Alaska Communications Systems Reports Third Quarter 2010 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2010.

“Our data-driven strategy continues to frame all we do and shape the results we achieve,” said Liane Pelletier, ACS president and chief executive officer. “In the quarter, we introduced a new brand identity built for and tested by our target customers, and we launched phase one of a new web site. In the wireless segment, we added more Android-powered smartphones helping to drive penetration of data-centric devices to 30 percent of post paid subscribers, up from 26 percent a quarter ago and 14 percent a year ago. Postpaid data ARPU grew to $11.73, up nearly $1 sequentially and up over $3 annually, still well below national carrier levels. As data device availability expands to smaller carriers like ACS, we are well-positioned to expand data revenues given our marketing focus on heavy data users and our network reputation as being ‘built for data.’ In the Enterprise segment, we completed our purchase of a 49 percent stake in TekMate, and closed several Enterprise contracts delivering services well beyond connectivity: these contracts provide for video conferencing, hosting and managed services, in many cases delivered with our partner TekMate. Our focus is now fully applied to a larger addressable market and with the ACS solution set of CONNECT / HOST / MANAGESM.”

Financial Highlights: Third Quarter 2010 Compared to Third Quarter 2009

• Revenues of $89.8 million declined by $1.3 million, or 1.4 percent, from $91.1 million in the prior year.
  • Enterprise revenue increased $0.6 million with higher data revenue of $1.3 million offset in part by a $0.3 million revenue decline from an expired capacity exchange agreement and a $0.4 million reduction in carrier voice.
  • Wireless revenue increased by $1.9 million with higher data revenue of $3.9 million and CETC of $1.0 million offset by a $3.0 million decline in wireless voice and device revenue.
  • Retail, wholesale and access wireline revenues declined by $3.8 million with the prior year benefiting from an incremental $3.0 million in out-of-period network access and other reserves.
• EBITDA of $34.8 million was right in line with the prior year:
  • Wireless EBITDA of $18.7 million increased by 12.1 percent, with gains in wireless data and disciplined expense management contributing to an expansion in wireless EBITDA margins to 48.3 percent from 45.2 percent.
  • Wireline EBITDA decreased by 11.1 percent to $16.1 million with the prior period gains from higher levels of out-of-period revenue only partially offset by disciplined expense management. Wireline EBITDA margins were 31.5 percent versus 33.3 percent in the prior period.
• Net cash provided by operating activities of $25.2 million was up 18.3 percent from $21.3 million in the prior year period due to improved working capital.
• Net loss before extraordinary item of $3.0 million, or $0.07 per diluted share, compared to net income of $0.3 million, or $0.01 per diluted share, in the prior year. The decline in net income is attributable to an $11.3 million charge to interest expense ($6.6 million, net of tax, or $0.15 per share), for losses on the planned termination of certain out-of-the-money interest rate swaps associated with ACS recently refinanced 2005 credit facility.

Metric Highlights: Third Quarter 2010 Compared to Second Quarter 2010

• Total retail wireless ARPU increased to $69.91 from $66.13 in the second quarter.
• Postpaid wireless data ARPU increased by 8.9 percent sequentially to $11.73.
• Total wireless subscriber churn was 2.6 percent compared to 2.8 percent in the second quarter. The loss of low ARPU subscribers associated with a large government contract that moved to a competitor drove 17 bps to third quarter churn.
• DSL lines decreased by 452 to 45,481 while ISP ARPU increased by 3.9 percent to $38.61.
• Retail local lines declined by 1,985 to 157,983 as a result of cord cutting and seasonality.
• Total local lines decreased by 3,601 to 174,407.

“Cash from operations of $25.2 million increased 18 percent versus the prior year. During the quarter cash on hand increased by $3.5 million to $17.3 million with major investments and uses of cash including capital expenditures of $9.9 million, $2.1 million for our 49 percent investment in TekMate and $9.6 million in dividend payments,” said David Wilson, ACS executive vice president and chief financial officer.

“Through our recently executed debt refinancing, we significantly extended our maturity profile with a new six-year $440 million term loan. We were delighted with the market’s response to the offering and are pleased to have priced the new loan at a very competitive rate of 5.5 percent, inclusive of a 1.5 percent LIBOR floor. In order to manage interest rate risk, we also entered into a series of interest rate swaps this week that fixes rates on $385 million of notional term loan value at 6.47 percent for the period June 30, 2012 through September 30, 2015,” concluded Wilson.

2010 Business Outlook

As previously reported ACS expects:

• Revenue to be slightly below 2009 levels;
• EBITDA to modestly exceed 2009 levels;
• Capital Expenditures to be below 2009, at approximately $36 million; and
• To incur $29 million in recurring net cash interest expense.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m. Eastern Time. Parties in the United States and Canada can call 877-941-1467 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9676. The live webcast of the conference call will be accessible from the “Events Calendar” section of the company’s website (www.alsk.com). The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until Thursday, November 4, 2010 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4376936. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4376936.

About Alaska Communications Systems

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK), through its subsidiaries, provides Alaska Communications services and is Alaska’s leading provider of broadband and other wireline and wireless solutions across businesses and consumers. The Alaska Communications wireline operations include the state’s most advanced data networks and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. The company’s wireless operations include a statewide 3G CDMA network, reaching across Alaska from the North Slope to Ketchikan, with coverage extended via best-in-class CDMA carriers in the Lower 49 and Canada. By investing in the fastest-growing market segments and attracting the highest-quality customers, Alaska Communications seeks to drive top- and bottom-line growth, while continually improving the customer experience and cost structure through process improvement. More information can be found on the company’s website at www.alaskacommunications.com or at its investor site at www.alsk.com.

Forward-Looking EBITDA Guidance

This press release includes information related to management's estimate of EBITDA for the year ending December 31, 2010. EBITDA, as defined by the company, may not be similar to EBITDA measures used by other companies and is not a measurement under generally accepted accounting principles (GAAP). Management believes that 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 capital investments, interest and stock-based compensation expense that are not directly attributable to the underlying performance of the company's business operations. Management believes the most directly comparable GAAP measure would be "Net cash provided by operating activities." Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in this comparable GAAP measure, the company is not providing an estimate of year-end net cash provided by operating activities at this time.

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 are, without limitation, adverse national economic conditions, including continuing disruption in the U.S. capital markets, adverse local economic conditions, including an unexpected downturn in the Alaskan oil and gas or tourism markets, changes in capital expenditures, or other factors affecting the company's ability to generate sufficient earnings and cash flows to continue to make dividend payments to its stockholders; the company’s ability to complete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may derive from the construction of AKORN and purchase and integration of Crest Communications Corporation; adverse changes in labor matters, including workforce levels and labor negotiations; disruption of our suppliers' provisioning of critical products or services; the impact of natural or man-made disasters; changes in company's relationships with large carrier or enterprise customers or its roaming partners; 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.