Alaska Communications Systems Reports Fourth Quarter and Full Year 2012 Results

Alaska Communications Systems Reports Fourth Quarter and Full Year 2012 Results

- Full Year Revenue of $367.8 million, exceeded guidance -

- Full Year EBITDA of $121.8 million, exceeded guidance -


- Full year Free Cash Flow of $33.0 million, at high end of guidance -

- Full year Business and Wholesale Revenue increased 8.0% -

- De-levering continues with $19.5 million of repayments of long term debt for the year -

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. ("ACS") (NAS: 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. (NAS: 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 atwww.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)

$