Alaska Communications Systems Reports First Quarter 2013 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK) today reported financial results for its first quarter ended March 31, 2013.

“We had a solid start to the year. Our growth in overall business and wholesale revenues, combined with double-digit growth in every broadband revenue category, is continuing evidence of our business plan at work.

“Upside from foreign roaming, combined with prudent operating expense and capital investment management, resulted in superior free cash flow performance accelerating our deleveraging initiatives.

“We target closing the Alaska Wireless Network (“AWN”) transaction in the second quarter. The AWN Transaction mitigates risk associated with our wireless operations by providing predictable cash flows and a platform for additional deleveraging which will build shareholder value over time.

“Demand for our core broadband products remains strong and we are translating market demand into business performance, all while strengthening our balance sheet, creating long-term shareholder value,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: First Quarter 2013 Compared to First Quarter 2012

• Revenues of $91.1 million increased by $5.1 million, or 5.9%, from $85.9 million in the prior year.
  • Business and wholesale revenue increased $1.6 million, or 6.4%1.
  • Consumer revenue increased $0.4 million, or 4.4%.
  • Wireless revenue increased $6.2 million, or 21.2%.
  • Access and CETC revenue declined, as expected, $2.2 million, or 10.5%.
  • Broadband revenue as a percentage of total service revenue was 50%, compared to 43% in the prior year.
• Adjusted EBITDA of $31.0 million increased $4.7 million, or 17.9%, from $26.3 million in the prior year.
  • Cost of services and sales increased $1.2 million, or 3.5%, due primarily to higher device and accessory expenses.1
  • Selling, general & administrative, excluding the increase of $0.5 million in AWN transaction related costs, and the $0.7 million increase in stock-based compensation and long-term cash incentives, remained relatively unchanged.

Metric Highlights: First Quarter 2013 Compared to Fourth Quarter 2012

• Wireless subscribers decreased by 926 to 114,091. Losses experienced from the fourth quarter levels slowed significantly.
• Wireless average monthly retail service revenue per subscriber (“ARPU”) decreased by 1.5% to $52.17. Erosion in voice ARPU offset strong performance in broadband ARPU which increased 8.2% to $22.63.
• Business broadband connections increased to 19,466 from 19,202 and business broadband ARPU increased to $163.22 from $153.59.
• Consumer broadband connections increased to 39,334 from 38,760 and consumer broadband ARPU increased to $44.75 from $42.53.
• Consumer access lines declined to 54,037 from 55,823.
• Business access lines decreased to 80,770 from 80,852.

1 Excludes the effect of $0.9 million of revenue and expense, recorded in Q1 2012, associated with capacity exchange agreements on which we discontinued revenue and expense recognition in subsequent periods.

“Alaska Communications continues to target free cash flow for debt reduction, and we are pleased that we achieved significant debt reductions in the quarter. Net debt now stands at $521.9 million and our total leverage ratio as calculated under our senior credit facility for the twelve months ended March 31, 2013, is 4.13 to 1.00. Because our operating results in 2013 will be impacted by the timing of the AWN transaction, we continue to delay providing full year 2013 guidance until we have established a firm closing date. The AWN transaction will result in approximately $65.0 million of debt pay down at closing, and our Adjusted EBITDA following close will reflect the preferred distributions we expect to receive from AWN,” said Wayne Graham, ACS chief financial officer.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m. Eastern time to discuss the results. Parties in the United States and Canada can access the call at 1-877-941-8609. Parties outside the United States and Canada can access the call at 1-480-629-9770. 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 9, 2013, at midnight Eastern Time. To hear the replay, parties in the United States and Canada can call 1-800-406-7325 and enter pass code 4613887. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4613887.

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 the most advanced wireline and wireless 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.

Non-GAAP Measures

Adjusted EBITDA, as defined by the Company, may not be similar to Adjusted EBITDA measures used by other companies and is not a measurement under generally accepted accounting principles (GAAP). Management believes that Adjusted 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, loss on extinguishment of debt, depreciation and amortization, loss on disposal of assets, taxes, stock-based compensation and long-term cash incentive expense and AWN transaction related costs that are not directly attributable to the underlying performance of the Company’s operations. Management believes the most directly comparable GAAP measure would be Net cash provided by operating activities.

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 changes, our ability to consummate the AWN transaction and AWN’s subsequent financial and operational performance, 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; 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; 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.

Note: In an effort to provide investors with additional information regarding the Company’s results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. The Company has disclosed Adjusted EBITDA as net income before interest, provisions for taxes, depreciation and amortization, gain or loss on asset purchases or disposals, AWN Transaction related costs, Stock-based compensation and long term cash incentive expense, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by Operating Revenues. Additionally, the Company has disclosed Free cash flow as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“Incurred capital expenditures”) less cash interest expense, less non recurring capital items we have incurred to preliminarily establish infrastructure with AWN (“AWN non recurring capital expenditures”). These measures are provided because the Company believes they are important indicators regarding our ability to make principle payments on debt and fund working capital. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP.