Alaska Communications Systems Reports First Quarter 2011 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK) today reported financial results for its first quarter ended March 31, 2011.

“Our first quarter results demonstrate strong operating cash flows, providing us the runway we need to execute on our plans for growing the business. Our focus on enabling cloud services for businesses and leveraging our strength in wireless data will center our actions for 2011,” said Anand Vadapalli, ACS president and chief executive officer.

“In line with expectations we previously set on the fourth quarter call, our sequential quarter performance for enterprise was impacted by several factors including certain out of period customer credits. Yet, enterprise revenues demonstrated year over year growth, and our market activity and sales results remain very encouraging. On the wireless front, a still high volume of disconnects was offset in part with our strength in data, providing strong sequential and year over year growth in data subscribers and ARPU,” concluded Vadapalli.

Financial Highlights: First Quarter 2011 Compared to First Quarter 2010

• Revenues of $86.6 million increased by $4.1 million, or 5.0 percent, from $82.4 million in the prior year:
  • Enterprise revenue increased by $0.6 million, or 4.8 percent, with higher data revenue of $0.8 million.
  • Wireless revenue increased by $4.3 million, or 13.2 percent, with higher data revenue of $3.8 million and higher CETC revenue of $3.4 million, which benefited by a favorable release of $3.0 million in reserves for CETC on prepaid services, offset by declines in wireless voice and device revenue.
  • Retail, wholesale and access wireline revenues declined by $0.7 million, or 1.9 percent, with ISP revenue growth partially offsetting continued declines in retail and local line counts.
• EBITDA of $31.7 million increased by $2.0 million, or 6.7 percent, from $29.7 million in the prior year.
  • Wireless EBITDA increased by $2.9 million, or 20.2 percent, to $17.3 million. Wireless EBITDA was favorably impacted by the release of $3.0 million in revenue reserves for CETC on prepaid services which drove an expansion in wireless EBITDA margins to 47.1 percent from 44.3 percent in the prior year.
  • Wireline EBITDA declined by $0.9 million, or 6.0 percent, to $14.4 million. Wireline performance was adversely impacted by $0.7 million in legal reserves which drove a contraction in wireline EBITDA margins to 28.9 percent from 30.7 percent in the prior year.
• Net cash provided by operating activities of $21.7 million was up 27.8 percent from $17.0 million in the prior year with the current period benefiting from higher EBITDA and improved working capital management.
• Net income of $2.7 million, or $0.06 per diluted share, compared to net income of $1.3 million, or $0.03 per diluted share in the prior year.

Metric Highlights: First Quarter 2011 Compared to Fourth Quarter 2010

• Total retail wireless ARPU increased to $70.76 from $69.31 in the fourth quarter with the current period benefiting from gains in data ARPU.
• Wireless subscribers decreased from 120,413 to 116,243. The decrease included 1,118 in out of period disconnects for non-revenue generating subscribers.
• Postpaid wireless data ARPU increased by 12.3 percent sequentially to $14.78.
• Postpaid wireless subscriber churn of 2.4 percent improved from 2.5 percent.
• DSL lines increased by 56 to 45,754 and ISP ARPU increased by 4.9 percent to $42.80.
• Retail local lines declined by 2,167 to 154,486.
• Total local lines decreased by 2,620 to 169,813.

“We are pleased with the strong performance in net cash provided by operating activities of $21.7 million which increased by 27.8 percent over first quarter 2010. We enter the year on solid financial footing, and we look forward to driving performance in our key areas of growth. We expect to continue to manage all areas of operating expenses to continue to generate strong operating margins. With our payout ratio continuing to be below levels established by our Board of Directors, we are generating excess cash to create value for our investors,” said Wayne Graham, ACS chief financial officer.

2011 Business Outlook

As previously reported, ACS expects:

• Revenues will modestly exceed 2010 levels;
• EBITDA will be in line with 2010 levels;
• To incur approximately$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.

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, May 5, 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

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK), through its subsidiaries, provides wireline, wireless and other telecommunications and technology services to consumer, business and enterprise customers in the State of Alaska and beyond using its statewide and interstate network. 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. These networks together with our data, data hosting, and technology services provide our business, governmental, and carrier customers with the integrated, customized solution sets that they need to reduce costs while increasing their ability to focus on their business objectives. 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, employee engagement, and network 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, 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, 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, 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 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.