ALSK - Alaska Communications

[yadayada]

yeah but in all cases except the plane, you can just connect to wireless. It doesnt seem to me there is really demand. Unless people are too lazy to just connect to the wireless. And a quarter of US households have a xbox. So it is safe to say that almost half of Us households have a console at home. Or a laptop. This number will probably increase over time.

 

Why would you pay additional money for this? Whos gonna pay several 100 a year because they are too lazy to connect to their wireless network at home?

[zippy1]

Alaska Communications (ALSK) today announced the purchase of 51 percent of TekMate, one of Alaska’s leading managed information technology (IT) services firms, expanding on its 2010 acquisition of 49 percent interest in TekMate.

TekMate generated $6.8 million revenue for the twelve months ended December 31, 2013. Alaska Communications expects to incur certain integration costs in 2014 associated with the transaction, which will offset TekMate financial performance. The acquisition, therefore, is not expected to materially increase Alaska Communications’ EBITDA or free cash flow in 2014.

http://finance.yahoo.com/news/alaska-communications-announces-purchase-tekmate-135500162.html

[gary17]

But wait... (Please correct me if I'm wrong)

According to ALSK management they are:

1) Spending $15 million per year in SG&A for growth.

2) Spending $10 million + per year on Growth Capex.

So this means even if they don't end up growing, they can pull on these levers to increase Cash flow by $25 million annually? Do I have this right? Remember baseline wireline ebitda was $58 million -- $3 million is going to AWN via backhaul but $15 is being decreased through additional SG&A (marketing spend)

 

Krazeenyc - so here's the slide from ALSK -

just trying to check my math here...

so let's take AWN out of the picture and let's just assume that cancels out all of ALSK's debt to zero... so like Packer said, we are left with a company that's got about 40M ebitda priced at about 90M. 

 

what would the free cash flow be?  this 40M includes the increased 15M SG&A spending per the slide attached is the way I understood it.  i'm just approximating it as ebitda less capital spending less interest expense which is zero - so if they spend just enough for maintenance, this suggests a very high FCF that can be used to pay out dividends or buy back shares....  like a 30 - 40% implied yield.....  ???

sorry folks. I found my mistake. I was looking at q2, instead of q3... small screen. I fixed this post to reflect this.

 

I was looking at this again recently and just thought of something that I thought I must have missed something the way I was looking at it; so I thought I ask the question here.  Please refer to ACS's reconciled ebitda prior and post AWN attached.

 

In Q3 2013 they reported ebitda of about 24m - of this, 22 days are prior AWN and 70 days are post AWN  (july 1 - july 22 = 22 days; july 23 - sept 30 = 70 days).

 

if we look at their 2011 baseline - or even 2010's -- ebitda, which are about 126m for the year, we can get about 0.35m ebitda per day or for the first 22 days in July 2013 of 7.6m.  not scientific, just a guess.

 

Since they reported 24m for the quarter, does not that leave us with 16.m of ebitda for the request of the quarter, post AWN, which is about 70 days.  One can annualize 16.4m for 70 days and get about 85m for the full year post AWN.

 

This number seems lower than the 90m management has been projecting in their presentation (attached). 

 

 

 

Thanks

 

PS I asked management some questions, and here's what they noted -

 

1)  Wireless -    Wireless spectrum is like real estate (the way I look at it) - does your COO see that in the future there will be a limit in terms of wireless broadband supply such that as demand increases , over the next decade, wireless bb operators will get pricing power.

 

  We provide wireless services through the Alaska Wireless Network.  They have amble bandwidth for our future needs.

 

2)  Wireless vs Wifi - Wireless' biggest competition is probably free wifi - you probably know the likes of Republic Wireless.  I am curious as to see if this will disrupt the pricing power.

 

We don’t see that type of disruption in Alaska.  In fact AWN operates the biggest wifi network in the state, and we’ll use that to our advantage.

 

3)  DSL - as you konw GCI is now going to have 1GB/s of data - how do you plan to compete with that?

 

  GCI has a superior network for consumers, but we do very well with businesses.  That’s why our focus is on business customers/services.

 

 

 

 

 

[gary17]

On ALSKs EBITDA - it should be around $90m (including dividend from AWN) - assuming no growth (which is conservative given ALSKs largest remaining service is broadband connectivity in the richest state in the nation in duopoly market with a rationale competitor).  If we subtract $35 million (steady state cap ex @ about 16% of revenues) from EBITDA we get FCF of $55 million (before interest expense) and $30 after interest expense.  ALSK has tons of NOLs so it will not be paying taxes for a long time.  So if we apply a 10x multiple to equity FCF we get $300 million vs. a mkt cap of $147 million.

 

In previous response to ok22 I was off so I changed response below.

 

Packer

 

Hi packer. Just noticed you noted FCF after interest of $30 which is double of managements $15 in their presentation released after q2. Can I ask how you got such a. Different number from management's. Thanks.

[Packer16]

I believe the difference is cap-ex where ALSK will hopefully get some growth not included in my estimation of value (10x FCF).

 

Packer

[gary17]

Hi Packer

Just wondering if you've seen this and could let us know what it means...

 

Sounds to me like the preferred distribution exceeding the 1/3 ownership is treated as part of the sales and not an investment gain...      what's the implication?    TIA.    Gary

 

 

 

On November 8, 2013, Alaska Communications Systems Group, Inc. (the "Company") filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (the "Form 10-Q"). That report disclosed (i) the Company's gain (the "Gain on Sale/Contribution") arising from the formation of The Alaska Wireless Network, LLC ("AWN"), a joint venture in which the Company holds a one-third equity interest, and (ii) certain amounts the Company classified as contingent consideration arising from the cumulative preferred distributions payable to the Company by AWN.

 

The Company accounted for the amount by which the preferred distributions exceeded the distributions the Company would be entitled to as a one-third equity owner of AWN (the "AWN Excess Distributions") as contingent consideration issued in connection with a business combination. The Company treated the contingent consideration as a gain contingency recognized when realized or realizable.

 

The Company disclosed in the Form 10-Q that the above accounting treatment differed from AWN's and indicated that the Company was working to resolve the difference. As a result of that work, on February 14, 2014, the Company's management (after consultation with the Company's independent registered public accounting firm) concluded that:

 

(1) The Gain on Sale/Contribution and their carrying value of the equity investment should be increased to reflect the value, as of the formation of AWN, of the AWN Excess Distributions; and

 

(2) The amounts presented as AWN Excess Distributions for the three and nine months ended September 30, 2013, should be eliminated and instead be considered in the total Gain on Sale/Contribution and as an increase to ACS' investment in AWN.

 

As a result of the above, the financial statements for the three and nine months ended September 30, 2013 (as presented in the 10-Q), should no longer be relied upon insofar as they relate to the Gain on Sale/Contribution or the AWN Excess Distributions that were classified as contingent consideration or the carrying value of the equity investment.

[Packer16]

It has to do with the accounting of the preferred distribution and does not effect cash flow.  AWN and ALSK had a difference in accounting and ALSK went with AWN's approach.  This would increase the gain ALSK reports on its books as of the closing of the transaction to the PV of the difference between the preferred distributions and 1/3rd of AWN's cash flow.

 

Packer

[gary17]

There appears to be more light on this issue:

This is really beyond me.... 

 

On November 8, 2013, Alaska Communications Systems Group, Inc. (the "Company") filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (the "Form 10-Q"). That report disclosed (i) the Company's gain (the "Gain on Sale/Contribution") arising from the formation of The Alaska Wireless Network, LLC ("AWN"), a joint venture in which the Company holds a one-third equity interest, and (ii) certain amounts the Company classified as contingent consideration arising from the cumulative preferred distributions payable to the Company by AWN.

 

The Company accounted for the amount by which the preferred distributions exceeded the distributions the Company would be entitled to as a one-third equity owner of AWN (the "AWN Excess Distributions") as contingent consideration issued in connection with a business combination. The Company treated the contingent consideration as a gain contingency recognized when realized or realizable.

 

The Company disclosed in the Form 10-Q that the above accounting treatment differed from AWN's and indicated that the Company was working to resolve the difference. As a result of that work, on February 14, 2014, the Company's management (after consultation with the Company's independent registered public accounting firm) concluded that:

 

(1) The Gain on Sale/Contribution and their carrying value of the equity investment should be increased to reflect the value, as of the formation of AWN, of the AWN Excess Distributions; and

 

(2) The amounts presented as AWN Excess Distributions for the three and nine months ended September 30, 2013, should be eliminated.

 

The adjustments noted above will increase the Gain on the Sale / Contribution by approximately $65 million.

 

As a result of the above, the financial statements for the three and nine months ended September 30, 2013, should no longer be relied upon insofar as they relate to the Gain on Sale/Contribution or the AWN Excess Distributions that were classified as contingent consideration or the carrying value of the equity investment. The Company intends to file an amended Form 10-Q with restated financial statements early in March, 2014. Because we are revising the Form 10-Q to reflect the above, we are also recording further adjustments received from our valuation experts primarily decreasing the value of the deferred capacity rights which will increase our gain an additional $10 million. We currently expect the valuation report to be finalized and issued prior to the filing of our March 31, 2014 Form 10-Q.

[zippy1]

Q4 and 2013 results out.

http://finance.yahoo.com/news/alaska-communications-systems-reports-fourth-210500707.html

Alaska Communications Systems Reports Fourth Quarter and Full Year 2013 Results

Full Year Revenue of $348.9 million, Adjusted EBITDA of $106.5 million, Free Cash Flow of $22.0 million

Full Year Total Service Revenue growth of 2.9% year over year, led by Broadband growth of 18.6%

2014 Guidance:

Revenue is expected to be approximately $310 million.

Adjusted EBITDA is expected to be approximately $90 million.

Capital spending is expected to be approximately $40 million.

Free cash flow is expected to be approximately $20 million.

[tombgrt]

Thanks Zippy1. Down 14% after hours. Though crowd! I did sell my smallish stake today after the sudden run up as I wasn't impressed with the AWN numbers that were presented. I will keep my very large GNCMA position however.

[gary17]

Seems like q4 wasn't that great. Oh well. Nice 20% ish yield if they deliver.

 

They probably can't issue dividend until debt is at 3.5 ebitda. Probably in two years they could increase ebitda and decrease debt enough so they can pay dividend.

 

Gary

 

[gary17]

Hi Packer

just wondering if you looked at the ALSK Q4 results and what are your thoughts -

and more specifically what's your thoughts on AWN's performance?

 

Interesting both GCI and ACS are now trading below book value - or does that not mean anything? 

 

Thanks

Gary

[gary17]

Here are the Q4 analyst reports

BOA_ALSK_Q4_2013.pdf

RJ_ALSK_Q4_2013.pdf

Drexel_ALSK_Q4_2013.pdf

[Packer16]

I have looked at AWN and I missed the seasonal roaming aspect of the cash flows in my earlier estimates.  It looks like AWN is about $110 to $120 m of EBITDA per year.  I like GNCMA better as they already have the cable/broadband part of the infrastructure and ALSK still has to build it and GNCMA trades at a discount to other Telco/cable/wireless comp SHEN and CNSL.  An interesting take from the analyst reports is VZ launch not expected until late 2014. Good news for 2014 AWN cash flows.

 

Packer

[bizaro86]

Since ALSK gets a fixed payment initially, shouldn't essentially all the benefit from a late VZ entrance to Alaska accrue to GNCMA?

[sethatk]

http://www.alaskajournal.com/Alaska-Journal-of-Commerce/March-Issue-3-2014/Net-income-soars-for-Alaska-Communications-after-merger/

[gary17]

There's the one time gain ...

 

I have been thinking though that ACS and GCI are cheap.... Could it be because there's little room for population growth in the state... Therefore the top line growth will be limited?

[sethatk]

http://econpost.com/alaskaeconomy/alaskas-population-facts

 

I think that Alaska will continue to grow as more people become willing to move for the higher paying jobs.

[zippy1]

Q1 result is out

http://finance.yahoo.com/news/alaska-communications-systems-reports-first-210000352.html

Financial Highlights: First Quarter 2014 Compared to First Quarter 2013

• The quarter experienced strong revenue performance in our key areas of focus:

 

o Business and wholesale service revenue of $26.4 million grew $1.8 million or 7.2%, with broadband revenues growing 17.1%.

 

o Consumer service revenue of $10.2 million grew $0.2 million, or 1.9%, with broadband revenues growing 11.8%.

 

o Wireless revenue of $19.4 million, declined $0.8 million, or 4.2%, as connections continued to decline.

• Adjusted EBITDA was $22.9 million and is consistent with our overall guidance expectations for the year.

• Free Cash Flow was strong at $8.4 million.

• Persistent deleveraging continues, with debt balances of $444 million at the end of the quarter, compared to $456 million at December 31, 2013. Cash stands at approximately $32 million.

2014 Guidance:

 

We reaffirm guidance for the year as follows:

 

Revenue is expected to be approximately $310 million.

 

Adjusted EBITDA is expected to be approximately $90 million.

 

Capital spending is expected to be approximately $40 million.

 

Free cash flow is expected to be approximately $20 million.

[flixil]

Hello

 

When reading this thread, I realized that people where buying before the AWN was made public around the same prices that we can see today, expecting a minimum of 2x the price.

 

Why isn't ALSK a good buy when it was in June 2013 at the same price?

Was it because there as a momentum for news realization then and now there is no foreseen event to close the value gap?

 

flixil

[flixil]

http://www.fructivore.com/2014/08/alaska-communications-junk-bonds-of-the-last-frontier/

[blainehodder]

Any news causing this drop?

[bookie71]

Verision just opened right next door could be part of it.

[compoundinglife]

http://www.alaskacommunications.com/~/media/Files/pdf/releases/2014/ALSK_News_2014_12_4_General.ashx

 

Selling wireless assets to GNCMA for 300M.

[krazeenyc]

I've re-established a position in ALSK. You have an $83MM market cap and $162MM in debt. Q4 2015 run rate Ebitda is projected at $54-56MM. That's a 4.45x Ebitda vs 6-6.3x from peers that have declining revenues vs ALSK that actually has some growth. The balance sheet is much stronger than it has been at less than 3x Debt/ebitda. They have $20MM in "maintenance" capex and $14-16 in "success based capex". So it looks like program capex is mostly over. So Q4 2015 run rate fcf should be $7-9MM. There are a few catalysts that could boost the stock:

 

1) Refinancing the $80MM left on the term loan where they currently pay 7.2% to ~5% (similar to HCOM) -- which would save them $~ 1.6MM per year.

2) Restart of the dividend and or share buybacks. They have been way over-leveraged over the last few years at 4.5-5.5x Ev/Ebitda. Their Debt covenants basically don't allow them to pay a dividend or do share buybacks unless they're under 3.5x and now they are well under that.

 

At 6x $55 = $330 - $159 (projected net debt Q4 2015) = 106% upside.