Alaska Communications Systems Reports Fourth Quarter 2010 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its fourth quarter ended December 31, 2010.

“Our fourth quarter results show success from a data-driven strategy that is securing top and bottom line gains in both our wireline and wireless lines of business,” said Anand Vadapalli, ACS president and chief executive officer. “Our focus on enterprise, where we are layering value added services such as data hosting, video conferencing and managed services on top of base connectivity, and strength in wireless data, where demand for mobile data services is rampant, has served us well in 2010 and will continue to center our actions for 2011 and beyond.”

“Fourth quarter enterprise revenue grew 17 percent annually and 9 percent sequentially, benefiting from record levels of sales activity earlier in the year and continued traction from our differentiated solution set. With sales activity in the fourth quarter double the level in the prior year; momentum building for our Connect/Host/Manage solution set; and the advent of meaningful professional service revenue from selling our expertise to other carriers, we are well positioned to maintain strong growth in this area,” noted Vadapalli.

“In wireless, data ARPU remained a highlight as post paid data ARPU increased by 53 percent annually and 12 percent sequentially to $13.16. Key drivers of this success include penetration of data centric devices which doubled in 2010 to 35 percent of the base, and the sales mix of data centric devices which increased to 60 percent of total device sales in the fourth quarter, from 46 percent in the third quarter and 24 percent in Q4 2009. We will continue to invest in our wireless data capabilities with $12 million set aside in our 2011 capex plan to upgrade backhaul from cell towers. This positions ACS for an early roll out of 4G wireless, while supporting demand from other wireless carriers. Once again we are at the forefront of bringing advanced wireless data services to Alaskans,” concluded Vadapalli.

Financial Highlights: Fourth Quarter 2010 Compared to Fourth Quarter 2009

• Revenues of $84.8 million increased by $1.8 million, or 2.2 percent, from $83.0 million in the prior year:
  • Enterprise revenue increased by $1.9 million, or 17.4 percent, with higher data and professional service revenue of $2.0 million offset in part by a $0.1 million decrease in carrier voice.
  • Wireless revenue increased by $0.8 million, or 2.2 percent, with higher data revenue of $3.6 million and CETC of $0.2 million offset in part by a $3.0 million decline in wireless voice and device revenue.
  • Retail, wholesale and access wireline revenues declined by $0.9 million, or 2.3 percent, with ISP revenue growth partially offsetting continued declines in retail and local line losses.
• EBITDA of $30.5 million increased by $6.2 million, or 25.5 percent, from $24.3 million in the prior year.
  • Wireless EBITDA of $13.5 million was in line with the prior year. Elevated handset subsidies associated with higher levels of data centric device sales contributed to a modest contraction in wireless EBITDA margins to 39.2 percent from 39.9 percent.
  • Wireline EBITDA increased by $6.2 million, or 56.7 percent, to $17.0 million. Gains in enterprise and disciplined expense management, coupled with $4.3 million in reserves and other charges that negatively impacted 2009, drove an expansion in wireline EBITDA margins to 33.8 percent from 22.0 percent in the prior period.
• Net cash provided by operating activities of $16.9 million was negatively impacted by $11.1 million in out-of-the-money interest rate swap termination costs associated with the refinancing of our 2005 credit facility. Without swap termination costs, net cash provided by operating activities was up 18.5 percent to $28.1 million from $23.7 million in the prior year period.
• Net loss before extraordinary item of $1.3 million, or $0.03 per diluted share, compared to net loss of $7.1 million, or $0.16 per diluted share, in the prior year. Fourth quarter 2010 net loss was negatively impacted by $5.4 million in charges ($3.2 million, net of tax, or $0.07 per share), for the loss on disposal of assets and the early extinguishment of debt.

Metric Highlights: Fourth Quarter 2010 Compared to Third Quarter 2010

• Total retail wireless ARPU decreased marginally to $69.31 from $69.91 in the third quarter with gains in data ARPU partially offsetting declines in CETC and voice ARPU.
• Postpaid wireless data ARPU increased by 12.2 percent sequentially to $13.16.
• Total wireless subscriber churn of 2.6 percent was in line with the third quarter.
• Wireless subscribers decreased by 3,070 to 120,413.
• DSL lines increased by 217 to 45,698 and ISP ARPU increased by 5.7 percent to $40.81.
• Retail local lines declined by 1,330 to 156,653.
• Total local lines decreased by 1,974 to 172,433.

“Our ability to tightly manage margins while simultaneously generating top line organic growth in both wireline and wireless segments as we exit 2010, demonstrate effective execution against a strategy of allocating resources against the highest growth telecommunication segments,” said David Wilson, ACS executive vice president and chief financial officer. “Top and bottom line strength in wireline continues to separate our financial performance from that of other LECs, with annual EBITDA margins expanding to 31.7 percent from 28.8 percent, and absolute EBITDA growing 8.0 percent to $63.7 million.”

“Strong EBITDA generation contributed to continued strength in operating cash flows which, excluding swap termination costs of $11.1 million, were $97.5 million for the year, the highest level since 2007, while our dividend payout ratio, pro forma for debt extinguishment costs and working capital movements, was a favorable 63 percent in 2010," concluded Wilson.

2011 Business Outlook

For the full-year 2011, ACS expects:

• Revenues will modestly exceed 2010 levels;
• EBITDA will be in line with 2010 levels;
• To incur ~$33 million in net cash interest expense;
• Maintenance Capital expenditures to be in line with 2010, at approximately ~$37 million; and
• To fund approximately $12 million to upgrade backhaul from cell towers to support demand from other wireless carriers and to position ACS for an early roll out of 4G wireless service.

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 877-941-0843 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9643. 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, March 3, 2011 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4411962. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4411962.

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, 2011. 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 2011 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.