Culture Will Drive Further Results At Alaska Communications

| About: Alaska Communications (ALSK)

On August 2nd, SA contributor Harry Long coined Alaska Communications Systems Group Inc. (NASDAQ:ALSK),"The finest Telecom Turnaround of the Past Decade." Since Harry's first article on June 4th ALSK has risen over 25%. I'd like to first and foremost thank Harry for his contribution to the success of us home gamers. Furthermore, the stock has most recently dropped significantly -14% at the time of this writing; even after the company reported a stellar Q3 EPS of 1.33 and beat top line revenue by 5.9M. In this article I would like to talk about why I think ALSK is positioning itself to under promise and over deliver as they have done the last 2 quarters. More specifically I want to cover how ALSK is using culture as a driver for future growth; how the creation of AWN will benefit ALSK moving forward; and finally the strategy ALSK has to drive growth and results.


First off I would like to start with a quote from CEO Anand Vadapalli in the company's most recent earnings release,

"You are investing in a company that has consistently delivered on what we said we would do. We've been transparent about our opportunities and our challenges. We have worked hard to earn the trust of our people, our customers and our investors."

These aren't just words either; the company is physically restructuring the company to drive this trust and clarity. It all starts with their lean initiative launched late last year.

Vadapalli has also mentioned quite consistently that ALSK has and continues to drive lean into their processes and services. For those of you who are questioning what and if any impact will be had here, I challenge you to take a look at 3M; Toyota; or the man himself William Deming's work. This is a philosophy that has a proven track record, and not only will it provide for ALSK but stimulate it as well. This very bottom up thinking will prove to be clutch in a secluded market like Alaska.

While listening to Vadapalli speak in the earnings calls over the past year, it reminded me of another great culture driven company. Ford, with Alan Mulally at the helm is very much a culture inspiration, and the turnaround from 08' has been magnificent.

AWN Creation

A lot of questions have risen in regards to the recent ALSK and General Communication Inc. deal that closed this past quarter. The new entity Alaska Wireless Networks or AWN has created a catalyst to the strengthening of the balance sheet at ALSK. AWN also creates structure, consistency, and mitigated risk for ALSK and its shareholders.

First the structure of the deal, ALSK without it was divided. With AWN the company can pool resources with GCI to benefit from the economies of scale. Cell towers and coverage, are just a few that can increase the barrier to entry in the region.

Second, consistency - with the AWN deal ALSK is eligible to up to 190M in distribution over the next 4 years in excess to the 100M they've already received upon closing in July. This provides a nice cushion to ALSK moving forward.

Lastly, mitigated risk to shareholders and to the company. They have essentially created a means to draw in a consistent cash flow that will in turn help them deleverage their balance sheet going forward.

-Deleveraged 24.9% of debt YTD


Management's two step approach of deleveraging and growing broadband revenues is exactly the simplistic strategy that can and will continue to bear fruit. With growth in defined disciplines, specifically in the infrastructure of fiber to node and broadband space CEO Vadapalli is committed to executing this two-step approach, and it's working. Here are some snapshots to back it:

The strengthening of the balance sheet results in another tool the company can leverage. Creditability with the banks is a large part of doing business in any business, not to mention the capital intensive telecom market; creditability will help or hinder a company's growth initiatives. With the deleveraging on the balance sheet that's taken place at a 24.9% rate YTD, ALSK is driving this creditability, to ensure future growth isn't at the fate of financing.

In summary:

All in all, although ALSK isn't at the right place with their current balance sheet; I have to note that what I've heard in countless earnings calls is the continued emphasis on customer experience, employee engagement, and growth. This is also principally part of the lean journey, driving results from the ground up, and the people who are going to execute that are the people you're investing in and trusting to make good decisions. This type of culture and execution could make our legend over at Ford smile, and in my opinion is worthy of "The finest Telecom Turnaround of the Past Decade" title.

Disclosure: I am long ALSK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.