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Alaska Communications Systems Reports Third Quarter 2012 Results

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 .

    Schedule 1  
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, In Thousands, Except Per Share Amounts)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
Operating revenues $ 96,795 $ 90,306 $ 272,754 $ 261,842
 
Operating expenses:
Cost of services and sales 36,346 34,505 111,602 100,880
Selling, general & administrative 25,437 24,121 80,374 68,385
Depreciation and amortization 12,932 14,392 38,452 43,510
Gain on disposal of assets, net   (2,559 )   (709 )   (2,140 )   (590 )
Total operating expenses   72,156     72,309     228,288     212,185  
 
Operating income 24,639 17,997 44,466 49,657
 
Other income and expense:
Interest expense (10,268 ) (9,529 ) (29,203 ) (28,815 )
Loss on extinguishment of debt - - (323 ) (13,445 )
Interest income 9 10 31 26
Other   -     174     -     174  
Total other income and expense   (10,259 )   (9,345 )   (29,495 )   (42,060 )
 
Income (loss) before income tax (expense) benefit 14,380 8,652 14,971 7,597
 
Income tax (expense) benefit   (6,136 )   (9,468 )   (6,385 )   (9,369 )
 
Net income (loss) $ 8,244   $ (816 ) $ 8,586   $ (1,772 )
 
Net income (loss) per share:
Net income (loss) applicable to common shares $ 8,244 $ (816 ) $ 8,586 $ (1,772 )
Tax-effected expense attributable to convertible notes   1,808   $ -   # $ -   $ -  

 

Net income (loss) assuming dilution $ 10,052   $ (816 ) # $ 8,586   $ (1,772 )
 
Basic $ 0.18   $ (0.02 ) $ 0.19   $ (0.04 )
Diluted $ 0.17   $ (0.02 ) $ 0.19   $ (0.04 )

 

 
Weighted average shares outstanding:
Basic   45,664     45,202     45,511     45,061  
Diluted   59,437     45,202     45,806     45,061  

      Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
 
September 30, December 31,
Assets   2012     2011  
 
Current assets:
Cash and cash equivalents $ 19,039 $ 20,490
Restricted cash 6,027 4,956
Accounts receivable-trade, net of allowance of $6,008 and $5,788 40,157 36,986
Materials and supplies 9,355 5,412
Prepayments and other current assets 6,097 4,920
Deferred income taxes   8,681     6,596  
Total current assets 89,356 79,360
 
Property, plant and equipment 1,447,403 1,428,597
Less: accumulated depreciation and amortization   (1,043,372 )   (1,023,360 )
Property, plant and equipment, net 404,031 405,237
 
Goodwill 8,850 8,850
Intangible assets, net 24,123 24,118
Debt issuance costs 8,022 9,515
Deferred income taxes 66,622 72,814
Equity method investment 2,073 2,060
Other assets   4,803     3,154  
Total assets $ 607,880   $ 605,108  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 27,034 $ 30,930
Accounts payable, accrued and other current liabilities 51,931 48,919
Advance billings and customer deposits   8,797     9,218  
Total current liabilities 87,762 89,067
 
Long-term obligations, net of current portion 536,167 538,624
Other long-term liabilities   30,006     28,340  
Total liabilities   653,935     656,031  
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 457 453
Additional paid in capital 141,892 144,631
Accumulated deficit (179,102 ) (187,688 )
Accumulated other comprehensive loss   (9,302 )   (8,319 )
Total stockholders' equity (deficit)   (46,055 )   (50,923 )
 
Total liabilities and stockholders' equity (deficit) $ 607,880   $ 605,108  

          Schedule 3
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
Cash Flows from Operating Activities:
Net income (loss) $ 8,244 $ (816 ) $ 8,586 $ (1,772 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 12,932 14,392 38,452 43,510
Amortization of debt issuance costs and debt discount 1,380 1,421 4,382 11,507
Stock-based compensation 969 1,188 2,662 2,620
Deferred income taxes 6,136 8,834 6,385 8,735
Provision for uncollectible accounts 307 409 1,836 1,468
Earnings is excess of distributions from equity method investment (13 ) - (13 ) -
Other non-cash income, net (2,585 ) (726 ) (2,042 ) (292 )
Changes in operating assets and liabilities   (8,198 )   1,131     (4,038 )   (8,225 )
Net cash provided by operating activities 19,172 25,833 56,210 57,551
 
Cash Flows from Investing Activities:
Capital expenditures (14,443 ) (15,191 ) (37,715 ) (33,463 )
Change in unsettled capital expenditures (1,279 ) 394 (5,648 ) (943 )
Proceeds on sale of assets 2,923 2,665 2,923 2,665
Net change in non-current investments - 529 - 529
Net change in restricted accounts   (527 )   (127 )   (1,071 )   (129 )
Net cash used by investing activities (13,326 ) (11,730 ) (41,511 ) (31,341 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (1,330 ) (1,490 ) (9,255 ) (102,738 )
Proceeds from the issuance of long-term debt - - - 120,000
Debt issuance costs - 336 - (4,448 )
Payment of cash dividend on common stock (2,285 ) (9,733 ) (6,831 ) (29,082 )
Payment of withholding taxes on stock-based compensation (4 ) (8 ) (243 ) (2,030 )
Proceeds from issuance of common stock   (1 )   -     179     199  
Net cash used by financing activities (3,620 ) (10,895 ) (16,150 ) (18,099 )
 
Change in cash and cash equivalents 2,226 3,208 (1,451 ) 8,111
 
Cash and cash equivalents, beginning of period   16,813     20,219     20,490     15,316  
 
Cash and cash equivalents, end of period $ 19,039   $ 23,427   $ 19,039   $ 23,427  
 
Supplemental Cash Flow Data:
Interest paid $ 7,796 $ 7,193 $ 24,799 $ 24,415
Income tax refunds $ - $ - $ 24 $ -
 
Supplemental Non-cash Transactions:
Property acquired under capital leases $ - $ 679 $ (24 ) $ 1,841
Dividend declared, but not paid $ 2,286 $ 9,736 $ 2,286 $ 9,736
Additions to ARO asset $ 24 $ 104 $ 78 $ 118
 

 

 

      Schedule 4  
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
 
Net cash provided by operating activities $ 19,172 $ 25,833 $ 56,210 $ 57,551

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization (12,932 ) (14,392 ) (38,452 ) (43,510 )
Amortization of debt issuance costs and debt discount (1,380 ) (1,421 ) (4,382 ) (11,507 )
Stock-based compensation (969 ) (1,188 ) (2,662 ) (2,620 )
Deferred income taxes (6,136 ) (8,834 ) (6,385 ) (8,735 )
Provision for uncollectible accounts (307 ) (409 ) (1,836 ) (1,468 )
Earnings in excess of distributions from equity method investment 13 - 13 -
Other non-cash income, net 2,585 726 2,042 292
Changes in operating assets and liabilities   8,198     (1,131 )   4,038     8,225  
Net income (loss) $ 8,244 $ (816 ) $ 8,586 $ (1,772 )
Add (subtract):
Interest expense 10,268 9,529 29,203 28,815
Loss on extinguishment of debt - - 323 13,445
Interest income (9 ) (10 ) (31 ) (26 )
Depreciation and amortization 12,932 14,392 38,452 43,510
Gain on sale of long-term investments - (174 ) - (174 )
Gain on disposal of assets (2,559 ) (709 ) (2,140 ) (590 )
Gain on extraordinary items, net of tax - - - -
Income tax expense 6,136 9,468 6,385 9,369
Stock-based compensation 969 1,188 2,662 2,620
Gift of services - (118 ) - (51 )
Earnings in excess of distributions from equity method investment (13 ) - (13 ) -
AWN transaction related costs   587     -     5,046     -  
 
Adjusted EBITDA $ 36,555   $ 32,750   $ 88,473   $ 95,146  
 
Less:
Cash capital expenditures (15,722 ) (14,797 ) (43,363 ) (34,406 )

 

Cash interest expense   (7,796 )   (7,193 )   (24,799 )   (24,415 )
Free cash flow $ 13,037   $ 10,760   $ 20,311   $ 36,325  
 
Revenue $ 96,795   $ 90,306   $ 272,754   $ 261,842  
 
Adjusted EBITDA Margin 37.8 % 36.3 % 32.4 % 36.3 %
 
 
 
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 expense, gain or loss on asset purchases or disposals, gift of services, earnings of equity investments in excess of or less than cash distributions, AWN Transaction related costs, amortization of intangibles and stock-based compensation expense, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by Operating Revenues, and Free Cash Flow as reconciled above, because the Company believes they are important indicators providing information about our ability to service debt and fund capital expenditures. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are not 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.

          Schedule 5
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Revenue Mix
(Unaudited, In Thousands Except Per Share Amounts)
 
Three Months Ended Nine Months Ended
September 30, September 30,
Operating revenues:   2012     2011     2012     2011  
Business and wholesale
Retail service revenue
Voice $ 5,967 $ 6,440 $ 18,046 $ 19,576
Broadband 8,613 8,046 25,156 22,616
Equipment sales 311 224 927 763
Wholesale and other   11,587     10,597     34,446     31,248  

 

Total business and wholesale revenue   26,478     25,307     78,575     74,203  
 
Consumer
Retail service revenue
Voice 4,676 5,173 14,460 15,978
Broadband 4,613 4,266 13,469 12,720
Equipment sales 42 48 126 149
Other   413     268     971     795  

 

Total consumer revenue   9,744     9,755     29,026     29,642  
Wireless
Retail service revenue
Voice 12,355 12,973 37,231 40,296
Broadband 6,340 5,490 17,892 15,375
Equipment sales 1,737 1,541 4,594 4,322
Foreign roaming 18,919 13,525 40,996 29,592
Other   1,132     1,223     3,227     3,372  

 

Total wireless revenue   40,483     34,752     103,940     92,957  
 
Access and CETC
CETC 4,979 6,022 15,669 21,218
High cost support 5,087 4,480 15,041 16,009
Switched, special and other access   10,024     9,990     30,503     27,813  

 

Total access and CETC   20,090     20,492     61,213     65,040  
 
Total revenues $ 96,795   $ 90,306   $ 272,754   $ 261,842  
 
Revenue Mix:
Business and wholesale 27 % 28 % 29 % 28 %
Consumer 10 % 11 % 11 % 11 %
Wireless 42 % 38 % 38 % 36 %
Access and CETC 21 % 23 % 22 % 25 %
 
 
Retail Service Revenue % of Total Revenues 44 % 47 % 46 % 48 %
Data % of Total Service Revenue 46 % 42 % 45 % 40 %
 
 
Note: Broadband contains the following dial-up revenue:
Three months ended September 30, 2012: $94 Consumer and $25 Business.
Three months ended September 30, 2011: $126 Consumer and $30 Business.
Nine months ended September 30, 2012: $297 Consumer and $78 Business.
Nine months ended September 30, 2011: $398 Consumer and $93 Business.
 
In 2012, our financial presentation has been remapped to focus expanded customer groups. Significant changes in presentation include:
 
- Retail, Enterprise and Wholesale revenue in our prior presentation are now included in the categories of Business and Wholesale, Consumer, and Access and CETC.
- Access and CETC revenue has been combined into one group with CETC and Access broken out into Switched, Special, Other Access, and High Cost Support line items.
- Wireless revenue included CETC in our prior presentation and is now included in the category Access and CETC.
 

  Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
Three Months Ended
September 30, June 30, September 30,
2012   2012     2011  
 
Voice:
Consumer access lines 57,483 59,480 63,775
Business access lines 81,330 82,083 84,185
 
Voice ARPU consumer $ 26.65 $ 26.73 $ 26.70
Voice ARPU business $ 24.34 $ 24.49 $ 25.39
 
Broadband:
Consumer connections 38,491 38,583 39,602
Business connections 19,063 19,069 19,051
 
ARPU consumer $ 39.90 $ 39.01 $ 35.52
ARPU business $ 150.58 $ 147.25 $ 140.77
 
Wholesale lines 20,782 21,278 23,749
 
Wireless:
Postpaid connections 107,220 107,704 108,664
Prepaid connections   13,755     12,346     8,832  
Total   120,975     120,050     117,496  
 
Retail wireless ARPU $ 51.79 $ 51.26 $ 52.81
Wireless broadband ARPU $ 19.70 $ 18.74 $ 16.82
 
Churn:
 
Voice access lines 1.4 % 1.4 % 1.7 %
Broadband connections 2.2 % 2.5 % 2.3 %
Wireless connections 2.0 % 2.0 % 2.4 %
 
 
Wireless equipment subsidy $ 2,608 $ 7,318 $ 2,731
 
 
Note: Broadband contains the following dial-up connections:
September 30, 2012: 2,339 Consumer and 458 Business.
June 30, 2012: 2,482 Consumer and 499 Business.
September 30, 2011: 3,080 Consumer and 553 Business.




Stock quotes in this article: ALSK 

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