Alaska Communications Systems Reports Fourth Quarter And Full Year 2012 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK) today reported financial results for its fourth quarter and full year ended December 31, 2012.

“We are pleased with our performance this year. We generated strong growth in business and wholesale revenues. Ending the year at the high end of guidance for free cash flow, with our debt balances declining for the first time in three years, is also an indication of our progress.

“Looking ahead, we expect continued top line growth in the business and wholesale segment, solid free cash flow performance and significant deleveraging with the successful closing of the Alaska Wireless Network (“AWN”) transaction. Our investments in sales and service, product and network, and process improvements provide the platform for future growth. The AWN transaction is a defining transaction for Alaska Communications as it de-risks our wireless business, provides a predictable path for further deleveraging and builds shareholder value over time. These are all elements of our business plan in action, giving us confidence in our future.

“Growing demand for our core broadband product, the trust our customers have in the reliability of our products and network and the local service provided by our employees will drive our continued performance to our business plan,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: Fourth Quarter 2012 Compared to Fourth Quarter 2011
  • Revenues of $95.1 million increased by $7.6 million, or 8.7%, from $87.5 million in the prior year.
    • Business and wholesale revenue increased by $3.7 million, or 14.0%. We benefited from a non-recurring equipment sale in the fourth quarter 2012 of $1.4 million.
    • Consumer revenue increased by $0.3 million, or 2.8%.
    • Wireless revenue increased by $4.9 million, or 16.2%.
    • Access and CETC revenue declined, as expected by $1.3 million, or 5.9%.
    • Broadband revenue as a percentage of total service revenue was 47%, compared to 42% in the prior year.
  • Adjusted EBITDA of $33.3 million increased by $2.5 million, or 8.2%, from $30.8 million in the prior year.
    • Cost of services and sales increased by $1.9 million, or 5.6%, which was impacted by a non-recurring equipment sale and a $0.5 increase in wireless equipment and device costs.
    • Selling, general & administrative, excluding AWN transaction related costs of $1.1 million compared to $0.5 million in the prior year, increased by $2.8 million, or 12.1%, resulting primarily from increased sales and customer service costs.

Metric Highlights: Fourth Quarter 2012 Compared to Third Quarter 2012

  • Wireless subscribers decreased by 5,958 to 115,017. We conducted a recertification of all of our Lifeline customers to verify that they continue to meet the FCC’s recently revised eligibility criteria. Because of that effort, our wireless Lifeline enrollment decreased by 3,115 connections or 24.5% of our lifeline customer base. We were also impacted by the delay in availability of the iPhone 5 relative to our competition.
  • Wireless average monthly retail service revenue per subscriber (“ARPU”) increased by 2.3% to $52.96.
  • Business broadband connections increased to 19,202 from 19,063 and business broadband ARPU increased to $153.59 from $150.58.
  • Consumer broadband connections increased to 38,760 from 38,491 and consumer broadband ARPU increased to $42.53 from $39.90.
  • Consumer access lines declined to 55,823 from 57,483.
  • Business access lines decreased to 80,852 from 81,330.

“Alaska Communications continues to target free cash flow for debt reduction, with debt net of cash and short term investments at $536.5 million and our leverage ratio for the twelve months ended December 31, 2012 at 4.4x. Because our operating results in 2013 will be impacted by the timing of the AWN transaction, we are delaying 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 downs at closing, and our Adjusted EBITDA following close will reflect the preferred distribution that we expect to generate from AWN,” said Wayne Graham, Alaska Communications 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 1-800-762-8779. Parties outside the United States and Canada can access the call at 1-480-629-9645. 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, March 7, 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 4593495. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4593495.

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 capital investments, interest, stock-based compensation expense and AWN transaction 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 reforms, 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; 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 SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
Operating revenues $ 95,075 $ 87,472 $ 367,829 $ 349,314
 
Operating expenses:
Cost of services and sales 36,798 34,852 148,400 135,732
Selling, general & administrative 26,942 23,577 107,316 91,962
Depreciation and amortization 13,035 15,049 51,487 58,559
(Gain) loss on disposal of assets, net   (528 )   25     (2,668 )   (565 )
Total operating expenses   76,247     73,503     304,535     285,688  
 
Operating income 18,828 13,969 63,294 63,626
 
Other income and expense:
Interest expense (10,367 ) (9,456 ) (39,570 ) (38,271 )
Loss on extinguishment of debt (252 ) - (575 ) (13,445 )
Interest income 12 8 43 34
Other   -     -     -     174  
Total other income and expense   (10,607 )   (9,448 )   (40,102 )   (51,508 )
 
Income before income tax expense 8,221 4,521 23,192 12,118
 
Income tax benefit (expense)   602     (2,277 )   (5,783 )   (11,646 )
 
Net income $ 8,823   $ 2,244   $ 17,409   $ 472  
 
Net income per share:
Net income applicable to common shares $ 8,823 $ 2,244 $ 17,409 $ 472
Tax-effected expense attributable to convertible notes   1,767     -     -   $ -  
Net income assuming dilution $ 10,590   $ 2,244   $ 17,409   $ 472  
 
Basic $ 0.19   $ 0.05   $ 0.38   $ 0.01  
Diluted $ 0.18   $ 0.05   $ 0.38   $ 0.01  
 
Weighted average shares outstanding:
Basic   45,677     45,229     45,553     45,103  
Diluted   58,920     45,485     45,878     45,417  
 

       
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
 
December 31, December 31,
Assets 2012 2011
 
Current assets:
Cash and cash equivalents $ 16,839 $ 20,490
Restricted cash 3,875 4,956
Short-term investments 2,050 -
Accounts receivable-trade, net of allowance of $6,231 and $5,788 39,713 36,986
Materials and supplies 9,409 5,412
Prepayments and other current assets 5,566 4,920
Deferred income taxes   8,301     6,596  
Total current assets 85,753 79,360
 
Property, plant and equipment 1,463,320 1,428,597
Less: accumulated depreciation and amortization   (1,052,459 )   (1,023,360 )
Property, plant and equipment, net 410,861 405,237
 
Goodwill 8,850 8,850
Intangible assets, net 24,118 24,118
Debt issuance costs 10,558 9,515
Deferred income taxes 69,049 72,814
Equity method investment 2,028 2,060
Other assets   3,510     3,154  
Total assets $ 614,727   $ 605,108  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 21,628 $ 30,930
Accounts payable, accrued and other current liabilities 56,378 48,919
Advance billings and customer deposits   8,970     9,218  
Total current liabilities 86,976 89,067
 
Long-term obligations, net of current portion 533,772 538,624
Other long-term liabilities   28,662     28,340  
Total liabilities   649,410     656,031  
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 458 453
Additional paid in capital 144,377 144,631
Accumulated deficit (170,279 ) (187,688 )
Accumulated other comprehensive loss   (9,239 )   (8,319 )
Total stockholders' equity (deficit)   (34,683 )   (50,923 )
 
Total liabilities and stockholders' equity (deficit) $ 614,727   $ 605,108  
 

                 
Schedule 3
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
Cash Flows from Operating Activities:
Net income $ 8,823 $ 2,244 $ 17,409 $ 472

Adjustments to reconcile net income to net cash provided by

operating activities:
Depreciation and amortization 13,035 15,049 51,487 58,559
Gain on ineffective hedge adjustment (231 ) - (231 ) -
Amortization of debt issuance costs and debt discount 1,593 1,400 5,975 12,907
Amortization of ineffective hedge 292 - 292 -
Stock-based compensation 888 1,268 3,550 3,888
Deferred income taxes (614 ) 2,911 5,771 11,646
Provision for uncollectible accounts 752 865 2,588 2,333
Distributions in excess of earnings from equity method investment 13 - - -
Other non-cash income, net (333 ) 183 (2,375 ) (109 )
Changes in operating assets and liabilities   3,928     (2,390 )   (110 )   (10,615 )
Net cash provided by operating activities 28,146 21,530 84,356 79,081
 
Cash Flows from Investing Activities:
Capital expenditures (17,887 ) (18,102 ) (54,206 ) (50,179 )
Capitalized interest (565 ) (596 ) (1,961 ) (1,982 )
Change in unsettled capital expenditures 2,922 5,368 (2,726 ) 4,425
Proceeds on sale of assets 693 - 3,616 2,665
Return of capital from equity investment 32 - 32 -
Net change in short-term investments (2,050 ) - (2,050 ) -
Change in unsettled acquisition costs (90 ) (224 ) (90 ) (224 )
Net change in non-current investments - - - 529
Net change in restricted accounts   2,152     85     1,081     (44 )
Net cash used by investing activities (14,793 ) (13,469 ) (56,304 ) (44,810 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (10,222 ) (1,408 ) (19,477 ) (104,146 )
Proceeds from the issuance of long-term debt - - - 120,000
Debt issuance costs (3,167 ) - (3,167 ) (4,448 )
Payment of cash dividend on common stock (2,286 ) (9,736 ) (9,117 ) (38,818 )
Payment of withholding taxes on stock-based compensation (6 ) (13 ) (249 ) (2,043 )
Proceeds from issuance of common stock   128     159     307     358  
Net cash used by financing activities (15,553 ) (10,998 ) (31,703 ) (29,097 )
 
Change in cash and cash equivalents (2,200 ) (2,937 ) (3,651 ) 5,174
 
Cash and cash equivalents, beginning of period   19,039     23,427     20,490     15,316  
 
Cash and cash equivalents, end of period $ 16,839   $ 20,490   $ 16,839   $ 20,490  
 
Supplemental Cash Flow Data:
Interest paid $ 11,356 $ 9,952 $ 36,155 $ 34,367
Income tax paid (refunded) $ 12 $ (127 ) $ (12 ) $ (127 )
 
Supplemental Non-cash Transactions:
Property acquired under capital leases $ 1,459 $ 64 $ 1,435 $ 1,905
Dividend declared, but not paid $ - $ 2,268 $ - $ 2,268
Additions to ARO asset $ 54 $ 370 $ 132 $ 488
 

               
Schedule 4
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
 
Net cash provided by operating activities $ 28,146 $ 21,530 $ 84,356 $ 79,081
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization (13,035 ) (15,049 ) (51,487 ) (58,559 )
Amortization of debt issuance costs and debt discount (1,593 ) (1,400 ) (5,975 ) (12,907 )
Amortization of ineffective hedge (292 ) - (292 ) -
Gain on ineffective hedge adjustment 231 - 231 -
Stock-based compensation (888 ) (1,268 ) (3,550 ) (3,888 )
Deferred income taxes 614 (2,911 ) (5,771 ) (11,646 )
Provision for uncollectible accounts (752 ) (865 ) (2,588 ) (2,333 )
Distributions in excess of earnings from equity method investment (13 ) - - -
Other non-cash income, net 333 (183 ) 2,375 109
Changes in operating assets and liabilities   (3,928 )   2,390     110     10,615  
Net income $ 8,823 $ 2,244 $ 17,409 $ 472
Add (subtract):
Interest expense 10,367 9,456 39,570 38,271
Loss on extinguishment of debt 252 - 575 13,445
Interest income (12 ) (8 ) (43 ) (34 )
Depreciation and amortization 13,035 15,049 51,487 58,559
Gain on sale of long-term investments - - - (174 )
(Gain) loss on disposal of assets (528 ) 25 (2,668 ) (565 )
Income tax (benefit) expense (602 ) 2,277 5,783 11,646
Stock-based compensation 888 1,268 3,550 3,888
Gift of services - - - (51 )
Return of capital from equity investment 32 - 32 -
Distributions in excess of earnings from equity method investment 13 - - -
AWN transaction related costs   1,080     500     6,126     500  
 
Adjusted EBITDA $ 33,348   $ 30,811   $ 121,821   $ 125,957  
 
Less:
Incurred capital expenditures (17,887 ) (18,102 ) (54,206 ) (50,179 )
AWN transaction related capital costs 1,238 - 1,580 -
Cash interest expense   (11,356 )   (9,952 )   (36,155 )   (34,367 )
Free cash flow $ 5,343   $ 2,757   $ 33,040   $ 41,411  
 
Revenue $ 95,075   $ 87,472   $ 367,829   $ 349,314  
 
Adjusted EBITDA Margin 35.1 % 35.2 % 33.1 % 36.1 %
 

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 including return of capital from equity investment, 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 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)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
Operating revenues: 2012 2011 2012 2011
Business and wholesale
Retail service revenue
Voice $ 5,796 $ 6,038 $ 23,842 $ 25,613
Broadband 8,815 8,042 33,972 30,658
Equipment sales 1,927 502 2,855 1,265
Wholesale and other   13,347     11,628     47,790     42,879  
Total business and wholesale revenue   29,885     26,210     108,459     100,415  
 
Consumer
Retail service revenue
Voice 4,508 5,023 18,968 21,001
Broadband 4,928 4,292 18,398 17,011
Equipment sales 40 45 166 193
Other   416     267     1,386     1,062  
Total consumer revenue   9,892     9,627     38,918     39,267  
Wireless
Retail service revenue
Voice 12,199 13,257 49,431 53,553
Broadband 6,522 5,552 24,414 20,928
Equipment sales 1,421 1,343 6,015 5,665
Foreign roaming 14,110 9,341 55,105 38,934
Other   1,054     887     4,281     4,257  
Total wireless revenue   35,306     30,380     139,246     123,337  
 
Access and CETC
CETC 5,064 5,653 20,733 26,871
High cost support 5,182 5,094 20,223 21,103
Switched, special and other access   9,746     10,508     40,250     38,321  
Total access and CETC   19,992     21,255     81,206     86,295  
 
Total revenues $ 95,075   $ 87,472   $ 367,829   $ 349,314  
 
Revenue Mix:
Business and wholesale 31 % 30 % 29 % 29 %
Consumer 10 % 11 % 11 % 11 %
Wireless 37 % 35 % 38 % 35 %
Access and CETC 21 % 24 % 22 % 25 %
 
 
Retail Service Revenue % of Total Revenues 45 % 48 % 46 % 48 %
Broadband % of Total Service Revenue 47 % 42 % 45 % 41 %
 
 
Note: Broadband contains the following dial-up revenue:
Three months ended December 31, 2012: $86 Consumer and $23 Business.
Three months ended December 31, 2011: $114 Consumer and $28 Business.
Twelve months ended December 31, 2012: $384 Consumer and $101 Business.
Twelve months ended December 31, 2011: $512 Consumer and $121 Business.
 

     
Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
Three Months Ended
December 31, September 30, December 31,
2012 2012 2011
 
Voice:
Consumer access lines 55,823 57,483 62,507
Business access lines 80,852 81,330 83,055
 
Voice ARPU consumer $ 26.53 $ 26.65 $ 26.52
Voice ARPU business $ 23.82 $ 24.34 $ 24.07
 
Broadband:
Consumer connections 38,760 38,491 38,743
Business connections 19,202 19,063 19,143
 
ARPU consumer $ 42.53 $ 39.90 $ 36.52
ARPU business $ 153.59 $ 150.58 $ 140.37
 
Wholesale lines 20,007 20,782 23,063
 
Wireless:
Postpaid connections 100,910 107,220 107,530
Prepaid connections   14,107       13,755       10,029  
Total   115,017       120,975       117,559  
 
Retail wireless ARPU $ 52.96 $ 51.79 $ 53.54
Wireless broadband ARPU $ 20.92 $ 19.70 $ 17.17
 
Churn:
 
Voice access lines 1.4 % 1.4 % 1.4 %
Broadband connections 2.1 % 2.2 % 2.6 %
Wireless connections 3.7 % 2.0 % 2.2 %
 
 
Wireless equipment subsidy $ 2,666 $ 2,608 $ 2,264
 
 
Note: Broadband contains the following dial-up connections:
December 31, 2012: 2,184 Consumer and 451 Business.
September 30, 2012: 2,339 Consumer and 458 Business.
December 31, 2011: 2,831 Consumer and 529 Business.
 

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX