Category: Services

Alaska Communications Systems Reports Second Quarter 2013 Results

Total revenues increased $7.7 million or 8.6%
Broadband revenue as percentage of Retail service revenue exceeds 50% for the first time
Deleveraging continues with $30.4 million of repayments of long-term debt YTD June 30, 2013
Milestone AWN transaction resulting in $65.0 million in additional debt repayments in July 2013
Commencing a fiber-to-the-node build out in major markets to enhance broadband capabilities

Alaska Communications Systems Group, Inc. (“ACS”) (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.

Contact:
Alaska Communications
Investor relations: Wayne Graham, 907-564-7756
Media relations: Heather Cavanaugh, 907-564-7722

Videos / Webinars

View all videos