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Alaska Communications Systems Reports Strong Third Quarter 2014 Results
[November 05, 2014]

Alaska Communications Systems Reports Strong Third Quarter 2014 Results


ANCHORAGE, Alaska --(Business Wire)--

Alaska Communications Systems Group, Inc. ("ACS", "the Company", "Alaska Communications") (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2014.

"Our emphasis on broadband solutions has delivered another quarter of broadband revenue growth, with continued industry leading top-line performance for the third quarter of 2014. Combined with exceptional operations and cost controls, we have expanded Adjusted EBITDA margins, all while managing our free cash flow to deleverage our balance sheet.

"We have a growing market opportunity with a unique competitive dynamic that is enabling us to gain share in our target markets of business and wholesale services. As a particularly noteworthy example of taking share, after months of in-depth network capabilities and reliability reviews, we are honored the State of Alaska chose Alaska Communications to be its primary broadband provider for its statewide core network. Our experienced team continues to gain market share due to our deep understanding of the needs of Alaskan businesses matched with quality network solutions, packaging of IT Services, and superior attention to customer service.

"The investments we previously made in technology combined with our steady focus on process improvement enable us to improve customer service while we manage our expenses and improve margins.

"We are focused. Our broadband momentum continues. And, we are very excited about serving our community and shareholders for decades to come," said Anand Vadapalli, president and CEO of Alaska Communications.

Third Quarter 2014 Highlights

  • Total service and other revenue increased to $53.4 million, up 6.7% year over year.
    • Total broadband revenue reached $17.3 million, up 10.3% year over year.
  • Business and wholesale service:
    • Revenue reached $28.0 million, up 11.6% year over year.
    • Broadband revenues grew 8.8% year over year.
    • Broadband business connections totaled 19,201, increasing 0.6% sequentially.
  • Consumer service:
    • Revenue grew to $10.4 million, increasing 2.1% year over year.
    • Broadband revenues grew 13.2% year over year.
    • Consumer broadband ARPU grew $1.67 or 3.2% sequentially.

Operational Improvements

  • Successfully deployed an automated workforce management system to streamline future service delivery and enhance customer experience.
  • Installed new inventory management structures in retail stores reducing wireless inventory balances by approximately 40%, or $2.5 million.

Third Quarter and Year to Date Consolidated Financial Results for the periods ended September 30, 2014

  • Adjusted EBITDA was $23.5 million for the quarter and stands at $70.3 million year to date.
  • Total operating revenue was $78.5 million for the quarter and stands at $237.4 million year to date.
  • Free Cash Flow was $1.6 million for the quarter and stands at $12.8 million year to date.
  • Deleveraging continues:
    • Debt balances were $434.6 million at the end of the quarter.
    • Debt repayments totaled $24.0 million year to date.
    • Cash balances remain strong at $28.9 million.

Wayne Graham, ACS chief financial officer, said, "We expect to achieve continued broadband growth, which is reflected in our updated guidance. The incremental economics of adding this revenue to our mix should drive margin improvements going forward. We also remain committed to dedicating free cash flow to deleveraging the balance sheet. All of which is expected to improve value creation to our shareholders."

2014 Guidance:

The Company updated guidance as follows:

  • Increased revenue to approximately $315 million from approximately $310 million.
  • Increased Adjusted EBITDA to approximately $92 million from approximately $90 million.
  • Confirmed free cash flow of approximately $20 million.
  • Confirmed the capital expenditures range of approximately $40 to $45 million which includes $4 to $5 million for a fiber build project with a strategic customer.

Conference Call

The Company will host a conference call and live webcast on Thursday, November 6, 2014 at 5:00 p.m. Eastern Time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-888-471-3830 and enter pass code 399324. All other parties can access the call at 1-719-457-2706.

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 December 8, 2014 at 4:00 p.m. Eastern Time. To hear the replay, parties in the United States and Canada can call 1-888-203-1112 and enter pass code 1781788. All other parties can call 1-719-457-0820 and enter pass code 1781788.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The Company operates a highly reliable, advanced statewide data and voice network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit http://www.alaskacommunications.com or http://www.alsk.com.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedules 4 and 5 to this press release. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP. Other companies may not calculate non-GAAP measures in the same manner as ACS.

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 ACS' control. Such factors include, without limitation, Universal Service Fund changes, AWN's financial and operational performance and the competitiveness of the wholesale plans it offers, adverse economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, and the effects of competition in our markets, the Company's ability to compete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may derive, adverse changes in labor matters, including workforce levels, labor negotiations, and benefits costs, disruption of our supplier's provisioning of critical products or services, the impact of natural or man-made disasters, changes in Company's relationships with large customers, unforeseen changes in public policies, and changes in accounting policies, which could result in an impact on earnings. For further information regarding risks and uncertainties associated with ACS' 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       Nine Months Ended
September 30, September 30,
2014       2013 2014       2013
 
Operating revenues:
Operating revenues, non-affiliates $ 76,683 $ 82,427 $ 232,031 $ 271,122
Operating revenues, affiliates *   1,782     1,414     5,323     1,535  
Total operating revenues   78,465     83,841     237,354     272,657  
 
Operating expenses:
Cost of services and sales, non-affiliates 31,416 33,078 91,274 105,412
Cost of services and sales, affiliates * 13,534 11,642 43,295 11,959
Selling, general & administrative 25,017 29,274 74,926 83,717
Depreciation and amortization 8,585 9,209 25,850 33,291
(Gain) loss on disposal of assets, net (199 ) (210,558 ) 612 (209,932 )
Earnings from equity method investments   (11,556 )   (8,082 )   (29,247 )   (8,061 )
 
Total operating expenses   66,797     (135,437 )   206,710     16,386  
 
Operating income 11,668 219,278 30,644 256,271
 
Other income and (expense):
Interest expense (8,615 ) (9,785 ) (26,144 ) (29,970 )
Loss on extinguishment of debt - (2,094 ) - (2,370 )
Interest income 28 19 42 37
Other   -     -     -     (13 )
Total other income and (expense)   (8,587 )   (11,860 )   (26,102 )   (32,316 )
 
Income before income tax expense 3,081 207,418 4,542 223,955
 
Income tax expense   (1,203 )   (85,421 )   (1,964 )   (60,796 )
 
Net income $ 1,878   $ 121,997   $ 2,578   $ 163,159  
 
Net income per share:
Net income applicable to common shares $ 1,878 $ 121,997 $ 2,578 $ 163,159
Tax-effected expense attributable to convertible notes   -     1,485     -     4,409  
Net income assuming dilution $ 1,878   $ 123,482   $ 2,578   $ 167,568  
 
Basic $ 0.04   $ 2.59   $ 0.05   $ 3.50  
Diluted $ 0.04   $ 2.08   $ 0.05   $ 2.85  
 
Weighted average shares outstanding:
Basic   49,498     47,159     49,265     46,592  
Diluted   50,155     59,359     49,730     58,816  
* Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.
 

 

Schedule 2

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
      September 30,       December 31,
Assets 2014 2013
 
Current assets:
Cash and cash equivalents $ 28,851 $ 43,039
Restricted cash 467 467
Accounts receivable-trade, non-affiliates, net 38,116 34,066
Materials and supplies 9,591 10,131
Prepayments and other current assets 8,003 7,300
Deferred income taxes   6,694     7,144  
Total current assets 91,722 102,147
 
Property, plant and equipment 1,357,660 1,344,949
Less: accumulated depreciation and amortization   (994,358 )   (992,936 )
Property, plant and equipment, net 363,302 352,013
 
Goodwill 5,986 4,650
Debt issuance costs 5,017 6,929
Deferred income taxes 11,606 14,107
Equity method investments 257,853 266,972
Other assets   349     502  
Total assets $ 735,835   $ 747,320  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 11,846 $ 14,256
Accounts payable, accrued and other current liabilities, non-affiliates 53,457 55,475
Accounts payable, accrued and other current liabilities, affiliates, net * 22,905 14,309
Advance billings and customer deposits   8,501     9,104  
Total current liabilities 96,709 93,144
 
Long-term obligations, net of current portion 422,796 442,001
Other long-term liabilities 17,736 16,947
Deferred AWN capacity revenue, net of current portion   57,548     59,965  
Total liabilities   594,789     612,057  
 
Commitments and contingencies
 
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 495 487
Additional paid in capital 153,608 152,193
Accumulated deficit (9,230 ) (11,808 )
Accumulated other comprehensive loss   (3,827 )   (5,609 )
Total stockholders' equity (deficit) 141,046 135,263
 
Total liabilities and stockholders' equity (deficit) $ 735,835   $ 747,320  
* Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.
 

 

Schedule 3

 

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
2014       2013 2014       2013
Cash Flows from Operating Activities:
Net income $ 1,878 $ 121,997 $ 2,578 $ 163,159
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,585 9,209 25,850 33,291
Gain on sale/contribution of asset to AWN - (210,873 ) - (210,873 )
(Gain) loss on the disposal of assets (199 ) 315 612 941
Gain on ineffective hedge adjustment - 231 - (785 )
Amortization of debt issuance costs and debt discount 1,260 2,714 3,926 5,754
Amortization of ineffective hedge 362 1,082 1,276 1,948
Amortization of deferred AWN capacity revenue (647 ) (738 ) (2,337 ) (738 )
Stock-based compensation 684 550 1,877 2,268
Deferred income tax expense (benefit) 961 84,823 1,708 60,198
Provision for uncollectible accounts 1,467 366 2,942 805
Earnings from equity method investments (11,556 ) (8,082 ) (29,247 ) (8,061 )
Cash distribution from equity method investments 11,556 5,389 29,247 5,389
Other non-cash (income) expense, net (226 ) (20 ) (384 ) 216
Changes in operating assets and liabilities   4,918     7,161     1,048     6,096  
Net cash provided by operating activities   19,043     14,124     39,096     59,608  
 
Cash Flows from Investing Activities:
Capital expenditures (16,042 ) (13,717 ) (33,916 ) (27,314 )
Capitalized interest (720 ) (421 ) (2,082 ) (1,291 )
Change in unsettled capital expenditures 3,114 553 (1,300 ) (3,276 )
Proceeds on sale of assets 136 2,812 136 4,747
Proceeds on sale/contribution of asset to AWN - 100,000 - 100,000
Return of capital from equity investment 944 - 8,286 -
Non-cash acquisition, cash received - - 68 -
Net change in short-term investments - 525 - 2,037
Change in unsettled acquisition costs - (3,345 ) - (3,345 )
Net change in restricted accounts   -     3,345     -     3,393  
Net cash (used) provided by investing activities   (12,568 )   89,752     (28,808 )   74,951  
 
Cash Flows from Financing Activities:
Repayments of long-term debt (5,280 ) (67,001 ) (24,022 ) (97,382 )
Debt issuance costs - (25 ) - (206 )
Payment of withholding taxes on stock-based compensation (3 ) (2 ) (586 ) (632 )
Proceeds from issuance of common stock   -     2     132     117  

Net cash used by financing activities

  (5,283 )   (67,026 )   (24,476 )   (98,103 )
 
Change in cash and cash equivalents 1,192 36,850 (14,188 ) 36,456
 
Cash and cash equivalents, beginning of period   27,659     16,445     43,039     16,839  
 
Cash and cash equivalents, end of period $ 28,851   $ 53,295   $ 28,851   $ 53,295  
 
Supplemental Cash Flow Data:
Interest paid $ 6,008 $ 6,818 $ 22,036 $ 25,201
Cash paid on extinguishment of hedging instrument $ - $ 4,073 $ - $ 4,073
Income tax paid $ 206 $ - $ 220 $ -
 
Supplemental Non-cash Transactions:
Property acquired under capital leases $ 346 $ (19 ) $ 390 $ (17 )
Additions to ARO asset $ 17 $ 43 $ 306 $ 180
Exchange of debt with common stock $ - $ 6,000 $ - $ 6,000

Non-cash acquisition purchase price, net of cash received

$ - $ - $ 1,850 $ -
 

 

Schedule 4

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
2014       2013 2014       2013
 
Net income $ 1,878 $ 121,997 $ 2,578 $ 163,159
Add (subtract):
Interest expense 8,615 9,785 26,144 29,970
Loss on extinguishment of debt - 2,094 - 2,370
Interest income (28 ) (19 ) (42 ) (37 )
Depreciation and amortization 8,585 9,209 25,850 33,291
Loss on sale of short-term investments - - - 13
(Gain) loss on disposal of assets (199 ) 315 612 941
(Earnings) loss from equity method investment in TekMate - (18 ) (12 ) 3
Earnings from equity method investment in AWN (11,556 ) (8,064 ) (29,235 ) (8,064 )
Gain on sale/contribution of asset to AWN - (210,873 ) - (210,873 )
AWN distributions received 12,500 5,389 37,500 5,389
AWN distributions received for the prior period (4,167 ) - (4,167 ) -
AWN distributions receivable within 12 days 4,167 4,167 4,167 4,167
Income tax expense 1,203 85,421 1,964 60,796
Stock-based compensation 684 550 1,877 2,268
Long-term cash incentives 587 152 1,572 482
Earthquake related expense 1,228 - 1,228 -

AWN transaction-related costs

  28     4,702     240     5,974  
 
Adjusted EBITDA $ 23,525   $ 24,807   $ 70,276   $ 89,849  
 
Revenue 78,465 83,841 237,354 272,657
CETC Revenue   (4,720 )   (5,139 )   (14,581 )   (16,093 )
Net Revenue $ 73,745   $ 78,702   $ 222,773   $ 256,564  
 
Adjusted EBITDA Margin 31.9 % 31.5 % 31.5 % 35.0 %
 

NonGAAP Measures:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results.
 
The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments or other assets, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, provisions for taxes, transaction-related costs, stock-based compensation, and expenses under the company's long term cash incentive plan ("LTCI") including adjustments to TekMate purchase price based upon achieving earn out targets. LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA and Schedule 9 to these press release financials provides additional AWN related financial information. Additionally, in July 2014 an undersea cable serving Juneau, Alaska was impacted by a service disruption associated with an earthquake. The costs associated with restoration and repair of this facility is excluded from Adjusted EBITDA.
 
Due to the AWN structure, ACS receives certain high cost revenues ("CETC") which are reported in operating revenue, non-affiliates, and remits an equal amount to AWN as a component of our consideration for wholesale wireless services, which is reported in Cost of services and sales, affiliated. From a financial reporting perspective CETC grosses up our revenue and expense and has no impact on Adjusted EBITDA, but impacts our core margins. We therefore report Adjusted EBITDA Margin to exclude this impact.
 

 

Schedule 5

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
FREE CASH FLOW
(Unaudited, In Thousands)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
2014       2013 2014       2013
 
Adjusted EBITDA $ 23,525   $ 24,807   $ 70,276   $ 89,849  
 
Less:
Capital spending
Incurred capital expenditures (16,042 ) (13,717 ) (33,916 ) (27,314 )
Milestone billings for fiber build project for a carrier customer 2,000 - 2,000 -
AWN transaction-related capital costs, net change   -     -     -     (41 )
Net capital spending (14,042 ) (13,717 ) (31,916 ) (27,355 )
 
Amortization of AWN capacity revenue (647 ) (738 ) (2,337 ) (738 )
Earthquake related expense (1,228 ) - (1,228 ) -
Cash interest expense   (6,008 )   (6,818 )   (22,036 )   (25,201 )
 
Free cash flow $ 1,600   $ 3,534   $ 12,759   $ 36,555  

NonGAAP Measures:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess recurring performance and believes provides useful information to investors regarding baseline operating results.
 
Free cash flow ("FCF") is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay ("incurred capital expenditures"), plus milestone billings for a fiber build project for a carrier customer, less AWN transaction-related capital costs, less amortization of AWN capacity revenue (which is a non cash revenue item), less earthquake related costs, less cash interest expense. Note that incurred capital spending includes the costs associated with a two year fiber build project with a strategic customer however we are adding back the cash we receive from the customer for the funding of that project to FCF. Accordingly, our capital spending will be elevated because of this project, but the project will be accretive to FCF by 2015.
 

 

Schedule 6

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH
(Unaudited, In Thousands)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
Service revenue: 2014       2013 2014       2013
Business and wholesale customers
Voice $ 5,666 $ 5,790 $ 16,948 $ 17,303
Broadband 10,962 10,080 32,658 29,509
IT Services 1,007 - 2,540 -
Other 1,800 1,926 5,256 5,969
Wholesale   8,544     7,267   24,723     22,319
Business and wholesale service revenue   27,979     25,063   82,125     75,100
 
Consumer customers
Voice 3,686 4,147 11,399 12,819
Broadband 6,336 5,596 18,441 16,443
Other   409     478   1,191     1,275
Consumer service revenue 10,431 10,221 31,031 30,537
 
Total service revenue   38,410     35,284   113,156     105,637
Growth in service revenue 8.9 % 7.1 %
Growth in broadband service revenue 10.3 % 11.2 %
 
Other revenue:
Equipment sales 1,310 516 3,421 1,451
Access 8,771 9,273 26,732 28,056
High cost support   4,922     4,984   18,271     13,558
Total service and other revenue   53,413     50,057   161,580     148,702
Growth in service and other revenue 6.7 % 8.7 %
Growth excluding equipment sales 5.2 % 7.4 %
 
Wireless revenue:
Business and consumer service revenue 16,413 17,673 50,598 53,607
Equipment sales 2,059 1,255 4,178 3,785
Other 1,213 1,441 4,010 3,591
 
AWN related:
Foreign roaming - 5,594 - 40,029
Wireless backhaul - 1,944 70 6,112
CETC 4,720 5,139 14,581 16,093
Amortization of deferred AWN capacity revenue   647     738   2,337     738
Total AWN related   5,367     13,415   16,988     62,972
Total wireless & AWN related revenue   25,052     33,784   75,774     123,955
 
Total revenue $ 78,465   $ 83,841 $ 237,354   $ 272,657
 

 

Schedule 7

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
      Three Months Ended
September 30,       June 30,       September 30,
2014 2014 2013
 
Voice:
Consumer access lines 45,177 46,740 50,722
Business access lines 79,563 80,172 80,071
 
Voice ARPU consumer $ 26.73 $ 26.95 $ 26.81
Voice ARPU business $ 23.65 $ 23.63 $ 24.04
 
Broadband:
Consumer connections 38,257 39,022 38,117
Business connections (2) 19,201 19,077 18,700
 
ARPU consumer $ 54.18 $ 52.51 $ 48.63
ARPU business (1) (2) $ 190.60 $ 194.96 $ 180.15
 
Wireless:
Postpaid connections 79,963 83,468 86,423
Lifeline connections 7,637 7,447 9,077
Prepaid connections   21,463           18,663           16,614  
Total   109,063           109,578           112,114  
 
Retail wireless ARPU $ 50.10 $ 52.55 $ 52.08
 
Churn:
 
Voice connections 1.5 % 1.9 % 1.4 %
Broadband connections (2) 2.6 % 2.4 % 2.3 %
Wireless connections 2.9 % 2.4 % 3.2 %
 
(1)       Business broadband ARPU was restated to reflect the movement of IT services revenue into a separate category.
(2)

How we calculate broadband connections has changed to exclude certain internal use circuits. Historical amounts have been restated to reflect appropriate comparisons period over period.

 

 

Schedule 8

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt
(Unaudited, In Thousands)
 
      September 30,       December 31,       September 30,
2014 2013 2013
2010 senior credit facility term loan due 2016 $ 322,700 $ 345,900 $ 347,725
Debt discount - 2010 senior credit facility term loan due 2016 (1,155 ) (1,687 ) (1,838 )
6.25% convertible notes due 2018 114,000 114,000 114,000
Debt discount - 6.25% convertible notes due 2018 (7,731 ) (9,213 ) (9,666 )
Capital leases and other long-term obligations   6,828     7,257     7,426  
434,642 456,257 457,647
Less current portion   (11,846 )   (14,256 )   (12,865 )
Long-term obligations, net of current portion $ 422,796   $ 442,001   $ 444,782  
 
 
 
 
    Maturities

 

 
2014 (October 1 - December 31) $ 286
2015 (January 1 - December 31) 15,422
2016 (January 1 - December 31) 308,792
2017 (January 1 - December 31) 510
2018 (January 1 - December 31) 114,292
2019 (January 1 - December 31) 283
Thereafter   3,943  
    $ 443,528  
 

 

Schedule 9

 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Summary AWN information
(Unaudited, In Thousands)
 
Alaska Wireless Network, LLC
Stand Alone Selected Operating Results
                   
Q1 - 2014 Q2 - 2014 Q3 - 2014 YTD - 2014
Operating revenues $ 63,037 $ 64,665 $ 70,424 $ 198,126
 
Operating expenses:
Cost of services and sales 19,119 18,880 18,049 56,048
Selling, general & administrative 5,954 5,898 5,337 17,189
Depreciation and amortization   10,995     10,644     11,097     32,736  
 
Total operating expenses 36,068 35,422 34,483 105,973
 
Operating income 26,969 29,243 35,941 92,153
 
Other income and (expense)   (92 )   (88 )   (94 )   (274 )
 
Net income 26,877 29,155 35,847 91,879
 
Plus:     Depreciation Expense 10,995 10,644 11,097 32,736
Other, net 1,706 1,631 1,420 4,757
Minus: Capital Spending 3,639 7,110 21,141 31,890
Management Fee to GCI   1,438     1,372     1,089     3,899  
Adjusted Free Cash Flow $ 34,501   $ 32,948   $ 26,134   $ 93,583  
 
Distributions paid to ACS: 12,500 12,500 12,500 37,500
 
Distributions to ACS as a proportion of FCF: 36.2 % 37.9 % 47.8 % 40.1 %
 
The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.
 
 
Wholesale Margin:
Q1 - 2014 Q2 - 2014 Q3 - 2014 YTD - 2014
Wireless business and consumer service revenue $ 17,056 $ 17,129 $ 16,413 $ 50,598
 
AWN wholesale charges * $ 11,905 $ 12,750 $ 11,210 $ 35,865
Handset subsidy support * (2,664 ) (3,095 ) (2,256 ) (8,015 )
Equipment subsidy 3,127 3,358 1,875 8,360
Other *   235     830     (141 )   924  
Total $ 12,603 $ 13,843 $ 10,688 $ 37,134
 
Wholesale Margin $ 4,453 $ 3,286 $ 5,725 $ 13,464 27 %
 
* Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN.
 
 
Key AWN Results included in the ACS Consolidated Income Statement:
Q1 - 2014 Q2 - 2014 Q3 - 2014 YTD - 2014
AWN net income $ 26,877 $ 29,155 $ 35,847 $ 91,879
Adjusted for step-up in GCI assets   (1,345 )   (1,650 )   (1,180 )   (4,175 )
AWN stepped-up earnings $ 25,532 $ 27,505 $ 34,667 $ 87,704
 
ACS ownership percentage of AWN 33.33 % 33.33 % 33.33 % 33.33 %
 
"Adjusted for step-up"(B) reflects the step up in basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.
 
Earnings on equity method investment in AWN $ 8,511   $ 9,168   $ 11,556   $ 29,235  
 
AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage.
 
Key AWN Results Included in the ACS Non GAAP financial measures:
Q1 - 2014 Q2 - 2014 Q3 - 2014 YTD - 2014
Cash distributions received during the quarter $ 12,500 $ 12,500 $ 12,500 $ 37,500

 

 

Less:

Distributions received during the quarter related to the previous period

(4,167 ) (4,167 ) (4,167 ) (4,167 )
Plus: Distributions received within 14 business days of quarter-end 4,167 4,167 4,167 4,167
Amortization of deferred AWN capacity revenue   841     849     647     2,337  
Equals AWN impact to Adjusted EBITDA $ 13,341   $ 13,349   $ 13,147   $ 39,837  
 

Less:

Amortization of deferred AWN capacity revenue   841     849     647     2,337  
Equals AWN impact to Free Cash Flow $ 12,500   $ 12,500   $ 12,500   $ 37,500  
 
In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.


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