Alaska Communications Systems Reports First Quarter 2014 Results

  Alaska Communications Systems Reports First Quarter 2014 Results     -Total Service and Other Revenues increased $3.8 million or 7.7%, led by                               Broadband growth-                        -Adjusted EBITDA of $22.9 million-                         -Free Cash Flow of $8.4 million-  -Deleveraging continues with over $13 million of repayments of long term debt-  Business Wire  ANCHORAGE, Alaska -- May 8, 2014  Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its first quarter ended March 31, 2014.  “We are starting 2014 on strong footing, and have delivered solid results for the quarter. Top line growth was robust, driven by continued strength in broadband revenues, while EBITDA performance positions us well to meet our guidance for the year. We continue to pay down debt ahead of schedule which directly translates to shareholder value creation.  "Looking ahead, we are pleased with our performance in the market. We’ve seen strategic customer wins which provide momentum for the rest of the year. Further, since closing the TekMate transaction in January, sales have exceeded expectations which bode well for continued growth in the managed services area. We have a sound operating plan for the year and we are doing well performing to our plan,” said Anand Vadapalli, president and CEO of Alaska Communications.  Financial Highlights: First Quarter 2014 Compared to First Quarter 2013    *The quarter experienced strong revenue performance in our key areas of     focus:  o Business and wholesale service revenue of $26.4 million grew $1.8 million or 7.2%, with broadband revenues growing 17.1%.  o Consumer service revenue of $10.2 million grew $0.2 million, or 1.9%, with broadband revenues growing 11.8%.  o Wireless revenue of $19.4 million, declined $0.8 million, or 4.2%, as connections continued to decline.    *Adjusted EBITDA was $22.9 million and is consistent with our overall     guidance expectations for the year.   *Free Cash Flow was strong at $8.4 million.   *Persistent deleveraging continues, with debt balances of $444 million at     the end of the quarter, compared to $456 million at December 31, 2013.     Cash stands at approximately $32 million.  Metric Highlights: First Quarter 2014 Compared to Fourth Quarter 2013    *Business broadband connections increased to 19,304 from 19,285 and     business broadband ARPU increased to $191.21 from $181.77.   *Consumer broadband connections increased to 39,468 from 38,677 and     consumer broadband ARPU increased to $49.46 from $48.59.   *Wireless subscribers decreased by 873 to 107,975 and Wireless ARPU     decreased to $52.51 from $53.14.  “Our financial metrics for the quarter were strong, and our balance sheet is strengthening as we pay down debt ahead of schedule while maintaining strong cash reserves. As anticipated, total revenue of $78.3 million decreased $12.7 million reflecting the shift of $15.7 million in AWN revenue categories, including roaming, which the company no longer reports but reside in its AWN affiliate. Our focus is on Total Service and Other revenue, which grew $3.8 million or 7.7%. Close attention to cost management will result in continued free cash flow performance which will be dedicated to further debt reductions," said Wayne Graham, ACS chief financial officer.  2014 Guidance:  We reaffirm guidance for the year as follows:  Revenue is expected to be approximately $310 million.  Adjusted EBITDA is expected to be approximately $90 million.  Capital spending is expected to be approximately $40 million.  Free cash flow is expected to be approximately $20 million.  Conference Call  The company will host a conference call and live webcast on Friday, May 9, 2014 at 2:00 p.m. Eastern time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-877-941-8609. All other parties can access the call at 1-480-629-9692.  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 June 9, 2014 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 4678703. All other parties can call 1-303-590-3030 and enter pass code 4678703.  About Alaska Communications  Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The company operates 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 http://www.alaskacommunications.com or http://www.alsk.com.  Non-GAAP Measures  In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted EBTDA margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedule 4 to this press release. 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. Other companies may not calculate non-GAAP measures in the same manner as ACS.  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 retail entry into the Alaska market, Universal Service Fund changes, AWN’s 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 supplier’s 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, changes in revenue from universal service funds, 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,                                                     2014        2013                                                                       Operating revenues:      Operating revenues, non-affiliates          $   76,545     $  90,996      Operating revenues, affiliates *               1,786       63        Total operating revenues                            78,331      91,059                                                                     Operating expenses:      Cost of services and sales,                     30,058        35,319      non-affiliates      Cost of services and sales, affiliates          14,760        128      *      Selling, general & administrative               24,595        26,797      Depreciation and amortization                   8,790         12,632      Loss on disposal of assets, net                 401           41      Earnings from equity method investments        (8,523  )    -         Total operating expenses                            70,081      74,917                                                                     Operating income                                     8,250         16,142                                                                  Other income and (expense):      Interest expense                                (8,857  )     (10,029  )      Interest income                                8           10        Total other income and (expense)                    (8,849  )    (10,019  )                                                                  (Loss) income before income tax benefit              (599    )     6,123 (expense)                                                                       Income tax benefit (expense)                   214         (2,655   )                                                                  Net (loss) income                                $   (385    )  $  3,468                                                                      Net (loss) income per share:      Basic                                       $   (0.01   )  $  0.08           Diluted                                     $   (0.01   )  $  0.07                                                                       Weighted average shares outstanding:      Basic                                          48,913      46,055         Diluted                                        48,913      46,563                                                                     * Affiliate balances are related to activity with our equity method investees TekMate and AWN                                                                 Schedule 2                                                                   ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)                                                                                                                      March 31,     December 31, Assets                                              2014        2013                                                                         Current assets:   Cash and cash equivalents                        $ 31,920      $ 43,039   Restricted cash                                    467           467   Accounts receivable-trade, non-affiliates, net     33,864        34,066   Materials and supplies                             10,784        10,131   Prepayments and other current assets               7,413         7,300   Deferred income taxes                             9,975       7,144                    Total current assets                   94,423        102,147                                                                   Property, plant and equipment                        1,351,056     1,344,949 Less: accumulated depreciation and amortization     (999,300  )  (992,936  )   Property, plant and equipment, net                 351,756       352,013                                                                   Goodwill                                             5,892         4,650 Debt issuance costs                                  6,226         6,929 Deferred income taxes                                12,435        15,572 Equity method investments                            262,130       266,972 Other assets                                        396         502        Total assets                                       $ 733,258    $ 748,785                                                                      Liabilities and Stockholders' Equity (Deficit) Current liabilities:   Current portion of long-term obligations         $ 4,798       $ 14,256   Accounts payable, accrued and other current        51,170        55,475   liabilities, non-affiliates   Accounts payable, accrued and other current        17,725        14,566   liabilities, affiliates, net *   Advance billings and customer deposits            9,115       9,104                    Total current liabilities              82,808        93,401                                                                   Long-term obligations, net of current portion        438,847       442,001 Other long-term liabilities                          15,558        16,947 Deferred AWN capacity revenue, net of current       62,422      63,263     portion Total liabilities                                   599,635     615,612    Commitments and contingencies Stockholders' equity (deficit):   Common stock, $.01 par value; 145,000              494           487   authorized   Additional paid in capital                         152,258       152,193   Accumulated deficit                                (14,283   )   (13,898   )   Accumulated other comprehensive loss              (4,846    )  (5,609    )               Total stockholders' equity             133,623       133,173               (deficit)                                                                   Total liabilities and stockholders' equity         $ 733,258    $ 748,785    (deficit)                                                                   * Affiliate balances are related to activity with our equity method investees TekMate and AWN                                                                 Schedule 3                                                                     ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, In Thousands)                                                                                                                            Three Months Ended                                                        March 31,                                                         2014      2013     Cash Flows from Operating Activities:   Net (loss) income                                    $ (385    ) $ 3,468   Adjustments to reconcile net income to net cash   provided by   operating activities:      Depreciation and amortization                       8,790       12,632      Loss on the disposal of assets                      401         41      Gain on ineffective hedge adjustment                -           (420    )      Amortization of debt issuance costs and debt        1,398       1,426      discount      Amortization of ineffective hedge                   607         430      Amortization of deferred AWN capacity revenue       (841    )   -      Stock-based compensation                            653         1,219      Deferred income taxes                               (227    )   2,655      Provision for uncollectible accounts                565         268      Cash distribution from equity method                8,523       -      investments      Earnings from equity method investments             (8,523  )   -      Other non-cash expense, net                         (3      )   40      Changes in operating assets and liabilities        2,868     3,809      Net cash provided by operating activities              13,826      25,568                                                                     Cash Flows from Investing Activities:      Capital expenditures                                (7,164  )   (5,968  )      Capitalized interest                                (738    )   (483    )      Change in unsettled capital expenditures            (7,186  )   (3,151  )      Proceeds on sale of assets                          -           1,935      Return of capital from equity investment            4,010       -      Non-cash acquisition, cash received                 68          -      Net change in restricted accounts                  -         (1      )   Net cash used by investing activities                  (11,010 )   (7,668  )                                                                     Cash Flows from Financing Activities:      Repayments of long-term debt                        (13,354 )   (15,015 )      Payment of withholding taxes on stock-based        (581    )  (630    )      compensation   Net cash used by financing activities                  (13,935 )   (15,645 )                                                                     Change in cash and cash equivalents                      (11,119 )   2,255                                                                     Cash and cash equivalents, beginning of period          43,039    16,839                                                                       Cash and cash equivalents, end of period               $ 31,920   $ 19,094                                                                       Supplemental Cash Flow Data:   Interest paid                                        $ 6,562     $ 7,164   Income tax paid (refunded), net                      $ 13        $ -                                                                     Supplemental Non-cash Transactions:   Property (retired) acquired under capital leases,    $ 44        $ 2   net   Additions to ARO asset                               $ 214       $ 30   Non-cash acquisition purchase price, net of cash     $ 1,850     $ -   received                                                                                                                                     Schedule 4                                                                     ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. ADJUSTED EBITDA AND FREE CASH FLOW (Unaudited, In Thousands)                                                                                                                             Three Months Ended                                                         March 31,                                                          2014     2013                                                                        Net (loss) income                                       $ (385   ) $ 3,468   Add (subtract):     Interest expense                                      8,857      10,029     Interest income                                       (8     )   (10    )     Depreciation and amortization                         8,790      12,632     Loss on disposal of assets                            401        41     Earnings from equity method investment in TekMate     (12    )   -     Earnings from equity method investment in AWN         (8,511 )   -     AWN distributions received                            12,500     -     AWN distributions received for the prior period       (4,167 )   -     AWN distributions receivable within 12 days           4,167      -     Income tax expense (benefit)                          (214   )   2,655     Stock-based compensation                              653        1,219     Long-term cash incentives                             684        169     AWN transaction-related costs                        172      845                                                                         Adjusted EBITDA                                         $ 22,927  $ 31,048                                                                        Less:     Incurred capital expenditures                         (7,164 )   (5,968 )     Amortization of deferred AWN capacity revenue         (841   )   -     AWN transaction-related capital costs, net change     -          (55    )     Cash interest expense                                (6,562 )  (7,164 )   Free cash flow                                        $ 8,360   $ 17,861                                                                      Revenue                                                 $ 78,331  $ 91,059                                                                      Adjusted EBITDA Margin                                    29.3   %   34.1   %  NonGAAP Measures: 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 the impairment of equity investments, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, provisions for taxes, AWN transaction-related costs, stock-based compensation, and expenses under the company’s long term cash incentive plan (“LTCI”). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA.  Adjusted EBITDA Margin, is defined as Adjusted EBITDA divided by Operating Revenues.  Free cash flow is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), less amortization of deferred AWN capacity revenue (a non cash revenue item), less AWN transaction-related capital costs, less cash interest expense.  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. Other companies may not calculate Non-GAAP measures in the same manner as ACS.                                                                 Schedule 5                                                                  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. REVENUE GROWTH (Unaudited, In Thousands)                                                                                                                     Three Months Ended                                                    March 31, Service Revenue:                                    2014        2013 Business and Wholesale Customers           Voice                                    $ 5,611      $  5,723           Broadband                                  11,088        9,467           Other                                      1,792         1,856           Wholesale                                 7,913       7,591           Business and Wholesale service revenue    26,404      24,637                                                                  Consumer Customers           Voice                                      3,876         4,319           Broadband                                  5,861         5,242           Other                                     423         414           Consumer service revenue                   10,160        9,975                                                                  Total Service Revenue                               36,564      34,612 Growth in Service Revenue                            5.6    % Growth in Broadband Service Revenue                  15.2   %                                                                  Other Revenue: Equipment Sales                                      837           592 Access                                               8,993         9,515 High Cost Support                                   6,274       4,162 Total Service and Other Revenue                     52,668      48,881 Growth in Service and Other Revenue                  7.7    % Growth excluding equipment sales                     7.3    %                                                                  Wireless Revenue: Business and Consumer service revenue                17,056        17,904 Equipment sales                                      1,004         1,248 Other                                                1,347         1,101                                                                  AWN Related: Foreign Roaming                                      -             15,026 Wireless Backhaul                                    70            1,975 CETC                                                 5,345         4,924 Amortization of deferred AWN capacity revenue       841         - Total AWN Related                                   6,256       21,925 Total Wireless & AWN Related Revenue                25,663      42,178                                                                  Total Revenue                                      $ 78,331    $  91,059                                                                                                                                  Schedule 6                                                                         ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.       KEY OPERATING STATISTICS       (Unaudited)                                                                                                Three Months Ended                              March 31,         December 31,      March 31,                                2014            2013            2013                                                                              Voice:            Consumer             48,165            49,297            54,037            access lines            Business             79,841            79,816            80,770            access lines                                                                              Voice ARPU        $  26.51          $  26.65          $  26.21            consumer            Voice ARPU        $  23.43          $  23.53          $  23.61            business                                                                         Broadband: (1)            Consumer             39,468            38,677            37,310            connections            Business            connections          19,304            19,285            18,794            (2)                                                                              ARPU consumer     $  49.46          $  48.59          $  46.57            ARPU business     $  191.21         $  181.77         $  167.85            (2)                                                                         Wireless:            Postpaid             86,238            85,982            90,363            connections            Lifeline             6,510             7,145             9,494            connections            Prepaid             15,227         15,721         14,234               connections            Total               107,975        108,848        114,091                                                                                Retail            $  52.51          $  53.14          $  52.17            wireless ARPU                                                                         Churn:                                                                              Voice            connections          1.0      %        1.3      %        1.2      %            (3)            Broadband            connections          1.9      %        2.1      %        1.9      %            (1) (3)            Wireless             3.0      %        3.4      %        2.6      %            connections                                                                                                                                           Wireless equipment        (463     )        (1,100   )        (3,527   )       subsidy (4)                                                                               (1)   Consumer and business broadband connections, ARPU, and churn have been       restated to exclude dial up lines.              Business broadband connections counts have been restated to correct how       certain high bandwidth circuit types are measured.These changes have no (2)   material affect on our financial results, but will affect connection       count and ARPU amounts presented above compared to their presentation in       prior periods.        (3)   Voice and broadband churn have been restated to exclude wholesale lines.        (4)   For the quarters ending March 31, 2014 and December 31, 2013,       respectively, these amounts are net of AWN subsidy reimbursement.                                                                        Schedule 7                                                                     ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Long Term Debt (Unaudited, In Thousands)                                                                                                                            March 31                                                         2014      2013       2010 senior credit facility term loan due 2016       $ 332,700   $ 429,375   Debt discount - 2010 senior credit facility term       (1,479  )   (2,613  )   loan due 2016   6.25% convertible notes due 2018                       114,000     120,000   Debt discount - 6.25% convertible notes due            (8,726  )   (11,131 )   2018   Capital leases and other long-term obligations        7,150     5,350                                                             443,645     540,981   Less current                                          (4,798  )  (10,108 )   portion   Long-term obligations, net of current                $ 438,847  $ 530,873    portion                                                                                                                                                                                                                                                                                                          Maturities                                                                                              2014 (April 1 - December      $ 952                          31)                          2015 (January 1 - December      15,417                          31)                          2016 (January 1 - December      318,788                          31)                          2017 (January 1 - December      506                          31)                          2018 (January 1 - December      114,287                          31)                          2019 (January 1 - December      278                          31)                          Thereafter                     3,622                                                           $ 453,850                                                                                                                                        Schedule 8 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Summary AWN information (Unaudited, In Thousands)                                                                               Alaska Wireless Network, LLC Stand Alone Selected Operating Results                                                                                                               Q1 - 2014 Operating revenues                                      $ 63,037                                                                               Operating expenses:             Cost of services and sales                  19,119             Selling, general & administrative           5,954             Depreciation and amortization               10,995                                                                                   Total operating expenses                                36,068                                                                               Operating income                                        26,969                                                                               Other income and (expense)                              (92       )                                                                                         Net income                                              26,877              A                                                                               Plus:       Depreciation Expense                        10,995             Other, net                                  1,706 Minus:      Capital Spending                            3,639             Management Fee to GCI                       1,438      Adjusted Free Cash Flow                                 $ 34,501                                                                                 Distributions paid to ACS:                              12,500                                                                                                                                                             Distributions to ACS as a proportion of FCF:            36.2      %                                                                                         The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.                                                                                Wholesale Margin Contribution from AWN:                          Wireless business and consumer service revenue        $  17,056                                                                             AWN wholesale charges *                               $  11,905 Handset subsidy support *                                (2,664  ) Equipment subsidy                                        3,127 Other *                                                 235      Total                                                 $  12,603                                                                             Wholesale Margin                                      $  4,453      26  %                                                                             * Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN.                                                                             Key AWN Results included in the ACS Consolidated Income Statement:                                                       Q4 AWN net income                                        $  26,877            A Adjusted for step-up in GCI assets                      (1,345  )         B AWN stepped-up earnings                               $  25,532            C                                                                             ACS ownership percentage of AWN                          33.33   %         D "Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.                                                                             Earnings on equity method investment in AWN           $  8,511            C *                                                                            D                                                                             AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage.                                                                             Key AWN Results Included in the ACS Non GAAP financial measures:                                                       Q1 Cash distributions received during the quarter        $  12,500 Less:               Distributions received during the                     quarter related to the                     previous period                      (4,167  ) Plus:               Distributions received within 14     4,167                     business days of quarter-end                     Amortization of deferred AWN        841                          capacity revenue Equals              AWN impact to Adjusted            $  13,341                       EBITDA                                                                             Less:               Amortization of deferred AWN        841                          capacity revenue Equals              AWN impact to Free Cash           $  12,500                       Flow                                                                             In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.  Contact:  Alaska Communications Systems Group, Inc. Heather Cavanaugh, APR,  907-564-7722 Director, Marketing and Corporate Communications Heather.Cavanaugh@acsalaska.com  
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