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
Alaska Communications Systems Reports First Quarter 2014 Results
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