't worked out for fiber builds to a lot of your households, I think you have a lot of varied.

Copper you are doing a fixed wireless and that's the economics on your fixed wireless you're doing now pretty easy because the government pays for endure underserved areas you should be a high penetration, but the only what you'd know now would you do fixed wireless as an overbuild and some of those 100000 homes passed.

Where perhaps cheese JCI already has a cable network.

Yeah like Pedro mentioned in her prepared remarks, we are currently evaluating a urban solution.

With fixed wireless technology. So that is currently underway I think you'll hear us talk more about that as they are very near future, but also I I don't want to.

Completely throw out fiber to the home there are some areas or both and they have the world and also a this thing a resident home, where it does make sense or it would make sense.

To deliver a fiber to the home solutions as well.

Well, you're doing to direct to the home, which is a node him into the home with copper.

A drag to the home and some cases.

Okay.

And then on the.

The subsidy revenue and again, yeah. This maybe oh for letter all the regulatory revenue.

The high cost support that's I believe that's caf revenue, that's easy that's pretty stable on the rest of it state and federal subsidies it kind of been embarrass both for both you and G.I. over the last year you had some clawbacks you've had some are Brussels, maybe you could give us a kind of an update on things fixed now do you hubs.

Better visibility and then maybe Laurie given what you know about what's in the legislation in the regulations today, what can we how can we assess the outlook for that revenue category.

Oh, Thanks for the question Barry This is water or you are the state revenues have really stabilized Oh, we knew we were going to have a significant impact last year.

We're past the and under the current rules the Oh state.

Universal service fog have a fairly stabilized doesn't mean, they couldn't change at some point in the future, but from what we can see right now we expect a fairly.

Flat or perhaps modest very modest decline going forward, but but fairly flat.

And you know the other a portion of the regulatory brothers is made up about stuff.

And.

A lot of that is tied to a lines and so you know we do expect a very modest decline there mostly as a as landlords decline so.

I think that gives you a fair picture Lori anymore, you'd love to hear to add no I think that that's spot on Leonard.

And that in contrast to what we saw last year. He had such as <unk> decline as we had those color program.

And it's replacement, but I think it's fair to say, we expect a much more gradual decline really as voice lines declined.

So Lori am I correct, all the way you reported high cost support that's a cap and that should be stable and then you call. It access that's what lettered was just talking about mix I'm more moderate declines going forward is that correct.

Yeah.

Mary.

Okay. Those are my questions. Thank you Lucky.

Thanks, very fair as.

As a reminder press star one if you have a question.

That will conclude todays question and answer session. When I'll turn the conference over to Tiffany Smith for any additional closing remarks.

Thank you.

Thank you all for joining us on the call today, we always welcome the opportunity to talk with our shareholders.

You're interested in meeting up with us whether by phone or prop one day in person again on road shows.

Please reach out to me smoking Investor relations. Thank you and good day.

That does conclude todays conference. Thank you for participation you may now disconnect.

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