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 .
             
Schedule 1
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, In Thousands, Except Per Share Amounts)
 
 

 
Three Months Ended Six Months Ended
June 30, June 30,
  2012     2011     2012     2011  
 
Operating revenues $ 90,012 $ 84,943 $ 175,959 $ 171,536
 
Operating expenses:
Cost of services and sales 40,094 33,490 75,256 66,375
Selling, general & administrative 29,442 20,986 54,937 44,264
Depreciation and amortization 12,578 14,183 25,520 29,118
Loss on disposal of assets, net   139     76     419     119  
Total operating expenses   82,253     68,735     156,132     139,876  
 
Operating income 7,759 16,208 19,827 31,660
 
Other income and expense:
Interest expense (9,376 ) (9,594 ) (18,935 ) (19,286 )
Loss on extinguishment of debt - (13,445 ) (323 ) (13,445 )
Interest income   12     8     22     16  
Total other income and expense   (9,364 )   (23,031 )   (19,236 )   (32,715 )
 
Income (loss) before income tax (expense) benefit (1,605 ) (6,823 ) 591 (1,055 )
 
Income tax (expense) benefit   818     3,168     (249 )   99  
 
Net income (loss) $ (787 ) $ (3,655 ) $ 342   $ (956 )
 
Net income (loss) per share:
Basic and diluted $ (0.02 ) $ (0.08 ) $ 0.01   $ (0.02 )
 
Weighted average shares outstanding:
Basic   45,505     45,169     45,434     44,989  
Diluted   45,505     45,169     45,648     44,989  
 

       
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
 
June 30, December 31,
Assets   2012     2011  
 
Current assets:
Cash and cash equivalents $ 16,813 $ 20,490
Restricted cash 5,500 4,956
Accounts receivable-trade, net of allowance of $6,060 and $5,788 39,653 36,986
Materials and supplies 10,075 5,412
Prepayments and other current assets 4,798 4,920
Deferred income taxes   7,941     6,596  
Total current assets 84,780 79,360
 
Property, plant and equipment 1,436,692 1,428,597
Less: accumulated depreciation and amortization   (1,033,883 )   (1,023,360 )
Property, plant and equipment, net 402,809 405,237
 
Goodwill 8,850 8,850
Intangible assets, net 24,118 24,118
Debt issuance costs 8,512 9,515
Deferred income taxes 72,364 72,814
Equity method investment 2,060 2,060
Other assets   3,556     3,154  
Total assets $ 607,049   $ 605,108  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 26,799 $ 30,930
Accounts payable, accrued and other current liabilities 58,312 48,919
Advance billings and customer deposits   8,906     9,218  
Total current liabilities 94,017 89,067
 
Long-term obligations, net of current portion 536,842 538,624
Other long-term liabilities   30,814     28,340  
Total liabilities   661,673     656,031  
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 457 453
Additional paid in capital 141,869 144,631
Accumulated deficit (187,346 ) (187,688 )
Accumulated other comprehensive loss   (9,604 )   (8,319 )
Total stockholders' equity (deficit)   (54,624 )   (50,923 )
 
Total liabilities and stockholders' equity (deficit) $ 607,049   $ 605,108  
 

             
Schedule 3
 
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2012     2011     2012     2011  
Cash Flows from Operating Activities:
Net income (loss) $ (787 ) $ (3,655 ) $ 342 $ (956 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 12,578 14,183 25,520 29,118
Amortization of debt issuance costs and debt discount 1,396 8,072 3,002 10,086
Stock-based compensation 976 88 1,693 1,432
Deferred income taxes (814 ) (3,137 ) 249 (99 )
Provision for uncollectible accounts 979 564 1,529 1,059
Other non-cash expenses 114 206 543 434
Changes in operating assets and liabilities   3,025     (6,297 )   4,160     (9,356 )
Net cash provided by operating activities 17,467 10,024 37,038 31,718
 
Cash Flows from Investing Activities:
Capital expenditures (13,254 ) (10,084 ) (23,272 ) (18,272 )
Change in unsettled capital expenditures (1,238 ) (478 ) (4,369 ) (1,337 )
Net change in restricted accounts   (412 )   (2 )   (544 )   (2 )
Net cash used by investing activities (14,904 ) (10,564 ) (28,185 ) (19,611 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (1,508 ) (99,954 ) (7,925 ) (101,248 )
Proceeds from the issuance of long-term debt - 120,000 - 120,000
Debt issuance costs - (4,700 ) - (4,784 )
Payment of cash dividend on common stock (2,278 ) (9,721 ) (4,546 ) (19,349 )
Payment of withholding taxes on stock-based compensation (8 ) (110 ) (239 ) (2,022 )
Proceeds from issuance of common stock   179     198     180     199  
Net cash provided (used) by financing activities (3,615 ) 5,713 (12,530 ) (7,204 )
 
Change in cash and cash equivalents (1,052 ) 5,173 (3,677 ) 4,903
 
Cash and cash equivalents, beginning of period   17,865     15,046     20,490     15,316  
 
Cash and cash equivalents, end of period $ 16,813   $ 20,219   $ 16,813   $ 20,219  
 
Supplemental Cash Flow Data:
Interest paid $ 9,987 $ 7,384 $ 17,003 $ 17,222
Income tax refunds $ (24 ) $ - $ (24 ) $ -
 
Supplemental Non-cash Transactions:
Property acquired under capital leases $ (24 ) $ 1,162 $ (24 ) $ 1,162
Dividend declared, but not paid $ 2,285 $ 9,733 $ 2,285 $ 9,733
Additions to ARO asset $ 32 $ 7 $ 54 $ 14
 

 
Schedule 4
           
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2012     2011     2012     2011  
 
 
Net cash provided by operating activities $ 17,467 $ 10,024 $ 37,038 $ 31,718
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
Depreciation and amortization (12,578 ) (14,183 ) (25,520 ) (29,118 )
Amortization of debt issuance costs and debt discount (1,396 ) (8,072 ) (3,002 ) (10,086 )
Stock-based compensation (976 ) (88 ) (1,693 ) (1,432 )
Deferred income taxes 814 3,137 (249 ) 99
Provision for uncollectible accounts (979 ) (564 ) (1,529 ) (1,059 )
Other non-cash expenses, net (114 ) (206 ) (543 ) (434 )
Changes in operating assets and liabilities   (3,025 )   6,297     (4,160 )   9,356  
Net income (loss) $ (787 ) $ (3,655 ) $ 342 $ (956 )
Add (subtract):
Interest expense 9,376 9,594 18,935 19,286
Loss on extinguishment of debt - 13,445 323 13,445
Interest income (12 ) (8 ) (22 ) (16 )
Depreciation and amortization 12,578 14,183 25,520 29,118
Loss on disposal of assets 139 76 419 119
Gift of services - 118 - 67
AWN transaction related costs 4,131 - 4,459 -
Income tax expense (818 ) (3,168 ) 249 (99 )
Stock-based compensation   976     88     1,693     1,432  
EBITDA $ 25,583   $ 30,673   $ 51,918   $ 62,396  
 
Less:
Cash capital expenditures (14,492 ) (10,562 ) (27,641 ) (19,609 )
Cash interest expense   (9,987 )   (7,384 )   (17,003 )   (17,222 )
Free cash flow $ 1,104   $ 12,727   $ 7,274   $ 25,565  
 
Revenue $ 90,012   $ 84,943   $ 175,959   $ 171,536  
 
EBITDA Margin 28.4 % 36.1 % 29.5 % 36.4 %
 
 
 

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 its net income before interest, provisions for taxes, depreciation expense, gain or loss on asset purchases or disposals, gift of services, AWN Transaction related costs, amortization of intangibles and stock-based compensation expense (EBITDA), and EBITDA Margin, defined as 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, pay dividends and fund capital expenditures. EBITDA, 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 Six Months Ended
June 30, June 30,
Operating revenues:   2012     2011     2012     2011  
Business and wholesale
Retail service revenue
Voice $ 6,039 $ 6,656 $ 12,079 $ 13,136
Broadband 8,425 7,550 16,543 14,570
Equipment sales 280 236 616 539
Wholesale and other   10,906     10,198     22,859     20,653  
Total business and wholesale revenue   25,650     24,640     52,097     48,898  
 
Consumer
Retail service revenue
Voice 4,848 5,383 9,784 10,805
Broadband 4,507 4,298 8,856 8,454
Equipment sales 42 50 84 101
Other   291     267     558     525  
Total consumer revenue   9,688     9,998     19,282     19,885  
Wireless
Retail service revenue
Voice 12,209 13,384 24,876 27,323
Broadband 6,001 5,199 11,552 9,885
Equipment sales 1,685 1,408 2,857 2,781
Foreign roaming 13,301 9,881 22,077 16,067
Other   1,149     1,023     2,095     2,150  
Total wireless revenue   34,345     30,895     63,457     58,206  
 
Access and CETC
CETC 5,163 5,721 10,690 15,196
High cost support 5,005 4,739 9,954 11,529
Switched, special and other access   10,161     8,950     20,479     17,823  
Total access and CETC   20,329     19,410     41,123     44,548  
 
Total revenues $ 90,012   $ 84,943   $ 175,959   $ 171,537  
 
Revenue Mix:
Business and wholesale 28 % 29 % 30 % 29 %
Consumer 11 % 12 % 11 % 12 %
Wireless 38 % 36 % 36 % 34 %
Access and CETC 23 % 23 % 23 % 26 %
 
 
Retail Service Revenue % of Total Revenues 47 % 50 % 48 % 49 %
Broadband % of Total Service Revenue 45 % 40 % 44 % 39 %
 
 
Note: Broadband contains the following dial-up revenue:
Three months ended June 30, 2012: $96 Consumer and $26 Business.
Three months ended June 30, 2011: $127 Consumer and $30 Business.
Six months ended June 30, 2012: $197 Consumer and $52 Business.
Six months ended June 30, 2011: $262 Consumer and $61 Business.
 

 
Schedule 6
       
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
Three Months Ended
June 30, March 31, June 30,
  2012     2012     2011  
 
Voice:
Consumer access lines 59,480 61,422 65,399
Business access lines 82,083 82,317 84,896
 
Voice ARPU consumer $ 26.73 $ 26.55 $ 27.19
Voice ARPU business $ 24.49 $ 24.35 $ 26.03
 
Broadband:
Consumer connections 38,583 38,449 40,471
Business connections 19,069 19,076 19,054
 
ARPU consumer $ 39.01 $ 37.56 $ 35.15
ARPU business $ 147.25 $ 141.60 $ 132.41
 
Wholesale lines 21,278 22,157 23,959
 
Wireless:
Postpaid connections 107,704 106,133 108,533
Prepaid connections   12,346     11,023     8,146  
Total   120,050     117,156     116,679  
 
Retail wireless ARPU $ 51.26 $ 51.83 $ 53.39
Wireless broadband ARPU $ 18.74 $ 17.35 $ 16.08
 
Churn:
 
Voice access lines 1.4 % 1.3 % 1.4 %
Broadband connections 2.5 % 2.3 % 2.1 %
Wireless connections 2.0 % 2.3 % 2.1 %
 
 
Wireless equipment subsidy ($ = Thousands) $ 7,318 $ 1,799 $ 3,875
 
 
 
 
 

Note:

Broadband contains the following dial-up connections:
June 30, 2012: 2,248 Consumer and 499 Business.
March 31, 2012: 2,620 Consumer and 516 Business.
June 30, 2011: 3,300 Consumer, and 579 Business.
 

Copyright Business Wire 2010

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