Alaska Communications Systems Reports First Quarter 2013 Results

  Alaska Communications Systems Reports First Quarter 2013 Results

              – Total Revenues increased $5.1 million or 5.9% –

– Broadband Revenue as percentage of total Service Revenue now stands at 50% –

                 – Free Cash Flow of $17.9 million, up 85% –

– Deleveraging continues with $15.0 million of repayments of long term debt –

Business Wire

ANCHORAGE, Alaska -- May 02, 2013

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK) today reported
financial results for its first quarter ended March 31, 2013.

“We had a solid start to the year. Our growth in overall business and
wholesale revenues, combined with double-digit growth in every broadband
revenue category, is continuing evidence of our business plan at work.

“Upside from foreign roaming, combined with prudent operating expense and
capital investment management, resulted in superior free cash flow performance
accelerating our deleveraging initiatives.

“We target closing the Alaska Wireless Network (“AWN”) transaction in the
second quarter. The AWN Transaction mitigates risk associated with our
wireless operations by providing predictable cash flows and a platform for
additional deleveraging which will build shareholder value over time.

“Demand for our core broadband products remains strong and we are translating
market demand into business performance, all while strengthening our balance
sheet, creating long-term shareholder value,” said Anand Vadapalli, president
and CEO of Alaska Communications.

Financial Highlights: First Quarter 2013 Compared to First Quarter 2012

  *Revenues of $91.1 million increased by $5.1 million, or 5.9%, from $85.9
    million in the prior year.

       *Business and wholesale revenue increased $1.6 million, or 6.4%^1.
       *Consumer revenue increased $0.4 million, or 4.4%.
       *Wireless revenue increased $6.2 million, or 21.2%.
       *Access and CETC revenue declined, as expected, $2.2 million, or
         10.5%.
       *Broadband revenue as a percentage of total service revenue was 50%,
         compared to 43% in the prior year.

  *Adjusted EBITDA of $31.0 million increased $4.7 million, or 17.9%, from
    $26.3 million in the prior year.

       *Cost of services and sales increased $1.2 million, or 3.5%, due
         primarily to higher device and accessory expenses.^1
       *Selling, general & administrative, excluding the increase of $0.5
         million in AWN transaction related costs, and the $0.7 million
         increase in stock-based compensation and long-term cash incentives,
         remained relatively unchanged.

Metric Highlights: First Quarter 2013 Compared to Fourth Quarter 2012

  *Wireless subscribers decreased by 926 to 114,091. Losses experienced from
    the fourth quarter levels slowed significantly.
  *Wireless average monthly retail service revenue per subscriber (“ARPU”)
    decreased by 1.5% to $52.17. Erosion in voice ARPU offset strong
    performance in broadband ARPU which increased 8.2% to $22.63.
  *Business broadband connections increased to 19,466 from 19,202 and
    business broadband ARPU increased to $163.22 from $153.59.
  *Consumer broadband connections increased to 39,334 from 38,760 and
    consumer broadband ARPU increased to $44.75 from $42.53.
  *Consumer access lines declined to 54,037 from 55,823.
  *Business access lines decreased to 80,770 from 80,852.

^1 Excludes the effect of $0.9 million of revenue and expense, recorded in Q1
2012, associated with capacity exchange agreements on which we discontinued
revenue and expense recognition in subsequent periods.

“Alaska Communications continues to target free cash flow for debt reduction,
and we are pleased that we achieved significant debt reductions in the
quarter. Net debt now stands at $521.9 million and our total leverage ratio as
calculated under our senior credit facility for the twelve months ended March
31, 2013, is 4.13 to 1.00. Because our operating results in 2013 will be
impacted by the timing of the AWN transaction, we continue to delay providing
full year 2013 guidance until we have established a firm closing date. The AWN
transaction will result in approximately $65.0 million of debt pay down at
closing, and our Adjusted EBITDA following close will reflect the preferred
distributions we expect to receive from AWN,” said Wayne Graham, ACS chief
financial officer.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m.
Eastern time to discuss the results. Parties in the United States and Canada
can access the call at 1-877-941-8609. Parties outside the United States and
Canada can access the call at 1-480-629-9770. The live webcast of the
conference call will be accessible from the “Events Calendar” section of the
company’s website (www.alsk.com). The webcast will be archived for a period of
90 days. A telephonic replay of the conference call will also be available two
hours after the call and will run until Thursday, May 9, 2013, at midnight
Eastern Time. To hear the replay, parties in the United States and Canada can
call 1-800-406-7325 and enter pass code 4613887. Parties outside the United
States and Canada can call 1-303-590-3030 and enter pass code 4613887.

About Alaska Communications

Headquartered in Anchorage, Alaska Communications Systems Group, Inc.
(NASDAQ:ALSK) is a leading provider of high-speed wireless, mobile broadband,
Internet, local, long-distance and advanced broadband solutions for businesses
and consumers in Alaska. The Alaska Communications network includes the most
advanced wireline and wireless broadband and voice networks and the most
diverse undersea fiber optic system connecting Alaska to the contiguous United
States. For more information, visit www.alaskacommunications.com or
www.alsk.com.

Non-GAAP Measures

Adjusted EBITDA, as defined by the Company, may not be similar to Adjusted
EBITDA measures used by other companies and is not a measurement under
generally accepted accounting principles (GAAP). Management believes that
Adjusted EBITDA provides useful information to investors about the Company’s
performance because it eliminates the effects of period-to-period changes in
costs associated with interest, loss on extinguishment of debt, depreciation
and amortization, loss on disposal of assets, taxes, stock-based compensation
and long-term cash incentive expense and AWN transaction related costs that
are not directly attributable to the underlying performance of the Company’s
operations. Management believes the most directly comparable GAAP measure
would be Net cash provided by operating activities.

Forward-Looking Statements

This press release includes certain “forward-looking statements,” as that term
is defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on management’s beliefs as well as on a
number of assumptions concerning future events made using information
currently available to management. Readers are cautioned not to put undue
reliance on such forward-looking statements, which are not a guarantee of
performance and are subject to a number of uncertainties and other factors,
many of which are outside ACS’ control. Such factors include, without
limitation, Verizon’s entry into the Alaska market, Universal Service Fund
changes, our ability to consummate the AWN transaction and AWN’s subsequent
financial and operational performance, the outcome of on-going IRS audits,
adverse national economic conditions, adverse conditions in the credit markets
impacting the cost, including interest rates, and/or availability of
financing, adverse local economic conditions, including an unexpected downturn
in the Alaskan oil and gas or tourism markets, changes in capital
expenditures, the effects of competition in our markets, the entry of one or
more additional facilities-based carriers into the Alaska market; the
Company’s ability to complete, manage, integrate, market, maintain, and
attract sufficient customers to the products and services it may derive,
adverse changes in labor matters, including workforce levels, labor
negotiations, and benefits costs; disruption of our suppliers’ provisioning of
critical products or services; the impact of natural or man-made disasters;
changes in Company’s relationships with large carrier or enterprise customers
or its roaming partners; unforeseen changes in public policies; changes in
accounting policies, including the Company’s application of regulatory
accounting rules, which could result in an impact on earnings; or disruptive
technological developments in the telecommunications industry. For further
information regarding risks and uncertainties associated with ACS’ business,
please refer to the Company’s SEC filings, including, but not limited to, the
sections entitled “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our annual report on Form
10-K and quarterly reports on Form 10-Q. Copies of the Company’s SEC filings
may be obtained by contacting its investor relations department at
907-564-7556 or by visiting its investor relations website at www.alsk.com.

                                                  
                                                       
                                                       Schedule 1
                                                       
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
                                                       
                                                       
                                         Three Months Ended
                                         March 31,
                                         2013          2012
                                                       
Operating revenues                       $ 91,059      $ 85,947
                                                       
Operating expenses:
Cost of services and sales                 35,447        35,162
Selling, general & administrative          26,797        25,495
Depreciation and amortization              12,632        12,942
Loss on disposal of assets, net           41          280    
Total operating expenses                  74,917      73,879 
                                                       
Operating income                           16,142        12,068
                                                       
Other income and expense:
Interest expense                           (10,029 )     (9,559 )
Loss on extinguishment of debt             -             (323   )
Interest income                           10          10     
Total other income and expense            (10,019 )    (9,872 )
                                                       
Income before income tax expense           6,123         2,196
                                                       
Income tax expense                        (2,655  )    (1,067 )
                                                       
Net income                               $ 3,468      $ 1,129  
                                                       
Basic                                    $ 0.08       $ 0.02   
Diluted                                  $ 0.07       $ 0.02   
                                                       
Weighted average shares outstanding:
Basic                                     46,055      45,364 
Diluted                                   46,563      45,624 
                                                                
                                                                

                                                             
                                                                
                                                                Schedule 2
                                                                
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
                                                                
                                                                
                                               March 31,        December 31,
Assets                                         2013             2012
                                                                
Current assets:
Cash and cash equivalents                      $ 19,094         $ 16,839
Restricted cash                                  3,876            3,875
Short-term investments                           2,050            2,050
Accounts receivable-trade, net of allowance      38,898           39,713
of $6,088 and $6,231
Materials and supplies                           9,501            9,409
Prepayments and other current assets             6,212            5,566
Deferred income taxes                           6,070          8,301      
Total current assets                             85,701           85,753
                                                                
Property, plant and equipment                    1,462,491        1,463,320
Less: accumulated depreciation and              (1,059,829 )    (1,052,459 )
amortization
Property, plant and equipment, net               402,662          410,861
                                                                
Goodwill                                         8,850            8,850
Intangible assets, net                           24,118           24,118
Debt issuance costs                              9,900            10,558
Deferred income taxes                            68,199           69,049
Equity method investment                         2,028            2,028
Other assets                                    3,285          3,510      
Total assets                                   $ 604,743       $ 614,727    
                                                                
Liabilities and Stockholders’ Equity
(Deficit)
                                                                
Current liabilities:
Current portion of long-term obligations       $ 10,108         $ 21,628
Accounts payable, accrued and other current      57,441           56,378
liabilities
Advance billings and customer deposits          8,965          8,970      
Total current liabilities                        76,514           86,976
                                                                
Long-term obligations, net of current            530,873          533,772
portion
Other long-term liabilities                     27,334         28,662     
Total liabilities                               634,721        649,410    
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, $.01 par value; 145,000            465              458
authorized
Additional paid in capital                       144,975          144,377
Accumulated deficit                              (166,811   )     (170,279   )
Accumulated other comprehensive loss            (8,607     )    (9,239     )
Total stockholders’ equity (deficit)            (29,978    )    (34,683    )
                                                                
Total liabilities and stockholders’ equity     $ 604,743       $ 614,727    
(deficit)
                                                                
                                                                

                                                             
                                                                   
                                                                   Schedule 3
                                                                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
                                                                   
                                                     Three Months Ended
                                                     March 31,
                                                     2013          2012
Cash Flows from Operating Activities:
Net income                                           $ 3,468       $ 1,129
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization                          12,632        12,942
Gain on ineffective hedge adjustment                   (420    )     -
Amortization of debt issuance costs and debt           1,426         1,606
discount
Amortization of ineffective hedge                      430           -
Stock-based compensation                               1,219         717
Deferred income taxes                                  2,655         1,063
Provision for uncollectible accounts                   268           550
Other non-cash expense, net                            81            429
Changes in operating assets and liabilities           3,809       1,135   
Net cash provided by operating activities              25,568        19,571
                                                                   
Cash Flows from Investing Activities:
Capital expenditures                                   (5,968  )     (9,653  )
Capitalized interest                                   (483    )     (365    )
Change in unsettled capital expenditures               (3,151  )     (3,131  )
Proceeds on sale of assets                             1,935         -
Net change in restricted accounts                     (1      )    (132    )
Net cash used by investing activities                  (7,668  )     (13,281 )
                                                                   
Cash Flows from Financing Activities:
Repayments of long-term debt                           (15,015 )     (6,417  )
Payment of cash dividend on common stock               -             (2,268  )
Payment of withholding taxes on stock-based            (630    )     (231    )
compensation
Proceeds from issuance of common stock                -           1       
Net cash used by financing activities                  (15,645 )     (8,915  )
                                                                   
Change in cash and cash equivalents                    2,255         (2,625  )
                                                                   
Cash and cash equivalents, beginning of period        16,839      20,490  
                                                                   
Cash and cash equivalents, end of period             $ 19,094     $ 17,865  
                                                                   
Supplemental Cash Flow Data:
Interest paid                                        $ 7,164       $ 7,016
                                                                   
Supplemental Non-cash Transactions:
Property acquired under capital leases               $ 2           $ -
Dividend declared, but not paid                      $ -           $ 2,278
Additions to ARO asset                               $ 30          $ 22
                                                                   
                                                                   

                                                               
                                                                   
                                                                   Schedule 4
                                                                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
                                                                   
                                                     Three Months Ended
                                                     March 31,
                                                     2013          2012
                                                                   
                                                                   
Net cash provided by operating activities            $ 25,568      $ 19,571
Adjustments to reconcile net income (loss) to net
cash provided
by operating activities:
Depreciation and amortization                          (12,632 )     (12,942 )
Gain on ineffective hedge adjustment                   420           -
Amortization of debt issuance costs and debt           (1,426  )     (1,606  )
discount
Amortization of ineffective hedge                      (430    )     -
Stock-based compensation                               (1,219  )     (717    )
Deferred income taxes                                  (2,655  )     (1,063  )
Provision for uncollectible accounts                   (268    )     (550    )
Other non-cash expense, net                            (81     )     (429    )
Changes in operating assets and liabilities           (3,809  )    (1,135  )
Net income                                           $ 3,468       $ 1,129
Add (subtract):
Interest expense                                       10,029        9,559
Loss on extinguishment of debt                         -             323
Interest income                                        (10     )     (10     )
Depreciation and amortization                          12,632        12,942
Loss on disposal of assets                             41            280
Income tax expense                                     2,655         1,067
Stock-based compensation and long term cash            1,388         717
incentives
AWN transaction related costs                         845         328     
                                                                   
Adjusted EBITDA                                      $ 31,048     $ 26,335  
                                                                   
Less:
Incurred capital expenditures                          (5,968  )     (9,653  )
AWN transaction related capital costs, net change      (55     )     -
Cash interest expense                                 (7,164  )    (7,016  )
Free cash flow                                       $ 17,861     $ 9,666   
                                                                   
Revenue                                              $ 91,059     $ 85,947  
                                                                   
Adjusted EBITDA Margin                                 34.1    %     30.6    %

                                                   

Note: In an effort to provide investors with additional information regarding
the Company’s results as determined by GAAP, the Company also discloses
certain non-GAAP information which management utilizes to assess performance
and believes provides useful information to investors. The Company has
disclosed Adjusted EBITDA as net income before interest, provisions for taxes,
depreciation and amortization, gain or loss on asset purchases or disposals,
AWN Transaction related costs, Stock-based compensation and long term cash
incentive expense, and Adjusted EBITDA Margin, defined as Adjusted EBITDA
divided by Operating Revenues. Additionally, the Company has disclosed Free
cash flow as Adjusted EBITDA, less capital expenditures that create an
obligation to pay (“Incurred capital expenditures”) less cash interest
expense, less non recurring capital items we have incurred to preliminarily
establish infrastructure with AWN (“AWN non recurring capital expenditures”).
These measures are provided because the Company believes they are important
indicators regarding our ability to make principle payments on debt and fund
working capital. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow
are non-GAAP measures and should not be considered a substitute for net cash
provided by operating activities and other measures of financial performance
recorded in accordance with GAAP.

                                                                 
                                                                    
                                                                    Schedule 5
                                                                    
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE MIX
(Unaudited, In Thousands)
                                                                    
                                                    Three Months Ended
                                                       March 31,
Operating revenues:                                    2013         2012
Business and wholesale
Retail service revenue
Voice                                                  $ 5,723      $ 6,040
Broadband                                                9,467        8,118
Equipment sales                                          554          336
Wholesale and other                                     11,422     11,954 
Total business and wholesale revenue                    27,166     26,448 
                                                                    
Consumer
Retail service revenue
Voice                                                    4,319        4,936
Broadband                                                5,242        4,349
Equipment sales                                          38           42
Other                                                   414        266    
Total consumer revenue                                  10,013     9,593  
Wireless
Retail service revenue
Voice                                                    11,101       12,667
Broadband                                                6,803        5,551
Equipment sales                                          1,248        1,172
Foreign roaming                                          15,026       8,776
Other                                                   1,101      946    
Total wireless revenue                                  35,279     29,112 
                                                                    
Access and CETC
CETC                                                     4,924        5,527
High cost support                                        4,162        4,949
Switched, special and other access                      9,515      10,318 
Total access and CETC                                   18,601     20,794 
                                                                    
Total revenues                                         $ 91,059    $ 85,947 
                                                                    
Revenue Mix:
Business and wholesale                                   30     %     31     %
Consumer                                                 11     %     11     %
Wireless                                                 39     %     34     %
Access and CETC                                          20     %     24     %
                                                                    
                                                                    
Retail Service Revenue % of Total Revenues               47     %     48     %
Broadband % of Total Service Revenue                     50     %     43     %
                                                                    
                                                                    
Note - Broadband contains the following dial-up
revenue:
Three months ended March 31, 2013: $83 Consumer and $23 Business.
Three months ended March 31, 2012: $105 Consumer and $27
Business.
                                                                    
                                                                    

                                                        
                                                              
                                                              Schedule 6
                                                              
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
                                                              
                             Three Months Ended
                             March 31,       December 31,     March 31,
                             2013            2012             2012
                                                              
Voice:
Consumer access lines          54,037           55,823          61,422
Business access lines          80,770           80,852          82,317
                                                              
Voice ARPU consumer          $ 26.21         $  26.53         $ 26.55
Voice ARPU business          $ 23.61         $  23.82         $ 24.35
                                                              
Broadband:
Consumer connections           39,334           38,760          38,449
Business connections           19,466           19,202          19,076
                                                              
ARPU consumer                $ 44.75         $  42.53         $ 37.56
ARPU business                $ 163.22        $  153.59        $ 141.60
                                                              
Wholesale lines                19,228           20,007          22,157
                                                              
Wireless:
Postpaid connections           99,857           100,910         106,133
Prepaid connections           14,234        14,107       11,023  
Total                         114,091       115,017      117,156 
                                                              
Retail wireless ARPU         $ 52.17         $  52.96         $ 51.83
Wireless broadband ARPU      $ 22.63         $  20.92         $ 17.35
                                                              
Churn:
Voice access lines             1.3     %        1.4     %       1.3     %
Broadband connections          1.9     %        2.1     %       2.3     %
Wireless connections           2.6     %        3.7     %       2.3     %
                                                              
                                                              
Wireless equipment subsidy   $ 3,527         $  2,666         $ 1,799
                                                              
                                                              
Note - Broadband contains the following dial-up connections:
March 31, 2013: 2,024 Consumer and 439 Business.
December 31, 2012: 2,184 Consumer and 451 Business.
March 31, 2012: 2,620 Consumer and 516 Business.
                                                              
                                                              

Contact:

Alaska Communications Systems Group, Inc.
Wayne Graham, Chief Financial Officer, 907-564-7756
investors@acsalaska.com
 
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