Alaska Communications Systems Reports Second Quarter 2013 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2013.

“We are extremely pleased with our performance in the first half of the year. We achieved very strong rates of growth, with retail broadband revenues increasing 21% over last year. Debt reductions have been solid, with over $30 million through free cash flow generation in the first half of the year and $65 million from the AWN transaction in July. We are on track to achieve our goal of $100 million of net debt reductions this year. These results are evidence of our business plan at work.

“This quarter we also initiated a fiber-to-the-node build plan to significantly improve our broadband capabilities for business customers and sustain our long-term growth. We start with Anchorage this year and roll out to other areas of the state over the next couple of years. We are delivering on our business plan of growth and deleveraging, with an uncompromising focus on creating long-term value for our shareholders, customers and employees,” said Anand Vadapalli, President and CEO of Alaska Communications.

Financial Highlights: Second Quarter 2013 Compared to Second Quarter 2012
  • Revenues of $97.7 million increased by $7.7 million, or 8.6%, from $90.0 million in the prior year. $6.1 million of the growth was due to higher roaming revenue. Excluding this element of growth, overall revenue achieved 2.1% year over year growth.
    • Business and wholesale revenue increased $2.2 million, or 8.7%.
    • Consumer revenue increased $0.7 million, or 7.1%.
    • Wireless revenue increased $5.4 million, or 15.8%.
    • Access and CETC revenue declined, as expected, $0.6 million, or 3.0%.
    • Broadband revenue, as a percentage of total service revenue, was 52.3%, compared to 45.0% in the prior year.
  • Adjusted EBITDA of $34.0 million increased $8.4 million, or 32.8%, from $25.6 million in the prior year.
    • Cost of services and sales of $37.2 million declined $2.9 million or 7.2%, driven primarily by a $4.3 million decrease in device and accessory costs in 2013 caused by our launch of the iPhone in the second quarter of 2012, offset by an increase in roaming payables.
    • Selling, general & administrative, excluding the impact of AWN transaction costs, increased $1.9 million, or 7.5%, resulting primarily from an increase of $1.7 million in labor associated with higher incentive compensation expense in 2013 as compared to the prior year.

Metric Highlights: Second Quarter 2013 Compared to First Quarter 2013
  • Wireless subscribers increased by 328 to 114,419.
  • Wireless average monthly retail service revenue per subscriber (“ARPU”) increased by 1.0% or $0.51 to $52.68. Wireless broadband ARPU increased by 8.5% or $1.92 to $24.55.
  • Business broadband connections increased to 19,539 from 19,233 and business broadband ARPU increased by 4.2% or $6.94 to $171.29 from $164.35.
  • Consumer broadband connections increased to 39,559 from 39,334 and consumer broadband ARPU increased by 5.9% or $2.62 to $47.37.
  • Consumer access lines declined to 52,438 from 54,037, and business access lines decreased to 80,517 from 80,770.

“Alaska Communications continues to target free cash flow for debt reduction, and we are pleased to have made debt payments through June 30, 2013 of $30.4 million, achieving record debt reductions. Further, upon closing of the AWN transaction, we reduced debt by another $65 million, moving net debt to $444.9 million. The quarter was favorably impacted by a reversal of a previous reserve for an ongoing tax matter. We are pleased with the outcome of this matter as it further strengthens our balance sheet. On our upcoming conference call we will provide detailed guidance for the rest of the year in addition to discussing our longer term directional view now that we have the AWN transaction closed,” said Wayne Graham, ACS Chief Financial Officer.

High level guidance for the full year 2013 is as follows:

Total revenue is expected to be $340 - $350 million

EBITDA is expected to be $105 - $110 million

Capital spending is targeted to be around $50 million

Free Cash Flow is expected to be $20 - $25 million

Conference Call and On-Line Presentation

The company will host a conference call and live webcast today at 5:00 p.m. Eastern time to discuss these results. Parties in the United States and Canada can access the call at 1-800-762-9058. 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 conference call will also include a slide presentation that can be accessed in 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, August 8, 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 4627862. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4627862.

About Alaska Communications

Alaska Communications is a leading provider of advanced broadband solutions for businesses and consumers in Alaska. We operate a highly reliable, advanced statewide data and voice network with the latest technology 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 the sale of short-term investments, loss on the disposal of assets, taxes, long-term incentive compensation expense, loss for Equity method investments 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 continued build out of their wireless network in Alaska, Universal Service Fund changes, AWN’s future financial and operational performance, 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; 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 Companys 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     Six Months Ended
June 30, June 30,
2013     2012 2013     2012
 
Operating revenues $ 97,736 $ 90,012 $ 188,795 $ 175,959
 
Operating expenses:
Cost of services and sales 37,204 40,094 72,651 75,256
Selling, general & administrative 27,646 29,442 54,443 54,937
Depreciation and amortization 11,450 12,578 24,082 25,520
Loss on disposal of assets, net   585     139     626     419  
Total operating expenses   76,885     82,253     151,802     156,132  
 
Operating income 20,851 7,759 36,993 19,827
 
Other income and expense:
Interest expense (10,156 ) (9,376 ) (20,185 ) (18,935 )
Loss on extinguishment of debt (276 ) - (276 ) (323 )
Interest income 8 12 18 22
Other   (13 )   -     (13 )   -  
Total other income and expense   (10,437 )   (9,364 )   (20,456 )   (19,236 )
 
Income (loss) before income tax (expense) benefit 10,414 (1,605 ) 16,537 591
 
Income tax (expense) benefit   27,280     818     24,625     (249 )
 
Net income (loss) $ 37,694   $ (787 ) $ 41,162   $ 342  
 
Net income (loss) per share:
Basic $ 0.81   $ (0.02 ) $ 0.89   $ 0.01  
Diluted $ 0.80   $ (0.02 ) $ 0.88   $ 0.01  
 
Weighted average shares outstanding:
Basic   46,550     45,505     46,304     45,434  
Diluted   46,875     45,505     46,699     45,648  
 
 

Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
        June 30,         December 31,
Assets 2013 2012
 
Current assets:
Cash and cash equivalents $ 16,445 $ 16,839
Restricted cash 3,827 3,875
Short-term investments 525 2,050
Accounts receivable-trade, net of allowance of $5,781 and $6,231 44,079 39,713
Materials and supplies 9,940 9,409
Prepayments and other current assets 5,884 5,566
Deferred income taxes   1,317     8,301  
Total current assets 82,017 85,753
 
Property, plant and equipment 1,466,366 1,463,320
Less: accumulated depreciation and amortization   (1,067,505 )   (1,052,459 )
Property, plant and equipment, net 398,861 410,861
 
Goodwill 8,850 8,850
Intangible assets, net 24,118 24,118
Debt issuance costs 9,204 10,558
Deferred income taxes 102,491 69,049
Equity method investment 2,007 2,028
Other assets   477     3,510  
Total assets $ 628,025   $ 614,727  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 11,302 $ 21,628
Accounts payable, accrued and other current liabilities 56,785 56,378
Advance billings and customer deposits   8,913     8,970  
Total current liabilities 77,000 86,976
 
Long-term obligations, net of current portion 515,050 533,772
Other long-term liabilities   26,895     28,662  
Total liabilities   618,945     649,410  
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 467 458
Additional paid in capital 145,587 144,377
Accumulated deficit (129,117 ) (170,279 )
Accumulated other comprehensive loss   (7,857 )   (9,239 )
Total stockholders' equity (deficit)   9,080     (34,683 )
 
Total liabilities and stockholders' equity (deficit) $ 628,025   $ 614,727  
 
 

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,
2013     2012 2013     2012
Cash Flows from Operating Activities:
Net income (loss) $ 37,694 $ (787 ) $ 41,162 $ 342

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 11,450 12,578 24,082 25,520
Gain on ineffective hedge adjustment (596 ) - (1,016 ) -
Amortization of debt issuance costs and debt discount 1,614 1,396 3,040 3,002
Amortization of ineffective hedge 436 - 866 -
Stock-based compensation 499 976 1,718 1,693
Deferred income taxes (27,280 ) (814 ) (24,625 ) 249
Provision for uncollectible accounts 171 979 439 1,529
Loss from equity method investment 21 - 21 -
Other non-cash expense, net 781 114 862 543
Changes in operating assets and liabilities   (4,874 )   3,025     (1,065 )   4,160  
Net cash provided by operating activities 19,916 17,467 45,484 37,038
 
Cash Flows from Investing Activities:
Capital expenditures (7,629 ) (12,790 ) (13,597 ) (22,443 )
Capitalized interest (387 ) (464 ) (870 ) (829 )
Change in unsettled capital expenditures (678 ) (1,238 ) (3,829 ) (4,369 )
Proceeds on sale of assets - - 1,935 -
Net change in short-term investments 1,512 - 1,512 -
Net change in restricted accounts   49     (412 )   48     (544 )
Net cash used by investing activities (7,133 ) (14,904 ) (14,801 ) (28,185 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (15,366 ) (1,508 ) (30,381 ) (7,925 )
Debt issuance costs (181 ) - (181 ) -
Payment of cash dividend on common stock - (2,278 ) - (4,546 )
Payment of withholding taxes on stock-based compensation - (8 ) (630 ) (239 )
Proceeds from issuance of common stock   115     179     115     180  
Net cash used by financing activities (15,432 ) (3,615 ) (31,077 ) (12,530 )
 
Change in cash and cash equivalents (2,649 ) (1,052 ) (394 ) (3,677 )
 
Cash and cash equivalents, beginning of period   19,094     17,865     16,839     20,490  
 
Cash and cash equivalents, end of period $ 16,445   $ 16,813   $ 16,445   $ 16,813  
 
Supplemental Cash Flow Data:
Interest paid $ 11,219 $ 9,987 $ 18,383 $ 17,003
Income tax paid (refunded) $ - $ (24 ) $ - $ (24 )
 
Supplemental Non-cash Transactions:
Property (retired) acquired under capital leases $ - $ (24 ) $ 2 $ (24 )
Dividend declared, but not paid $ - $ 2,285 $ - $ 2,285
Additions to ARO asset $ 107 $ 32 $ 137 $ 54
 
 

Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
2013     2012 2013     2012
 
Net cash provided by operating activities $ 19,916 $ 17,467 $ 45,484 $ 37,038

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (11,450 ) (12,578 ) (24,082 ) (25,520 )
Gain on ineffective hedge adjustment 596 - 1,016 -
Amortization of debt issuance costs and debt discount (1,614 ) (1,396 ) (3,040 ) (3,002 )
Amortization of ineffective hedge (436 ) - (866 ) -
Stock-based compensation (499 ) (976 ) (1,718 ) (1,693 )
Deferred income taxes 27,280 814 24,625 (249 )
Provision for uncollectible accounts (171 ) (979 ) (439 ) (1,529 )
Loss from equity method investment (21 ) - (21 ) -
Other non-cash expense, net (781 ) (114 ) (862 ) (543 )
Changes in operating assets and liabilities   4,874     (3,025 )   1,065     (4,160 )
Net income (loss) $ 37,694 $ (787 ) $ 41,162 $ 342
Add (subtract):
Interest expense 10,156 9,376 20,185 18,935
Loss on extinguishment of debt 276 - 276 323
Interest income (8 ) (12 ) (18 ) (22 )
Depreciation and amortization 11,450 12,578 24,082 25,520
Loss on sale of short-term investments 13 - 13 -
Loss on disposal of assets 585 139 626 419
Income tax (expense) benefit (27,280 ) (818 ) (24,625 ) 249
Stock-based compensation and long term cash incentives 660 976 2,048 1,693
Loss from equity method investment 21 - 21 -
AWN transaction related costs   427     4,131     1,272     4,459  
 
Adjusted EBITDA $ 33,994   $ 25,583   $ 65,042   $ 51,918  
 
Less:
Incurred capital expenditures (7,629 ) (12,790 ) (13,597 ) (22,443 )
AWN transaction related capital costs, net change 14 - (41 ) -
Cash interest expense   (11,219 )   (9,987 )   (18,383 )   (17,003 )
Free cash flow $ 15,160   $ 2,806   $ 33,021   $ 12,472  
 
Revenue $ 97,736   $ 90,012   $ 188,795   $ 175,959  
 
Adjusted EBITDA Margin 34.8 % 28.4 % 34.5 % 29.5 %
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, loss on extinguishment of debt, depreciation and amortization, loss on short-term investments, gain or loss on asset purchases or disposals, provisions for taxes, stock-based compensation and long-term cash incentive expense, AWN Transaction related costs, 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.
 
 

Schedule 5
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE MIX
(Unaudited, In Thousands)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
Operating revenues: 2013     2012 2013     2012
Business and wholesale
Retail service revenue
Voice $ 5,790 $ 6,039 $ 11,513 $ 12,079
Broadband 9,962 8,425 19,429 16,543
Equipment sales 306 280 860 616
Wholesale and other   11,820     10,906     23,242     22,859  
Total business and wholesale revenue   27,878     25,650     55,044     52,097  
 
Consumer
Retail service revenue
Voice 4,353 4,848 8,672 9,784
Broadband 5,605 4,507 10,847 8,856
Equipment sales 37 42 75 84
Other   383     291     797     558  
Total consumer revenue   10,378     9,688     20,391     19,282  
 
Wireless
Retail service revenue
Voice 10,730 12,209 21,831 24,876
Broadband 7,300 6,001 14,103 11,552
Equipment sales 1,282 1,685 2,530 2,857
Foreign roaming 19,409 13,301 34,435 22,077
Other   1,049     1,149     2,150     2,095  
Total wireless revenue   39,770     34,345     75,049     63,457  
 
Access and CETC
CETC 6,030 5,163 10,954 10,690
High cost support 4,412 5,005 8,574 9,954
Switched, special and other access   9,268     10,161     18,783     20,479  
Total access and CETC   19,710     20,329     38,311     41,123  
 
Total revenues $ 97,736   $ 90,012   $ 188,795   $ 175,959  
 
Revenue Mix:
Business and wholesale 28.5 % 28.5 % 29.2 % 29.6 %
Consumer 10.6 % 10.8 % 10.8 % 11.0 %
Wireless 40.7 % 38.2 % 39.8 % 36.1 %
Access and CETC 20.2 % 22.6 % 20.3 % 23.4 %
 
 
Retail service revenue % of total revenues 44.8 % 46.7 % 45.8 % 47.6 %
Broadband % of Retail service revenue 52.3 % 45.0 % 51.4 % 44.2 %
 
Note -   Broadband contains the following dial-up revenue:
Three and six months ended June 30, 2013: $77 Consumer and $21 Business, and $160 Consumer and $44 Business, respectively.
Three and six months ended June 30, 2012: $99 Consumer and $26 Business, and $204 Consumer and $53 Business, respectively.
 
 

Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
    Three Months Ended
June 30,     March 31,     June 30,
2013 2013 2012
 
Voice:
Consumer access lines 52,438 54,037 59,480
Business access lines 80,517 80,770 82,083
 
Voice ARPU consumer $ 27.25 $ 26.21 $ 26.73
Voice ARPU business $ 23.93 $ 23.61 $ 24.49
 
Broadband:
Consumer connections 39,559 39,334 38,583

Business connections*
19,539 19,233 19,069
 
ARPU consumer $ 47.37 $ 44.75 $ 39.01

ARPU business*
$ 171.29 $ 164.35 $ 147.25
 
Wholesale lines 18,595 19,228 21,278
 
Wireless:
Postpaid connections 88,876 90,363 95,322
Lifeline connections 9,859 9,494 12,382
Prepaid connections   15,684     14,234     12,346  
Total   114,419     114,091     120,050  
 
Retail wireless ARPU $ 52.68 $ 52.17 $ 51.26
Wireless broadband ARPU $ 24.55 $ 22.63 $ 18.74
 
Churn:
 
Voice access lines 1.4 % 1.3 % 1.4 %
Broadband connections 2.0 % 1.9 % 2.5 %
Wireless connections 2.4 % 2.6 % 2.0 %
 
Wireless equipment subsidy $ 3,463 $ 3,527 $ 7,318
*  

Business broadband connections counts have been restated to correct how certain high bandwidth circuits types are measured. These change have no affect on our financial results, but will affect connection count and ARPU amounts presented above as compared to their presentation in prior periods.
 
Note - Broadband contains the following dial-up connections:
June 30, 2013: 1,948 Consumer and 435 Business.
March 31, 2013: 2,024 Consumer and 439 Business.
June 30, 2012: 2,482 Consumer and 499 Business.

Copyright Business Wire 2010