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Alaska Communications Systems Reports Second Quarter 2013 Results

  Alaska Communications Systems Reports Second Quarter 2013 Results

                Total revenues increased $7.7 million or 8.6%

Broadband revenue as percentage of Retail service revenue exceeds 50% for the
                                  first time

Deleveraging continues with $30.4 million of repayments of long-term debt YTD
                                June 30, 2013

   Milestone AWN transaction resulting in $65.0 million in additional debt
                           repayments in July 2013

Commencing a fiber-to-the-node build out in major markets to enhance broadband
                                 capabilities

Business Wire

ANCHORAGE, Alaska -- August 1, 2013

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today
reported financial results for its second quarter ended June 30, 2013.

“We are extremely pleased with our performance in the first half of the year.
We achieved very strong rates of growth, with retail broadband revenues
increasing 21% over last year. Debt reductions have been solid, with over $30
million through free cash flow generation in the first half of the year and
$65 million from the AWN transaction in July. We are on track to achieve our
goal of $100 million of net debt reductions this year. These results are
evidence of our business plan at work.

“This quarter we also initiated a fiber-to-the-node build plan to
significantly improve our broadband capabilities for business customers and
sustain our long-term growth. We start with Anchorage this year and roll out
to other areas of the state over the next couple of years. We are delivering
on our business plan of growth and deleveraging, with an uncompromising focus
on creating long-term value for our shareholders, customers and employees,”
said Anand Vadapalli, President and CEO of Alaska Communications.

Financial Highlights: Second Quarter 2013 Compared to Second Quarter 2012

  *Revenues of $97.7 million increased by $7.7 million, or 8.6%, from $90.0
    million in the prior year. $6.1 million of the growth was due to higher
    roaming revenue. Excluding this element of growth, overall revenue
    achieved 2.1% year over year growth.

       *Business and wholesale revenue increased $2.2 million, or 8.7%.
       *Consumer revenue increased $0.7 million, or 7.1%.
       *Wireless revenue increased $5.4 million, or 15.8%.
       *Access and CETC revenue declined, as expected, $0.6 million, or 3.0%.
       *Broadband revenue, as a percentage of total service revenue, was
         52.3%, compared to 45.0% in the prior year.

  *Adjusted EBITDA of $34.0 million increased $8.4 million, or 32.8%, from
    $25.6 million in the prior year.

       *Cost of services and sales of $37.2 million declined $2.9 million or
         7.2%, driven primarily by a $4.3 million decrease in device and
         accessory costs in 2013 caused by our launch of the iPhone in the
         second quarter of 2012, offset by an increase in roaming payables.
       *Selling, general & administrative, excluding the impact of AWN
         transaction costs, increased $1.9 million, or 7.5%, resulting
         primarily from an increase of $1.7 million in labor associated with
         higher incentive compensation expense in 2013 as compared to the
         prior year.

Metric Highlights: Second Quarter 2013 Compared to First Quarter 2013

  *Wireless subscribers increased by 328 to 114,419.
  *Wireless average monthly retail service revenue per subscriber (“ARPU”)
    increased by 1.0% or $0.51 to $52.68. Wireless broadband ARPU increased by
    8.5% or $1.92 to $24.55.
  *Business broadband connections increased to 19,539 from 19,233 and
    business broadband ARPU increased by 4.2% or $6.94 to $171.29 from
    $164.35.
  *Consumer broadband connections increased to 39,559 from 39,334 and
    consumer broadband ARPU increased by 5.9% or $2.62 to $47.37.
  *Consumer access lines declined to 52,438 from 54,037, and business access
    lines decreased to 80,517 from 80,770.

“Alaska Communications continues to target free cash flow for debt reduction,
and we are pleased to have made debt payments through June 30, 2013 of $30.4
million, achieving record debt reductions. Further, upon closing of the AWN
transaction, we reduced debt by another $65 million, moving net debt to $444.9
million. The quarter was favorably impacted by a reversal of a previous
reserve for an ongoing tax matter. We are pleased with the outcome of this
matter as it further strengthens our balance sheet. On our upcoming conference
call we will provide detailed guidance for the rest of the year in addition to
discussing our longer term directional view now that we have the AWN
transaction closed,” said Wayne Graham, ACS Chief Financial Officer.

High level guidance for the full year 2013 is as follows:

Total revenue is expected to be $340 - $350 million

EBITDA is expected to be $105 - $110 million

Capital spending is targeted to be around $50 million

Free Cash Flow is expected to be $20 - $25 million

Conference Call and On-Line Presentation

The company will host a conference call and live webcast today at 5:00 p.m.
Eastern time to discuss these results. Parties in the United States and Canada
can access the call at 1-800-762-9058. Parties outside the United States and
Canada can access the call at 1-480-629-9645. The live webcast of the
conference call will be accessible from the "Events Calendar" section of the
company's website (www.alsk.com). The conference call will also include a
slide presentation that can be accessed in 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, August 8, 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 4627862. Parties outside the United States and Canada can call
1-303-590-3030 and enter pass code 4627862.

About Alaska Communications

Alaska Communications is a leading provider of advanced broadband solutions
for businesses and consumers in Alaska.We operate a highly reliable, advanced
statewide data and voice network with the latest technology 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 the sale of short-term investments, loss on the
disposal of assets, taxes, long-term incentive compensation expense, loss for
Equity method investments 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 continued build out of their wireless network in Alaska,
Universal Service Fund changes, AWN’s future financial and operational
performance, 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;
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 Companys 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           Six Months Ended
                    June 30,                       June 30,
                    2013          2012           2013          2012
                                                                   
Operating           $ 97,736        $ 90,012       $ 188,795       $ 175,959
revenues
                                                                   
Operating
expenses:
Cost of
services and          37,204          40,094         72,651          75,256
sales
Selling,
general &             27,646          29,442         54,443          54,937
administrative
Depreciation
and                   11,450          12,578         24,082          25,520
amortization
Loss on
disposal of          585           139          626           419     
assets, net
Total operating      76,885        82,253       151,802       156,132 
expenses
                                                                   
Operating             20,851          7,759          36,993          19,827
income
                                                                   
Other income
and expense:
Interest              (10,156 )       (9,376 )       (20,185 )       (18,935 )
expense
Loss on
extinguishment        (276    )       -              (276    )       (323    )
of debt
Interest income       8               12             18              22
Other                (13     )      -            (13     )      -       
Total other
income and           (10,437 )      (9,364 )      (20,456 )      (19,236 )
expense
                                                                   
Income (loss)
before income         10,414          (1,605 )       16,537          591
tax (expense)
benefit
                                                                   
Income tax
(expense)            27,280        818          24,625        (249    )
benefit
                                                                   
Net income          $ 37,694       $ (787   )     $ 41,162       $ 342     
(loss)
                                                                   
Net income
(loss) per
share:
Basic               $ 0.81         $ (0.02  )     $ 0.89         $ 0.01    
Diluted             $ 0.80         $ (0.02  )     $ 0.88         $ 0.01    
                                                                   
Weighted
average shares
outstanding:
Basic                46,550        45,505       46,304        45,434  
Diluted              46,875        45,505       46,699        45,648  
                                                                             
                                                                             

Schedule 2

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)

                                     June 30,           December 31,
Assets                                   2013                   2012
                                                                
Current assets:
Cash and cash equivalents                $ 16,445               $ 16,839
Restricted cash                            3,827                  3,875
Short-term investments                     525                    2,050
Accounts receivable-trade, net
of allowance of $5,781 and                 44,079                 39,713
$6,231
Materials and supplies                     9,940                  9,409
Prepayments and other current              5,884                  5,566
assets
Deferred income taxes                     1,317                8,301      
Total current assets                       82,017                 85,753
                                                                
Property, plant and equipment              1,466,366              1,463,320
Less: accumulated depreciation            (1,067,505 )          (1,052,459 )
and amortization
Property, plant and equipment,             398,861                410,861
net
                                                                
Goodwill                                   8,850                  8,850
Intangible assets, net                     24,118                 24,118
Debt issuance costs                        9,204                  10,558
Deferred income taxes                      102,491                69,049
Equity method investment                   2,007                  2,028
Other assets                              477                  3,510      
Total assets                             $ 628,025             $ 614,727    
                                                                
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Current portion of long-term             $ 11,302               $ 21,628
obligations
Accounts payable, accrued and              56,785                 56,378
other current liabilities
Advance billings and customer             8,913                8,970      
deposits
Total current liabilities                  77,000                 86,976
                                                                
Long-term obligations, net of              515,050                533,772
current portion
Other long-term liabilities               26,895               28,662     
Total liabilities                         618,945              649,410    
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value;              467                    458
145,000 authorized
Additional paid in capital                 145,587                144,377
Accumulated deficit                        (129,117   )           (170,279   )
Accumulated other comprehensive           (7,857     )          (9,239     )
loss
Total stockholders' equity                9,080                (34,683    )
(deficit)
                                                                
Total liabilities and                    $ 628,025             $ 614,727    
stockholders' equity (deficit)
                                                                             
                                                                             

Schedule 3

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)

                 Three Months Ended            Six Months Ended
                   June 30,                        June 30,
                   2013          2012            2013          2012
Cash Flows
from Operating
Activities:
Net income         $ 37,694        $ (787    )     $ 41,162        $ 342
(loss)
Adjustments to
reconcile net
income (loss)
to net cash
provided by
operating
activities:
Depreciation
and                  11,450          12,578          24,082          25,520
amortization
Gain on
ineffective          (596    )       -               (1,016  )       -
hedge
adjustment
Amortization
of debt
issuance costs       1,614           1,396           3,040           3,002
and debt
discount
Amortization
of ineffective       436             -               866             -
hedge
Stock-based          499             976             1,718           1,693
compensation
Deferred             (27,280 )       (814    )       (24,625 )       249
income taxes
Provision for
uncollectible        171             979             439             1,529
accounts
Loss from
equity method        21              -               21              -
investment
Other non-cash       781             114             862             543
expense, net
Changes in
operating           (4,874  )      3,025         (1,065  )      4,160   
assets and
liabilities
Net cash
provided by          19,916          17,467          45,484          37,038
operating
activities
                                                                   
Cash Flows
from Investing
Activities:
Capital              (7,629  )       (12,790 )       (13,597 )       (22,443 )
expenditures
Capitalized          (387    )       (464    )       (870    )       (829    )
interest
Change in
unsettled            (678    )       (1,238  )       (3,829  )       (4,369  )
capital
expenditures
Proceeds on          -               -               1,935           -
sale of assets
Net change in
short-term           1,512           -               1,512           -
investments
Net change in
restricted          49            (412    )      48            (544    )
accounts
Net cash used
by investing         (7,133  )       (14,904 )       (14,801 )       (28,185 )
activities
                                                                   
Cash Flows
from Financing
Activities:
Repayments of        (15,366 )       (1,508  )       (30,381 )       (7,925  )
long-term debt
Debt issuance        (181    )       -               (181    )       -
costs
Payment of
cash dividend        -               (2,278  )       -               (4,546  )
on common
stock
Payment of
withholding
taxes on             -               (8      )       (630    )       (239    )
stock-based
compensation
Proceeds from
issuance of         115           179           115           180     
common stock
Net cash used
by financing         (15,432 )       (3,615  )       (31,077 )       (12,530 )
activities
                                                                   
Change in cash
and cash             (2,649  )       (1,052  )       (394    )       (3,677  )
equivalents
                                                                   
Cash and cash
equivalents,        19,094        17,865        16,839        20,490  
beginning of
period
                                                                   
Cash and cash
equivalents,       $ 16,445       $ 16,813       $ 16,445       $ 16,813  
end of period
                                                                   
Supplemental
Cash Flow
Data:
Interest paid      $ 11,219        $ 9,987         $ 18,383        $ 17,003
Income tax
paid               $ -             $ (24     )     $ -             $ (24     )
(refunded)
                                                                   
Supplemental
Non-cash
Transactions:
Property
(retired)          $ -             $ (24     )     $ 2             $ (24     )
acquired under
capital leases
Dividend
declared, but      $ -             $ 2,285         $ -             $ 2,285
not paid
Additions to       $ 107           $ 32            $ 137           $ 54
ARO asset
                                                                             
                                                                             

Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)

                 Three Months Ended            Six Months Ended
                   June 30,                        June 30,
                   2013          2012            2013          2012
                                                                   
Net cash
provided by        $ 19,916        $ 17,467        $ 45,484        $ 37,038
operating
activities
Adjustments to
reconcile net
income (loss)
to net cash
provided by
operating
activities:
Depreciation
and                  (11,450 )       (12,578 )       (24,082 )       (25,520 )
amortization
Gain on
ineffective          596             -               1,016           -
hedge
adjustment
Amortization
of debt
issuance costs       (1,614  )       (1,396  )       (3,040  )       (3,002  )
and debt
discount
Amortization
of ineffective       (436    )       -               (866    )       -
hedge
Stock-based          (499    )       (976    )       (1,718  )       (1,693  )
compensation
Deferred             27,280          814             24,625          (249    )
income taxes
Provision for
uncollectible        (171    )       (979    )       (439    )       (1,529  )
accounts
Loss from
equity method        (21     )       -               (21     )       -
investment
Other non-cash       (781    )       (114    )       (862    )       (543    )
expense, net
Changes in
operating           4,874         (3,025  )      1,065         (4,160  )
assets and
liabilities
Net income         $ 37,694        $ (787    )     $ 41,162        $ 342
(loss)
Add
(subtract):
Interest             10,156          9,376           20,185          18,935
expense
Loss on
extinguishment       276             -               276             323
of debt
Interest             (8      )       (12     )       (18     )       (22     )
income
Depreciation
and                  11,450          12,578          24,082          25,520
amortization
Loss on sale
of short-term        13              -               13              -
investments
Loss on
disposal of          585             139             626             419
assets
Income tax
(expense)            (27,280 )       (818    )       (24,625 )       249
benefit
Stock-based
compensation
and long term        660             976             2,048           1,693
cash
incentives
Loss from
equity method        21              -               21              -
investment
AWN
transaction         427           4,131         1,272         4,459   
related costs
                                                                   
Adjusted           $ 33,994       $ 25,583       $ 65,042       $ 51,918  
EBITDA
                                                                   
Less:
Incurred
capital              (7,629  )       (12,790 )       (13,597 )       (22,443 )
expenditures
AWN
transaction
related              14              -               (41     )       -
capital costs,
net change
Cash interest       (11,219 )      (9,987  )      (18,383 )      (17,003 )
expense
Free cash flow     $ 15,160       $ 2,806        $ 33,021       $ 12,472  
                                                                   
Revenue            $ 97,736       $ 90,012       $ 188,795      $ 175,959 
                                                                   
Adjusted             34.8    %       28.4    %       34.5    %       29.5    %
EBITDA Margin

        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, loss on extinguishment of debt, depreciation and
        amortization, loss on short-term investments, gain or loss on asset
        purchases or disposals, provisions for taxes, stock-based compensation
        and long-term cash incentive expense, AWN Transaction related costs,
        and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by
Note:  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          Six Months Ended
                     June 30,                      June 30,
Operating            2013         2012           2013          2012
revenues:
Business and
wholesale
Retail service
revenue
Voice                $ 5,790        $ 6,039        $ 11,513        $ 12,079
Broadband              9,962          8,425          19,429          16,543
Equipment sales        306            280            860             616
Wholesale and         11,820       10,906       23,242        22,859  
other
Total business
and wholesale         27,878       25,650       55,044        52,097  
revenue
                                                                   
Consumer
Retail service
revenue
Voice                  4,353          4,848          8,672           9,784
Broadband              5,605          4,507          10,847          8,856
Equipment sales        37             42             75              84
Other                 383          291          797           558     
Total consumer        10,378       9,688        20,391        19,282  
revenue
                                                                   
Wireless
Retail service
revenue
Voice                  10,730         12,209         21,831          24,876
Broadband              7,300          6,001          14,103          11,552
Equipment sales        1,282          1,685          2,530           2,857
Foreign roaming        19,409         13,301         34,435          22,077
Other                 1,049        1,149        2,150         2,095   
Total wireless        39,770       34,345       75,049        63,457  
revenue
                                                                   
Access and CETC
CETC                   6,030          5,163          10,954          10,690
High cost              4,412          5,005          8,574           9,954
support
Switched,
special and           9,268        10,161       18,783        20,479  
other access
Total access and      19,710       20,329       38,311        41,123  
CETC
                                                                   
Total revenues       $ 97,736      $ 90,012      $ 188,795      $ 175,959 
                                                                   
Revenue Mix:
Business and           28.5   %       28.5   %       29.2    %       29.6    %
wholesale
Consumer               10.6   %       10.8   %       10.8    %       11.0    %
Wireless               40.7   %       38.2   %       39.8    %       36.1    %
Access and CETC        20.2   %       22.6   %       20.3    %       23.4    %
                                                                   
                                                                   
Retail service
revenue % of           44.8   %       46.7   %       45.8    %       47.6    %
total revenues
Broadband % of
Retail service         52.3   %       45.0   %       51.4    %       44.2    %
revenue
                                                                             

Note -  Broadband contains the following dial-up revenue:
         Three and six months ended June 30, 2013: $77 Consumer and $21
         Business, and $160 Consumer and $44 Business, respectively.
         Three and six months ended June 30, 2012: $99 Consumer and $26
         Business, and $204 Consumer and $53 Business, respectively.
         
         

Schedule 6

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)

                             Three Months Ended
                               June 30,      March 31,     June 30,
                               2013            2013            2012
                                                               
Voice:
Consumer access lines            52,438          54,037          59,480
Business access lines            80,517          80,770          82,083
                                                               
Voice ARPU consumer            $ 27.25         $ 26.21         $ 26.73
Voice ARPU business            $ 23.93         $ 23.61         $ 24.49
                                                               
Broadband:
Consumer connections             39,559          39,334          38,583
Business connections*            19,539          19,233          19,069
                                                               
ARPU consumer                  $ 47.37         $ 44.75         $ 39.01
ARPU business*                 $ 171.29        $ 164.35        $ 147.25
                                                               
Wholesale lines                  18,595          19,228          21,278
                                                               
Wireless:
Postpaid connections             88,876          90,363          95,322
Lifeline connections             9,859           9,494           12,382
Prepaid connections             15,684        14,234        12,346  
Total                           114,419       114,091       120,050 
                                                               
Retail wireless ARPU           $ 52.68         $ 52.17         $ 51.26
Wireless broadband ARPU        $ 24.55         $ 22.63         $ 18.74
                                                               
Churn:
                                                               
Voice access lines               1.4     %       1.3     %       1.4     %
Broadband connections            2.0     %       1.9     %       2.5     %
Wireless connections             2.4     %       2.6     %       2.0     %
                                                               
Wireless equipment subsidy     $ 3,463         $ 3,527         $ 7,318

         Business broadband connections counts have been restated to correct
         how certain high bandwidth circuits types are measured. These change
*       have no affect on our financial results, but will affect connection
         count and ARPU amounts presented above as compared to their
         presentation in prior periods.
         
Note -   Broadband contains the following dial-up connections:
         June 30, 2013: 1,948 Consumer and 435 Business.
         March 31, 2013: 2,024 Consumer and 439 Business.
         June 30, 2012: 2,482 Consumer and 499 Business.

Contact:

Alaska Communications
Investor relations: Wayne Graham, 907-564-7756
Media relations: Heather Cavanaugh, 907-564-7722
 
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