Alaska Communications Systems Reports Third Quarter 2011 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2011.

“Alaska Communications’ strategy to provide wireless and wireline broadband data products across all our customer segments continues to show positive results. We experienced our second sequential quarter of wireless subscriber growth and our enterprise revenues are improving year over year,” said Anand Vadapalli, ACS president and chief executive officer.

“Third quarter wireless results reflect early benefits from new positioning with postpaid offerings through tiered data plans, and the refresh of our prepaid plans. Enterprise revenues benefited from a good quarter of new installations, and we look forward to continued momentum in this area,” concluded Vadapalli.

Financial Highlights: Third Quarter 2011 Compared to Third Quarter 2010

• Revenues of $90.3 million increased by $0.5 million, or 0.6 percent, from $89.8 million in the prior year. Third quarter 2010 revenue benefited from $2.0 million favorable out-of-period revenue:
  • Wireless revenue increased by $2.0 million, or 5.2 percent. A $3.9 million increase in roaming revenue was partially offset by $1.9 million of lower retail service and CETC revenue.
  • Enterprise revenue increased by $1.1 million, or 8.9 percent, with higher data revenue driving growth. Data revenue as a percent of total enterprise revenue now stands at 91 percent.
  • Retail, wholesale and access wireline revenue declined by $2.6 million, or 6.5 percent. The quarter was impacted by $2.1 million of lower interstate universal service revenue largely as a result of $1.5 million of out period access revenues in 2010. The quarter benefited from higher intrastate access revenue of $1.1 million associated with recent state-wide reforms. Continued erosion in the traditional wireline business contributed to the remaining decline.
• EBITDA of $32.8 million decreased by $2.0 million, or 5.8 percent, from $34.8 million in the prior year.
  • Wireless EBITDA of $19.5 million increased $0.8 million, or 4.1 percent in the third quarter. $2.0 million of higher revenue and $1.2 million of higher expenses resulted in the change. Higher network costs associated with greater data usage accounted for the increased spending levels.
  • Wireline EBITDA of $13.3 million declined by $2.8 million, or 17.5 percent, driven by lower revenue of $1.5 million and higher expenses of $1.3 million. Expenses in the quarter were impacted by $0.4 million of project-related work and legal reserves and $0.4 million in higher intrastate access expenses.

• Net loss of $0.8 million, or $0.02 per share, compared to net loss of $3.0 million, or $0.07 per share last year. Third quarter 2010 was impacted by $11.3 million charge to interest expense for losses on the termination of certain interest rate swaps associated with the 2005 credit facility refinancing.

Metric Highlights: Third Quarter 2011 Compared to Second Quarter 2011

• Wireless subscribers increased by 817 to 117,496, representing the second sequential quarter of growth.
• Wireless average monthly retail service revenue per subscriber (ARPU) was steady at $52.81.
• Postpaid wireless data ARPU increased by 4.6 percent to $16.82.
• Wireless subscriber churn increased to 2.4 percent from 2.1 percent.
• Internet subscribers decreased by 902 to 48,374 and ARPU increased by 1.9 percent to $45.00, due primarily to upgrades to higher bandwidth plans.
• Retail access lines declined by 2,713 to 149,840 sequentially and 5.2 percent on an annual basis, ARPU increased by 0.1 percent to $18.25.

“We are pleased with our financial performance for the quarter. Alaska Communications exited the quarter with total cash deposits of $28.5 million, including restricted cash, and with full access to our $30 million revolver facility. Our leverage ratio now stands at 4.4 EBITDA,” said Wayne Graham, ACS chief financial officer.

2011 Business Outlook

ACS guidance for the year is updated as follows:

• Revenue guidance to modesty exceed 2010 levels of $342 is unchanged;
• EBITDA is expected to be about $125 million compared to previous guidance of in line with 2010 levels of $126 million;
• Guidance for maintenance capital expenditures and cash interest remains unchanged at about $37 million and $34 million, respectively, and
• Our 4G LTE build investment is anticipated to be between $12 - $15 million compared to previous guidance of $15 - $20 million.

Comments on the FCC’s Order on the National Broadband Plan

On October 27, 2011, the Federal Communication Commission (FCC) unanimously voted to overhaul its Universal Service Fund (“USF”) and Inter-carrier Compensation (“ICC”) systems. USF High cost support and wireless CETC revenue, represented $10.5 million, and $35.6 million for the three and nine month period ended September 30, 2011, respectively. ACS management will provide an assessment of the USF overhaul during its conference call, noted below. We do not, at this time, expect the ICC changes to have a material impact on our future financial performance.

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 877-941-6010 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9723. 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 15, 2011 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4482998. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4482998.

About Alaska Communications

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (Nasdaq: ALSK), through its subsidiaries, is a leading provider of high-speed wireless, mobile broadband, Internet, local, long-distance and advanced data solutions for businesses and consumers in Alaska. The Alaska Communications network includes the most advanced wireline and wireless data and voice networks and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit www.alaskacommunications.com or 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 or continued dividend payment and are subject to a number of uncertainties and other factors, many of which are outside ACS' control. Such factors include, without limitation, the entry of Verizon into the Alaska market, Universal Service Fund reform, 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, 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 and its dividend, 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.