Alaska Communications Systems Group, Inc. :ALSK-US: Earnings Analysis: Q2, 2016 By the Numbers : August 11, 2016

Alaska Communications Systems Group, Inc. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Alaska Communications Systems Group, Inc. – Consolidated Communications Holdings, Inc., Cincinnati Bell Inc., General Communication, Inc. Class A, CenturyLink, Inc., AT&T Inc., Verizon Communications Inc. and Hawaiian Telcom Holdco, Inc. (CNSL-US, CBB-US, GNCMA-US, CTL-US, T-US, VZ-US and HCOM-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 56.26 million, Net Earnings of USD 0.32 million.
  • Gross margins widened from 31.46% to 39.24% compared to the same period last year, operating (EBITDA) margins now 23.34% from 5.35%.
  • Year-on-year change in operating cash flow of 181.61% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 55.67 54.74 56.63 56.33 56.26
Revenue Growth (%YOY) -30.9 -30.24 -26.94 -14.38 1.07
Earnings (mil) -4.84 1.24 0.34 0.09 0.32
Earnings Growth (%YOY) -546.18 -34.03 106.33 -99.47 106.55
Net Margin (%) -8.7 2.26 0.6 0.15 0.56
EPS -0.1 0.02 0.01 0 0.01
Return on Equity (%) -12.71 3.26 0.88 0.22 0.82
Return on Assets (%) -4 1.05 0.28 0.07 0.28

Access our Ratings and Scores for Alaska Communications Systems Group, Inc.

Market Share Versus Profits

Revenues History
Earnings History

ALSK-US‘s change in revenue this period compared to the same period last year of 1.07% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ALSK-US is holding onto its market share. Also, for comparison purposes, revenues changed by -0.12% and earnings by 268.60% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 31.46% to 39.24% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 5.35% to 23.34% compared to the same period last year. For comparison, gross margins were 38.49% and EBITDA margins were 22.83% in the last reporting period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ALSK-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 16.01 days from 51.20 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

ALSK-US‘s change in operating cash flow of 181.61% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -9.16% to 7.99% and (2) one-time items. The company’s pretax margins are now 0.92% compared to -15.48% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Alaska Communications Systems Group, Inc.

Company Profile

Alaska Communications Systems Group, Inc. provides telecommunications and network services to consumer, business and enterprise customers in the state of Alaska. It provides communications and managed services including voice and broadband data network hosting, information technology management, cloud-based services, billing and collection, and local and long distance services to business and wholesale customers; broadband, Internet access, local and long distance voice, and other communications products and services to residential customers; wireless voice and broadband services, and other value-added wireless products and services, such as wireless devices, across Alaska with roaming coverage available in the contiguous states, Hawaii and Canada; voice and broadband termination services to inter and intrastate carriers who provide services to its retail customers. The company was founded by James H. Huesgen and Wayne P. Graham in October 1998 and is headquartered in Anchorage, AK.

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