Q3 2020 Alaska Communications Systems Group Inc Earnings Call

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Alaska Communications Systems' third quarter 2020 earnings call.

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Good day and welcome to the Alaska Communications systems third quarter 2020 earnings call.

If you would like to ask a question on today's call.

You May press Star one on your telephone keypad.

Today's conference is being recorded at this time I would like to turn the conference over to Tiffany Smith. Please go ahead.

Thank you and welcome to the Alaska Communications third quarter 2020 conference call I'm, typically Smith manager of Investor and Board relations with.

With me today are Bill Fischer, President and Chief Executive Officer, Laurie Butcher, Chief Financial Officer, Leonard Steinberg General Counsel, and Dave Karp Chairman of our board there.

During this call we'll be using a slide deck that we encourage everyone to have available for those listening to this call via the webcast. The presentation will be displayed on your screen for others, you will find it on our Investor website, Www Dot <unk> Dot com no.

Now please turn to slide three and four for our Safe Harbor statement and important information regarding the proposed transaction.

During this call company participants will make forward looking statements as defined under us securities laws.

You are cautioned not to put undue reliance on forward looking statements and 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 have been reconciled to their nearest GAAP measure. These reconciliations are in the appendix to our presentation.

Following our remarks, we will open the line for questions.

Turning to slide five I would like to turn the call over to Phil Phil.

Thanks, Stephanie Hello, and thanks for joining us.

No that's all us over the years, you know that we're committed to evaluating opportunities to increasing shareholder value.

With that let them anyways from share buybacks special dividends.

Flooring for potential strategic transactions.

One of those transactions that's come to fruition.

After carefully evaluating at all or from Macquarie capital.

Juicy and grew up there and when do you know how much support from our board of directors on November 3rd we announced that we signed a definitive agreement to be acquired for $3 for sure [noise].

[noise] [laughter] transaction is 400% of Alaska communication chairs at a premium of 15.8%.

Oh, sorry, 30 day.

[noise], that's multibillion dollar funds for capital GCM, how the financial strength.

The expertise and desire to invest more resources and our networks and for customers.

This will help us grow to better serve our customers and communities.

As customary transaction would be subject to shareholder and regulatory approval.

That's expected to close in the second half of 2021.

Let's turn to slide six to review our third quarter, we continued to execute to our plan.

Total revenues increased 2.3% year over year.

Sure.

Yes, I think wholesale broadband growth of 6.7%.

Despite the global pandemic, we continue to grow the business well, keeping our people and customers say [noise].

As we mentioned last quarter, we had several fiber initiatives under way, we have completed the upgrades to the optical transport that work ourselves see fiber.

These upgrades dramatically increased the capacity on our north star fiber system I over five times.

It enables additional hundred gig circuits tickets first on the North star system and completely done that so you are actually the subsea fiber networks collected Alaska to the lower 48 [laughter]. We also remain on track with our other fiber initiatives, we continue to actively.

<unk> fiber for Fiveg wireless backhaul build [noise] and EPS completed the war I pray side that type of project in Alaska [laughter] further strengthening our primary in the state.

[laughter]. Additionally, fiber to the home, particularly for the multi dwelling units remain a priority for us as we expand the service and well continue to do so in the future.

Also we are augmenting our satellite capabilities by installing a seven meter dash and anchorage.

In August the company participated in the Fccs CBR spectrum auction.

He successfully one spectrum, enabling us to bring high speed.

Unlimited internet communities ranging from southeast Alaska.

So the north slope.

[noise] based license cover over 40% of Alaskan cities [laughter].

Over 40% of the population of the state.

And almost 60% of the square miles in the state of Alaska.

I'm also pleased to announce that we went live with our new this EPS and operating like T systems.

We expect this to transform our business by enhancing the customer experience.

Streamline order and process.

By improving business analytics and reporting.

And by simplifying operations [laughter], we expect this will yield of expense savings and drive operational excellence in years.

[noise] 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 now.

And that's really true [noise].

With this let me now hand, the call to Laurie <unk>.

Our financial results Lori.

Thank you Bill.

Turning to slide seven let's review our revenue performance for 2020 compared to the prior year.

Total revenue for the third quarter was 60 point fivemillion compared to 59.1 million up 2.3%.

For the nine months ended September Thirtyth total revenue was 178.2 million compared to 173.4 million in the same period of 2019.

Looking at our individual customer groups for the third quarter. There's some wholesale revenue was 40.9 million and increased 5.6%.

Consumer revenue was 9.3 million for both periods and as expected regulatory revenue of 10 point Threemillion moderately decline.

Our total gross revenue, which consist of business wholesale and consumer broadband equipment sales and installation and managed IP services increased 7.8% for the third quarter.

Broadband revenue alone, which represents 91.1% of our growth revenues and 59.4% of our total revenue grew 6.2%.

During 2020 with the cold chain crisis, I know work environment has evolved and we're seeing customers begin to both modified and accelerate their network plans.

During the quarter demand for equipment and managed IP services increased which led to a net 27.4% increase in those revenues compared to the same period in the last year.

Turning to slide eight I.

Adjusted EBITDA for the third quarter was strong at 16 point Sixmillion, increasing from 15.8 million in Q3 of 2019.

For the nine months ended September Thirtyth 2020, adjusted EBITDA was 49.2 million compared to 44.9 million in the prior year period.

Our strong revenue performance, let the improvement to adjusted EBITDA and combined with our cost management solution that we're increasing our profitability and improving our overall EBITDA margin.

Capital expenditures were 14.5 million in the quarter compared to 11.1 million in the prior year.

Excluding prefunded projects were 11.7 million compared to 10.9 million in 2019.

For the nine months period, and 2020, our cap spending was 32.9 million compared to 31.6 million in 2019.

And excluding pre funded projects was 26.3 million compared to 31.4 million in 2019.

Due to a number of factors, including told Ed restriction.

That's year to date has been a lot worse I mean 2019.

And given our year end projection, we're updating our guidance for capex, excluding pre funded projects to be between 37 and 39 million for the year.

For the third quarter adjusted free cash outflow was 7.3 million compared to an inflow of 6.3 million in 2018.

This reflects the timing of Capex and Cogs payment for pre funded projects for which cash was received in prior periods.

In the quarter adjusted free cash flow, excluding pre funded projects was 1.7 million compared to 1.2 million in 2019.

For the nine months ended September Thirtyth 2020, adjusted free cash flow was 11.4 million compared to 6.2 million in the prior year.

And excluding pre funded project was 12.9 million for the first nine months of 2020 compared to 1.1 million in the same period of 2019.

Due primarily to the timing of capital spending and the EPS celebrated receipt of our entire remaining M.T. tax credit, we're increasing our guidance for adjusted free cash flow to be between 14 and $16 million.

At September Thirtyth 2020, cash was 33.8 million compared to 28.3 million at December 31st 2019 and.

And our 20 million dollar revolver, and 25 million dollar delayed draw instrument remain undrawn.

We ended the quarter with net debt on the balance sheet of 141.6 million and net leverage of 2.44 times as calculated under our debt agreement.

Turning to slide nine I'd like to review, our current 2020 guidance.

We reaffirm total revenue to be between 232 and 237 million.

We reaffirm adjusted EBITDA to be between 63 and 65 million.

We are reducing capital expenditures, excluding pre funded projects to be between 37, and 39 million and we're increasing adjusted free cash flow, excluding pre funded projects by $6 million to be between 14 and $16 million.

I look forward to reporting our full year performance.

Yearend earnings call.

With that let me hand, the call back to Bill.

Bill.

Thanks, Laurie, let's turn to slide 10.

This has been an exciting for me.

We've completed upgrades to our subsea fiber and we remain on track with our other fiber initiatives. Additionally, we launched our crude business and operating IP systems, that's already been done.

Transform our company.

We are enhancing the customer experience and improving our operational efficiencies. In addition, our financial performance remains strong for the year and we expect to be at the high end [laughter], Alaska Communications has always been committed to serving the needs of our customers.

Our employees and our shareholders. We are excited about the proposed merger and access to capital to support our growth initiatives [laughter], Corey and JC I'm watching Western company, because they believe in our business plan as well as her focus on employee engagement [laughter] customer experience.

Okay and operational excellence.

We are excited about the opportunities before us and look forward to see pretty love theater.

Thanks for joining and with that I'll open the call for questions operator.

Thank you if you would like to ask a question.

Please signal by pressing star one on your telephone keypad if.

Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, everyone. Please press star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.

As an additional reminder, that is star one if you would like to ask a question.

And we'll take our first question from Robert Rubin with RMG capital. Please go ahead.

Hi, good morning, I just want to.

Thank you for your hard work over the last few years.

A long journey and.

Actually for that.

No really the only cost the majority is on the deal that we did for the entire neighborhood.

Good Okay. If it didn't look like there.

Well it seems like what we've done.

Got a pretty good deal I was just wondering if these are.

On the other portion or just good water.

[laughter].

Okay, that's really not that's really about it.

Hey, Bob this Phil Thanks for the question and then hand and a great year for me is always as far as the CDR Oh.

Second goes we actually.

It actually was exactly what we brought on and also [noise].

We feel very fortunate from that perspective, we made the strategic decision.

Yes.

Oh, that's right and then.

So with areas of Alaska and.

So.

Right.

We were successful in winning.

Okay, Yeah. It looks like you're just starting to turn a little more than a 20, but I forgot what you want with it.

[laughter] beautiful.

<unk> expenses could close in Q3.

The expectation or it's kinda Buffalo New York.

Yeah, it's definitely up for the area.

We are expecting in sometime in the second half of next year.

Okay.

I will not go through there on the thank you got it right.

Sorry for your Oh, your hard work in Bocom, if they can either.

Yeah. So we are pretty lucky that Victor.

Thanks, Paul Thank you Bob.

[noise] once again to ask a question you May press star one on your telephone keypad again that is star one to ask a question.

And it appears we have no sort of questions. At this time I'll turn the call back to typically Smith and actually we just had a question.

One moment please.

[noise] [noise].

[noise] and well take our next question from Rick Smith with Mitts capital. Please go ahead.

Hi, good afternoon, I'm I understand the go shop here.

Was there a process or was this just didn't down and inbound call.

Recent merger being the best.

[noise] Phil Thanks for the question now, let me turn it over to Dave Khani, Our board chair for those.

One of them, but thanks for the question.

Well basically as as most folks know management is always considered.

Every opportunity to create value and this was presented to the board.

We evaluated and accepted the proposal and we're confident that that Macquarie and GCM have the financial strength and desire to enforce more resources in the network.

So you know the go shop.

He is a is something that we're looking forward to and well see where it ends up.

And when does that end.

Oh, yeah yeah.

30 days or so.

Uh huh.

It is hard to know that reserve.

[noise] understood.

Thank you have a good day.

All right. Thanks.

And everyone as an additional reminder, that is star one if you would like to ask a question, we'll pause for just a moment.

And we'll take our next question from Chris <unk> with an independent investor.

Chris Your line is open. Please go ahead.

Thank you I'm starting off good job everyone on the most recent quarter. That's question <unk> question is on the pending sale.

One question with two parts first of all how can you justify selling this company below book value given the ongoing success of Alaskan is having and the second part is what safeguards are in place to protect your current employees from being treated badly from the results of this sale.

Okay. That's all going to take that this is Dave Karp. Thanks for the question you know in a lot of ways I I'll refer to my previous response as it relates to the process.

You know the board has an obligation to engage in conversations with potential buyers that offer good return for the company I would remind everyone that there is a dose up there. It was a process in place that continues to endeavor to drive that value and deliver.

And you know it's this is all driven by a very tightly prescribed process, which includes a fairness opinion I'm, so well stay on that track in and endeavor to.

And the final deal that that delivers a maximum value to shareholders.

They Oh I don't know if this is bill yeah, I'll tell you because I feel like.

Yeah [noise] Hello.

We have obviously they feel like this takes a makes a lot of time and say a lot of dialogue or as a as a management team we are very confident and.

The direction that Macquarie as that you see on the likes of paper company and that direction does include the employees management team had employs over this company and you know hopefully that Ah Ah through Ah through the growth that we expect.

That means more employees so a very.

Very confident that [noise] owners, so to speak have no plans to to derail that.

Thank you.

And once again, everyone. If you would like to ask a question over the phone. Please press star one on.

Your telephone keypad again that is star one on your telephone keypad, we'll pause for another moment.

And once again that is star one if you went back that's of course.

No well next year from Chad greater with a barren Bert.

Yes.

Your line is open.

Great. Thank you David you mentioned you engaged in a process I'm just curious did you engage with other parties. That's a part of the story sounding process.

Okay.

Well like I said, thanks for the question and then ultimately as you know and as I've said before we've been engaged in various conversations with various folks over the years in efforts to drive value.

This was an approach and a we look forward to continuing through the girls job process to find out whether it goes on other interested parties.

Oh.

[noise]. Thank you.

And we have no further questions in the queue at this time I'll turn the call back to typically Smith for any additional or closing remarks.

Thank you and as always we do welcome the opportunity to talk with our shareholders. If you are interested in meeting with US. Please feel free to reach out to me just mess in Investor relations. Thank you for joining us and have a good day.

And this does conclude today's call. We thank you for your participation you may now disconnect.

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