ALSK - Alaska Communications

[Packer16]

I agree and have also.  The investor brief provides a nice overview of the company after AWN sale.

 

Packer

[argonaut]

Packer,

 

Are you still in GNCMA or exiting as the price rises to enter here?

[Packer16]

Yes I am but sold a small portion to buy ALSK.

 

Packer

[racemize]

From one of GNCMA's presentations, the highest offering from ALSK is worse than the lowest from GNCMA (I think around 10 megabit).  Doesn't seem to bode well for ALSK future to me, but perhaps the price is cheap enough here?

[Packer16]

For business they have up to 200Mbps according to there website.

 

Packer

[argonaut]

Thanks Packer.

[Munger_Disciple]

Packer,

 

Does ALSK intend to focus on business market going forward?

[JAllen]

One thing I find particularly interesting about ALSK is the lack of any 5% shareholders, at least as of the last proxy statement.

 

 

http://www.sec.gov/Archives/edgar/data/1089511/000119312514164708/d629127ddef14a.htm

 

 

"To our knowledge, no person or entity is the beneficial owner of more than 5% of our Common Stock."

 

[jeremykgold]

I have a few questions on ALSK that I haven't been able to answer and which have prevented me from being able to purchase. I hope you all have the answers!

 

1) How have they been growing business broadband? If it is because of unlimited data use, as they get larger and pose more of a threat to GCI, won't GCI take away their caps (or throttle now) before ACS steals too much business? Will GCI start competing more intensely?

 

2) Are you worried they might grow by selling projects at low margin given how they're compensated (not compensated on ROC)?

 

3) Does GCI, because it is cable, have a structural advantage that allows them to deliver services and build cheaper than ACS (ethernet over fiber)?

 

If you believe their guidance, it does look like a run rate of 20% FCFe yield by year end, and growing between 10-15% if you believe their success based capex guidance but I cannot figure out the competitive dynamics between them and GCI. Why will they succeed in winning business over GCI going forward? Why have they? If it is just the data caps, can't GCI remove that reason easily?

 

Thanks for your input,

Jeremy

[krazeenyc]

I have a few questions on ALSK that I haven't been able to answer and which have prevented me from being able to purchase. I hope you all have the answers!

 

1) How have they been growing business broadband? If it is because of unlimited data use, as they get larger and pose more of a threat to GCI, won't GCI take away their caps (or throttle now) before ACS steals too much business? Will GCI start competing more intensely?

 

2) Are you worried they might grow by selling projects at low margin given how they're compensated (not compensated on ROC)?

 

3) Does GCI, because it is cable, have a structural advantage that allows them to deliver services and build cheaper than ACS (ethernet over fiber)?

 

If you believe their guidance, it does look like a run rate of 20% FCFe yield by year end, and growing between 10-15% if you believe their success based capex guidance but I cannot figure out the competitive dynamics between them and GCI. Why will they succeed in winning business over GCI going forward? Why have they? If it is just the data caps, can't GCI remove that reason easily?

 

Thanks for your input,

Jeremy

 

I like GCI -- I think it is well run and will continue to do well. I expect GCI to continue to dominate the consumer market -- the biggest reason has been their ability to build out much cheaper as you said.  I don't expect GCI to take away their caps any time soon (I can't verify the source but - according to this article

http://stopthecap.com/2014/07/21/gci-alaskas-outrageous-internet-overcharger-customers-paying-up-to-1200-in-overlimit-fees/

GCI gets 10% of its revenues from the overages! (Can anyone verify this? or debunk it?)

 

But the business market is one that ALSK should be able to do quite well in . While Cable Broadband is fine for most as it is reasonably reliable -- if very very high uptime is important to you need Fiber.  The upload speeds might also be important for many businesses.

 

With cable you're sharing the pipe -- so during peak times you're getting far slower speeds than advertised -- while with Fiber -- you theoretically should be getting the same speed all the time. I have 300/20 Time Warner Cable internet (and I don't have caps)  -- I'd gladly trade it for Verizon 75/75.

 

As far as management incentives -- they are incentivized to grow revenue and adjusted ebitda -- I'm ok with that.

[zippy1]

Q3 out!

http://finance.yahoo.com/news/alaska-communications-posts-3q-profit-124140873.html

ANCHORAGE, Alaska (AP) _ Alaska Communications Systems Group Inc. (ALSK) on Thursday reported third-quarter earnings of $1.2 million.

 

On a per-share basis, the Anchorage, Alaska-based company said it had net income of 2 cents.

 

The Alaskan broadband and service company posted revenue of $54.7 million in the period.

 

The company's shares closed at $2.31. A year ago, they were trading at $1.38.

[argonaut]

It looks like to make their end of year goals for EBITDA they will need to have a 4th Q that is 40% or so greater than the first 3Q's avg which I find hard to believe...they still seem inexpensive but not growing strongly just slightly up...

 

Thoughts?

 

I am not currently holding this but pondering it if it drops more as I suspect it will.

[muscleman]

Nearly 3 years have passed since I first saw the GNCMA and ALSK discussions. GNCMA worked out well but ALSK the cheaper one did not.

From hinde sight, what would you think you have learned by following these two companies?

 

ALSK's operating income excluding the one time gains/losses is close to 0 in Q3. The financial condition seems pretty troublesome. Was there any signs of trouble 3 years ago that you could see?

 

I think one lesson I learned maybe is that GNCMA is a wireless/cable operator so it is stronger, and a standalone wireless business is generally weak and should be avoided as a whole?

[racemize]

Personally, when I looked at both of the companies and I saw that GNCMA offered much higher bandwidth on the broadband side and then completely bought out the wireless side, it seemed to me that Alaska was going to be outcompeted.  That doesn't necessarily mean the returns wouldn't be ok, but it at least put doubt in my mind on the future prospects of Alaska.

[zippy1]

Alaska Communications Repurchased $10 Million of Convertible Notes

ANCHORAGE, Alaska--(BUSINESS WIRE)--

 

Alaska Communications (ALSK) announced that on January 29, 2016, the company, in privately negotiated transactions, repurchased $10.0 million aggregate principal amount of its 6.25% Convertible Notes due 2018 for cash consideration of $9.75 million. As a result of these repurchases, $94.0 million of the 6.25% Convertible Notes remain outstanding as of January 29, 2016.

 

"This transaction reflects the strength of our balance sheet and confidence in our business plan to create long-term shareholder value,” said Alaska Communications CEO Anand Vadapalli. “In the last year, we reduced the balance on our term loan facilities by $232.7 million, completed refinancing transactions resulting in current maturities with due dates no earlier than 2018, and repurchased a total of $20.0 million of Convertible Notes, including this most recent repurchase.”

 

 

 

http://finance.yahoo.com/news/alaska-communications-repurchased-10-million-135500999.html

[krazeenyc]

It looks like to make their end of year goals for EBITDA they will need to have a 4th Q that is 40% or so greater than the first 3Q's avg which I find hard to believe...they still seem inexpensive but not growing strongly just slightly up...

 

Thoughts?

 

I am not currently holding this but pondering it if it drops more as I suspect it will.

 

They made their Annual Ebitda run rate goal as expected. Remember the reason the ebitda run rate was being dragged down was based on legacy support and other costs from the AWN retail business.  (Those costs fell off after Q3)

 

Not only did they meet their $54-56MM run rate target in 4Q ($55.4).  For 2016, they are projecting:

$228MM service revenue = ~3.7% Growth.

$59MM Ebitda

$35MM Capex ($20 maintenance, $15 Success based)

$5MM FCF after all capex - so $20MM Discretionary FCF.

 

Slap even a conservative 6x EV/Ebitda multiple and you easily have more than a double.

[kab60]

I bought some. I have them pegged at 59m adj. Ebitda, 16m interest and max 20m maintenance capex. At 75m mcap that's almost 33 pct. steady state FCF. Net debt at 163 = Ev/Ebitda at ~ 4. Or more than 150 pct. upside if it gets to a 6 x multiple. Obviously Alaska can get worse, and there is high fixe costs and leverage. What do people think of M&A as an exit strategy? Will GNCMA ever be allowed to take them over (probably not) but what about the major US telcos?

 

[kab60]

But wow is CEO pay crazy. 7m USD in total last three years. Increasing each year - not exactly like TSR. Could use some one to step in. The only part of comp. that I would like to increase is in case of a change of control. With the pay package I'd want to stick around.

[Philip Morris IV]

I'm probably missing something but it looks like their convertible notes (CUSIP 01167PAE1) are trading at par and around 6.6% yield, which is good.  Given the $10.28/share strike, conversion looks unlikely.  So if the equity is really at 3-4x (discretionary) FCF, that kind of ERP strongly suggests a mis-pricing in the equity.  Outside my circle of competence but really interesting play.

[racemize]

I just don't like the competitive position vs GNCMA.  I don't see how they can compete long term as they have inferior broadband and no wireless.

[kab60]

I'm probably missing something but it looks like their convertible notes (CUSIP 01167PAE1) are trading at par and around 6.6% yield, which is good.  Given the $10.28/share strike, conversion looks unlikely.  So if the equity is really at 3-4x (discretionary) FCF, that kind of ERP strongly suggests a mis-pricing in the equity.  Outside my circle of competence but really interesting play.

Just to be sure, they use 12-15m on growth capex, so real capex is 32m or 8m FCF. But they grew broadband rev 14 % y/o/y and Ebitda 10%.

I also own GNCMA, but Alsk offers at least 200/80mb for businesses and grow business rev nicely. Not my turf but business offering seems pretty complete to my eye. What are they lacking?

[racemize]

From GNCMA's 2013 investor presentation:

 

Carrier

Data Speed

Cost Range

ARPU

GCI

10-50 Mbps

$30-$200/month

$70

ACS

320Kbps- 10Mbps

$50-110/month

$47

Dish

5-10Mbps

$50-80/month

$56

 

This is residential, so maybe their business offering is much better?

[kab60]

Biz is 60 pct. of revenue and growing. Consumer revenue is falling, but should stabilize according to management and either way it's less than one fifth of revenue. I like their biz focus but obviously they're vulnerable if business craters in Alaska. I do however think that's already discounted in the share price, and leverage isn't high.

[bookie71]

fyi - hot off the press

https://www.adn.com/business-economy/2016/12/02/recession-grips-state-as-employment-losses-in-alaska-grow-hitting-new-sectors/

 

[kab60]

Results out yesterday. Pretty good performance and a couple of nice surprises; refi, tender for debentures and 10m stock buyback (more than 10 pct of marketcap). Guiding a little increase in Ebitda to 59-61m. All in all pretty good, still cheap.