Boosted by broadband, Alaska Communications posts net gain

Alaska Communications Systems Group Inc. reported net income of nearly $2.4 million in 2016 and a $195 million credit and loan package that will help refinance existing debt, company officials said in a March 14 investor call.

Net income in 2016 —Alaska Communications’ first year as solely a broadband and IT service provider — was down 81 percent for the year, but up nearly five-fold year-over-year in the fourth quarter at $1.6 million.

The total year-to-year decrease is related to the 2015 transaction when Alaska Communications sold its wireless customer base and infrastructure to fellow Anchorage-based telecom General Communications Inc.

Alaska Communications saw its full-year wireline revenue increase 3.2 percent to $226.9 million, its third-consecutive year of wireline business growth, according to CEO Anand Vadapalli.

Total broadband revenue also grew by 10.5 percent for the year to $115.8 million.

Vadapalli said the wireline growth was primarily due to an 8.2 percent revenue improvement in the company’s business and wholesale segment, which at $136.9 million comprised 60.3 percent of Alaska Communications’ total revenue for the year.

Alaska Communications believes its 2017 performance will be driven by broadband market growth with an increasing market share, he said, as well as attracting more customers to its managed IT services business segment.

“We are confident in performing to our strategic plan,” Vadapalli said. “In addition, we will continue to explore strategic actions to develop scale and geographic diversification for Alaska Communications by evaluating opportunities that leverage the very unique portfolio of skills and competencies we have developed over the last several years.”

While net income was down significantly in 2016, the company’s 2015 balance sheet included a $46.2 million net gain from the sale of its wireless business. The $300 million cash deal with GCI was announced in late 2014 but rolled into early 2015.

Vadapalli also called the company’s managed IT service business “a clear market of opportunity,” noting a relative lack of competition in Alaska for the offering.

Alaska’s statewide recession, driven by ongoing and joined-at-the-hip multibillion-dollar state budget deficits and lower oil prices, could also provide the company a unique business opportunity despite the generally tough times, Vadapalli surmised.

“The macro environment in Alaska is forcing businesses to look for every opportunity to save money and technology offers the best solutions for businesses large and small, providing a basis for our growth,” he said.

Alaska Communications had $21.2 million in available cash at the end of 2016, compared to $36 million a year prior. However, the difference also reflects a $13.4 million payoff of long-term debt.

For 2017, Alaska Communications expects its earnings before interest, taxes, depreciation and amortization, or EBITDA, to about $60 million, slightly more than the $58.2 EBITDA it generated last year. Company EBITDA in 2015 was $49.9 million.

Additionally, ACS is working on a capital spending plan between $35 million and $38 million, according to a company release. It spent $30.9 on capital expenses in 2016.

On March 13, the company finalized a credit agreement with loans totaling $180 million and a $15 million revolving credit line, Senior Vice President of Finance Laurie Butcher said.

“This transaction, which we will fund later this month, allows us to refinance our existing debt and extend maturities, thus removing uncertainty from our balance sheet,” Butcher added.

The first $120 million loan tranche comes due in 2022 and the remaining $60 million matures in 2023.

The financing package also includes a $10 million “starter basket” that will be used for stock repurchases, according to Butcher.

Alaska Communications held $162.8 million in net debt at the end of last year, consistent with 2015.

Partnership with Quintillion

Alaska Communications announced a deal with Anchorage-based fiber optic provider Quintillion on March 8 that will allow it to offer reliable, high-speed broadband and IT services to Northwest Alaska communities for the first time, according to a company release.

Quintillion is working to develop an international subsea fiber optic network and the first phase of that has been laying cable off of the North Slope. The company can then sell wholesale capacity on its fiber optic cables.

Alaska Communications will resell some of its capacity to other telecom carriers along with serving business customers on its expanded network, the company states.

“Securing this competitive and high-quality fiber connection to our North Slope assets significantly improves our opportunities to serve the health care, education and public safety sectors in (Northwest Alaska) communities, while preparing us to better serve the needs of the energy sector and Arctic development,” Vadapalli said in a formal statement.

The deal also calls on Quintillion to buy capacity from Alaska Communications for its just-finished onshore system to reach the North Slope oil fields. Alaska Communications has a fiber optic network linking Fairbanks to the Lower 48.

The two also partnered to buy a North Slope fiber optic network from ConocoPhillips’ in April 2015.

“The Arctic is a developing frontier and currently lacks essential infrastructure such as broadband. The cost of service is very high. The quality of service is very poor and economic development, health care and education are being impeded,” Quintillion CEO Elizabeth Pierce said in a formal statement. “Quintillion is building a fiber optic cable system that will allow providers to offer lower cost and better quality service.”

The latest deal gives Alaska Communications the ability to connect to its existing network via Quintillion’s terrestrial cable network, provides redundancy and expands its offerings to more North Slope oil operators, the release stated.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
03/15/2017 - 12:11pm