Alaska Communications Systems Reports Second Quarter 2012 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2012.

“Six months ago we launched a new business plan and today we are pleased to announce solid growth in both revenue and customer metrics. This plan dedicated us to achieve top-line growth through driving retail broadband revenues across all customer segments, with a focus on business customers. I’m pleased to report that we see particular strength in broadband data, with ARPU growth across all customer and product segments. Year-over-year broadband revenue as a percentage of total retail revenues is increasing. I’m also pleased to report that we improved our market position in wireless, with a very successful launch of the iPhone, adding approximately 2,900 wireless connections while churn fell by approximately 10 percent. Finally, this quarter we announced an agreement with General Communication, Inc (“GCI”) to form the Alaska Wireless Network (“AWN”), which will be the fastest, most geographically extensive wireless network in Alaska. We remain focused on executing to our business plan, working to close the AWN transaction, and de-levering our balance sheet,” said Anand Vadapalli, Alaska Communications president and CEO.

Financial Highlights: Second Quarter 2012 Compared to Second Quarter 2011

• Revenue of $90.0 million grew by $5.1 million, or 6 percent, from $84.9 million in the prior year.
  • Business and Wholesale revenue increased by $1.0 million, or 4 percent, led by growth in broadband revenue, which increased $0.9 million, or 12 percent.
  • Wireless revenue increased by $3.5 million, or 11 percent. Wireless broadband revenue grew $0.8 million, or 15 percent. Roaming revenue grew $3.4 million, or 35 percent, driven by higher data usage.
  • Access and CETC revenue increased $0.9 million, or 5 percent.
  • Consumer broadband revenues increased $0.2 million, or 5 percent.
• EBITDA of $25.6 million, which excluded $4.1 million of AWN transaction costs and $0.9 million in stock-based compensation, decreased $5.1 million.
  • Wireless subsidy grew by $3.4 million to $7.3 million, or 89 percent.
  • Costs of service and sales increased $3.0 million, excluding $3.7 million related to wireless equipment sales, due in part to higher intrastate access and circuit related expenses.
  • Selling, general and administrative expenses increased by $3.5 million inclusive of a $1.4 million favorable contract settlement in the prior year. The remaining $2.1 million increase was in-line with management expectations and reflects a commitment to higher level of investment in customer service, sales, strategic initiatives, and process improvement.

Metric Highlights: Second Quarter 2012 Compared to First Quarter 2012

• Business broadband connections remained relatively flat at 19,069, and ARPU grew 4 percent to $147.25.
• Wireless connections grew by 2,894 from 117,156 to 120,050 and churn declined from 2.3 to 2.0 percent. We sold 22,900 devices in the quarter, compared to 15,900 in the prior quarter. 47 percent of our device sales in the quarter were from the iPhone, with 21 percent of these sales to new customers. 10 percent of our postpaid customers now use the iPhone with new long-term contracts.
• Wireless broadband ARPU grew 8 percent to $18.74 but was more than offset by erosion in voice ARPU, leading to lower overall retail wireless ARPU of $51.26 compared to $51.83 last quarter.
• Consumer broadband connections increased for the first time in twelve quarters, growing by 134 to 38,583, while ARPU grew 4 percent to $39.01.

“We are pleased with our top line performance; however, EBITDA in the quarter was impacted by significant demand for the iPhone in the first two months of launch, from both new and existing customers. Subsidies in the quarter were higher by $5.5 million sequentially, and $3.4 million year-over-year. We expect iPhone sales activities to moderate, and we do not expect to see similar levels of subsidies the rest of the year. As an update on AWN, we are working through the various regulatory and other approval processes, and continue to target closing in the second quarter next year.” said Wayne Graham, ACS chief financial officer.

2012 Business Outlook

We’ve experienced strength in revenue, but because of the higher subsidies, we are adjusting our guidance for the rest of the year as follows:

• Revenue guidance of between $355 and $365 million is unchanged;
• EBITDA guidance moves from modestly above 2011 levels of $125 million to around $120 million;
• Capex guidance moves from $55 - $60 million to $54 - $57 million;
• Free Cash Flow moves from $32 - $36 million to $28 - $34 million;

All guidance excludes costs associated with the AWN transaction.

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 877-941-9205 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9692. 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 Monday, August 13, 2012, at midnight Eastern Time. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4552863. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4552863.

About Alaska Communications

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (Nasdaq: ALSK) is a leading provider of high-speed wireless, mobile broadband, Internet, local, long-distance and advanced broadband solutions for businesses and consumers in Alaska. The Alaska Communications network includes advanced broadband 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 Guidance

This press release includes information related to management's estimate of EBITDA and Free Cash Flow (FCF) for the year ending December 31, 2012. EBITDA and FCF, as defined by the Company, may not be consistent with EBITDA and FCF measures used by other companies are not measurements under generally accepted accounting principles (GAAP), and should not be a considered a substitute for other measures of financial performance recorded in accordance with 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, interest income and expense, stock-based compensation expense, losses and gains associated with the extinguishment of debt and disposal of assets, gift of services, AWN transaction related costs, income tax expense and depreciation and amortization that are not directly attributable to the underlying performance of the Company's business operations. Similarly, FCF provides useful information about the ability of the Company to pay dividends and reduce its outstanding indebtedness. Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in the most comparable GAAP measure, “net cash provided by operating activities” the Company is not providing an estimate of the year-end 2012 amount for that measure.

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, the Company’s ability to obtain required approvals for the AWN transaction and AWN’s subsequent financial and operational performance, Verizon’s entry into the Alaska market, Universal Service Fund reforms, the outcome of on-going IRS audits, 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, 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, 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.