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.