Alaska Communications will end dividend
Alaska Communications Systems Inc. reported third quarter growth in several sectors, although certain revenues continue to decrease and the company announced it is suspending its dividend as a means to lower its debt burden.
Chief Financial Officer Wayne Graham said the company’s total third quarter revenues were strong at $96.8 million, up $6.5 million or 7.2 percent from the third quarter of 2011.
Wireless revenue was up 16.5 percent or $5.7 million compared to the same time in 2011. The biggest factor in that increase was roaming, Graham said.
Alaska Communications also saw an increase in business and wholesale revenue of $1.2 million, or 4.6 percent, compared to third quarter 2011.
Those increases helped offset decreases in voice revenue, which continues to decline.
The number of consumer and business access lines decreased compared to the prior quarter and compared to this time last year. Consumer lines went from 59,480 in June 2012 to 57,483 in September. There were 81,330 business lines in September, compared to 82,083 in June.
Broadband connections also showed slight drops, although the decline slowed down compared to prior quarters. The company ended the third quarter with 92 fewer consumer connections than in June, and six fewer business connections.
Graham said the company will address some of the access line erosions with upcoming promotions.
ACS is seeing the same trends as others in the industry, said President and Chief Executive Officer Anand Vadapalli.
Traditional cashcows, like voice services, are being eroded, Vadapalli said. And the opportunities for growth, like broadband data, require significant investments.
To better position itself for future investments and expenses, ACS is working on deleveraging.
Part of that effort includes suspending its common stock dividend.
“The $8 million of cash that was used to pay dividends will now be used to accelerate our debt paydown, with every dollar of deleveraging creating value for all shareholders,” Vadapalli said during an investor call Nov. 1.
Vadapalli said he knew that might not be good news for shareholders.
“We acknowledge the near-term impacts to our shareholders, but we believe this course of action strengthens us for the longterm,” Vadapalli said.
The move is meant to keep Alaska Communications competitive.
“We compete with many companies for capital, and the strongest companies are getting stronger by reducing their levels of debt and driving down their costs of capital.” Vadapalli said.
The company also announced new credit and labor agreements.
Increasing deleveraging efforts helped to secure better terms on the credit side, Vadapalli said.
“We had an opportunity to get favorable terms by making a decision now to accelerate deleveraging. So this certainly gave us the catalyst to make the decisions we did. And the amortization break you see in there certainly is a reflection of that.”
The new labor agreement allows the company to introduce defined contribution retirement packages, and cost-sharing for defined benefit plans. It also offers the potential of lower labor costs in the future, without risking current employee jobs, Vadapalli said.
“These are substantial improvements in our labor relations model, and reflect a shared commitment with the IBEW to secure our future,” Vadapalli said.
The Alaska Wireless Network is also part of the company’s deleveraging effort. The partnership with General Communications Inc. includes a $100 million payment from GCI to Alaska Communications in exchange for a two-thirds interest in the new network.
Vadapalli said Alaska Communications will use $65 million from that transaction – if it is approved – to pay down debt.
The plan for 2013 and beyond is to maintain and build customer relationships, continue buulding out the 4G LTE network, and pursue the Alaksa Wireless Network expansion with GCI.
“AWN makes us stronger by allowing us to better compete with new entrants.”
That network is still pending regulatory approval.
Vadapalli said he’s pleased with the company’s performance overall, but aware of the reduction in share price over the past year. That, he said, has come from three things happening in the industry — the future entry of a national competitor into the wireless market, FCC regulation changes, and dealing with both of those external events while the company’s balance sheet has debt.
In the long-term, Vadapalli said he thinks the company will remain healthy.
Vadapalli said the company had been executing its business plan as anticipated.
“We have one of the strongest brands in Alaska, with a reputation for reliability, customer service, trustworthiness, and local community presence,” Vadapalli said. “These are the things that our customers value the most.”
Vadapalli said the company is not setting a specific target leverage ratio. There are milestones, but for now the focus is on paying down the debt.
In the long-term, Graham said the company will likely see higher levels of capital spending than it has traditionally done.
Neither indicated that the company would resume a shareholder dividend at a specific time, but they didn’t rule it out, either. The company board of directors makes all decisions on dividend payments.
Aside from debt-leveraging and the pending Alaska Wireless Network transaction, the company’s other future plans include offering customers more value-added products, adding sales people in the business division, and working on investments that simplify business practices and improve the speed and quality for delivery of services, Vadapalli said.
Looking ahead, Graham said the company will likely round out the year with revenues of between $355 and $365 million, and capital expenses of about $54 to $57 million. Both ranges fall in line with what the company predicted for 2012 after the close of 2011, and an increase over past years. In 2011, the company ended the year with total revenue of $349.3 million, which was an increase over 2010, when it ended with $341.5 million.