Alaska Communications Systems Reports Third Quarter 2012 Results

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

“The fundamentals of our value proposition to the Alaskan customer remain strong. We are successfully executing against our business plan to grow retail revenue, with a focus on business customers and broadband services. Broadband revenues have increased across the board both sequentially and year over year. Broadband Data as a percentage of service revenue now stands at 46% for the quarter, up 10% from a year ago. Importantly, we have good momentum in winning new customer relationships in the small and medium business segment. Demand for our broadband products is strong and we are making important strides in accelerating our product roadmap which allows us to provide the most advanced broadband services to our customers in Alaska. We recently launched our statewide 4G LTE network, which further cements our leadership position in wireless communications.

“We have also made solid progress on the Alaska Wireless Network (“AWN”) joint-venture transaction, which positions us to provide the most expansive, fastest wireless services in the state. We now have two important agreements that were necessary for AWN. We have a new three-year contract with the International Brotherhood of Electrical Workers ('IBEW') which also provides the framework to improve our operating model and costs over time. Additionally, we have executed an amended credit agreement with our senior lenders that also puts in place a framework to accelerate debt reductions. We remain on track to close the AWN transaction sometime in the second quarter of 2013.

“While our business plan combined with AWN puts us on a path to grow and pay down debt, we believe further strengthening of our balance sheet is warranted. Making a decision now to accelerate deleveraging has also helped us secure the continued support from our senior lenders on favorable terms. To that end, our Board of Directors has elected to suspend our common dividend and accelerate our deleveraging plans, which we believe will position us to be one of the best capitalized telecom companies based in Alaska.

“The long-term sustainability of our plan comes from the trust our customers place in us. Our customers value us for our reliability, our customer service, our trustworthiness and our local community presence. This, combined with our accelerated debt pay downs will drive long-term value creation for our employees, customers and shareholders,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: Third Quarter 2012 Compared to Third Quarter 2011

• Revenue of $96.8 million grew by $6.5 million, or 7.2 percent, from $90.3 million in the prior year.
  • Business and Wholesale revenue increased by $1.2 million, or 4.6 percent, led by growth in wholesale revenue, which increased $1.0 million, or 9.3 percent.
  • Wireless revenue increased by $5.7 million, or 16.5 percent. Wireless broadband revenue grew $0.9 million, or 15.5 percent and roaming revenue grew $5.4 million, or 39.9 percent, both driven by higher data usage.
  • Access and CETC revenue decreased $0.4 million, or 2 percent.
  • Consumer broadband revenues increased $0.3 million, or 8.1 percent.
• Adjusted EBITDA of $36.6 million increased $3.8 million, or 11.6%.
  • Costs of service and sales increased $1.8 million, resulting from higher levels of data and network usage which drove increases in our roaming, DSL and advanced network expenses.
  • Selling, general and administrative expenses increased by $1.3 million primarily driven by increases in labor expenses in our sales and service organization and administrative costs associated with the AWN transaction.

Metric Highlights: Third Quarter 2012 Compared to Second Quarter 2012

• Business broadband connections remained relatively flat at 19,063, and ARPU grew 2.3 percent to $150.58.
• Wireless connections grew by 925 to 120,975 from 120,050 and churn was unchanged at 2.0 percent.
• Wireless retail ARPU grew 1.0 percent to $51.79.
• Consumer broadband connections, exclusive of erosion in dial up connections, increased sequentially and stand at 38,491 while ARPU grew 2.3 percent to $39.90.

“We are pleased with our performance and the debt amendment we recently entered into with our senior lenders. The amendment dedicates $65 million of the up-front proceeds from the AWN transaction to debt pay downs, with modestly higher borrowing rates and additional covenant flexibility related to future preferred dividend payments from the AWN venture,” said Wayne Graham, chief financial officer of Alaska Communications.

2012 Business Outlook

Our guidance for the year is unchanged:

• Revenue of between $355 and $365;
• EBITDA of approximately $120 million;
• Capex of $54 - $57 million; and
• Free Cash Flow of $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 877-941-8609 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9645. 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 8, 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 4568287. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4568287.

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 Adjusted 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 Adjusted 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 Adjusted EBITDA provides useful information to investors about the Company's performance because it eliminates 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, earnings of equity investments in excess or less than cash distributions, 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 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, Verizon’s entry into the Alaska market;, universal service fund) rule changes; problems with the formation, operation, or financial performance of AWN;; 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 maintain operations; 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.