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Alaska Communications Systems Reports Second Quarter 2012 Results

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2012.

"Six months ago we launched a new business plan and today we are pleased to announce solid growth in both revenue and customer metrics. This plan dedicated us to achieve top-line growth through driving retail broadband revenues across all customer segments, with a focus on business customers. I'm pleased to report that we see particular strength in broadband data, with ARPU growth across all customer and product segments. Year-over-year broadband revenue as a percentage of total retail revenues is increasing. I'm also pleased to report that we improved our market position in wireless, with a very successful launch of the iPhone, adding approximately 2,900 wireless connections while churn fell by approximately 10 percent. Finally, this quarter we announced an agreement with General Communication, Inc ("GCI") to form the Alaska Wireless Network ("AWN"), which will be the fastest, most geographically extensive wireless network in Alaska. We remain focused on executing to our business plan, working to close the AWN transaction, and de-levering our balance sheet," said Anand Vadapalli, Alaska Communications president and CEO.

Financial Highlights: Second Quarter 2012 Compared to Second Quarter 2011

  • Revenue of $90.0 million grew by $5.1 million, or 6 percent, from $84.9 million in the prior year.
    • Business and Wholesale revenue increased by $1.0 million, or 4 percent, led by growth in broadband revenue, which increased $0.9 million, or 12 percent.
    • Wireless revenue increased by $3.5 million, or 11 percent. Wireless broadband revenue grew $0.8 million, or 15 percent. Roaming revenue grew $3.4 million, or 35 percent, driven by higher data usage.
    • Access and CETC revenue increased $0.9 million, or 5 percent.
    • Consumer broadband revenues increased $0.2 million, or 5 percent.
  • EBITDA of $25.6 million, which excluded $4.1 million of AWN transaction costs and $0.9 million in stock-based compensation, decreased $5.1 million.
    • Wireless subsidy grew by $3.4 million to $7.3 million, or 89 percent.
    • Costs of service and sales increased $3.0 million, excluding $3.7 million related to wireless equipment sales, due in part to higher intrastate access and circuit related expenses.
    • Selling, general and administrative expenses increased by $3.5 million inclusive of a $1.4 million favorable contract settlement in the prior year. The remaining $2.1 million increase was in-line with management expectations and reflects a commitment to higher level of investment in customer service, sales, strategic initiatives, and process improvement.

Metric Highlights: Second Quarter 2012 Compared to First Quarter 2012

  • Business broadband connections remained relatively flat at 19,069, and ARPU grew 4 percent to $147.25.
  • Wireless connections grew by 2,894 from 117,156 to 120,050 and churn declined from 2.3 to 2.0 percent. We sold 22,900 devices in the quarter, compared to 15,900 in the prior quarter. 47 percent of our device sales in the quarter were from the iPhone, with 21 percent of these sales to new customers. 10 percent of our postpaid customers now use the iPhone with new long-term contracts.
  • Wireless broadband ARPU grew 8 percent to $18.74 but was more than offset by erosion in voice ARPU, leading to lower overall retail wireless ARPU of $51.26 compared to $51.83 last quarter.
  • Consumer broadband connections increased for the first time in twelve quarters, growing by 134 to 38,583, while ARPU grew 4 percent to $39.01.

 

"We are pleased with our top line performance; however, EBITDA in the quarter was impacted by significant demand for the iPhone in the first two months of launch, from both new and existing customers. Subsidies in the quarter were higher by $5.5 million sequentially, and $3.4 million year-over-year. We expect iPhone sales activities to moderate, and we do not expect to see similar levels of subsidies the rest of the year. As an update on AWN, we are working through the various regulatory and other approval processes, and continue to target closing in the second quarter next year." said Wayne Graham, ACS chief financial officer.

2012 Business Outlook

We've experienced strength in revenue, but because of the higher subsidies, we are adjusting our guidance for the rest of the year as follows:

  • Revenue guidance of between $355 and $365 million is unchanged;
  • EBITDA guidance moves from modestly above 2011 levels of $125 million to around $120 million;
  • Capex guidance moves from $55 - $60 million to $54 - $57 million;
  • Free Cash Flow moves from $32 - $36 million to $28 - $34 million;

All guidance excludes costs associated with the AWN transaction.

Conference Call

The Company will host a conference call and live webcast today at 5:00 p.m. Eastern time. Parties in the United States and Canada can call 877-941-9205 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9692. 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 Monday, August 13, 2012, at midnight Eastern Time. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4552863. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4552863.

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 advanced 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.

Forward-Looking Guidance

This press release includes information related to management's estimate of EBITDA and Free Cash Flow (FCF) for the year ending December 31, 2012. EBITDA and FCF, as defined by the Company, may not be consistent with EBITDA and FCF measures used by other companies are not measurements under generally accepted accounting principles (GAAP), and should not be a considered a substitute for other measures of financial performance recorded in accordance with GAAP. Management believes that 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 income and expense, stock-based compensation expense, losses and gains associated with the extinguishment of debt and disposal of assets, gift of services, AWN transaction related costs, income tax expense and depreciation and amortization that are not directly attributable to the underlying performance of the Company's business operations. Similarly, FCF provides useful information about the ability of the Company to pay dividends and reduce its outstanding indebtedness. Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in the most comparable GAAP measure, "net cash provided by operating activities" the Company is not providing an estimate of the year-end 2012 amount for that measure.

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, the Company's ability to obtain required approvals for the AWN transaction and AWN's subsequent financial and operational performance, Verizon's entry into the Alaska market, Universal Service Fund reforms, 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, or other factors affecting the Company's ability to generate sufficient earnings and cash flows to continue to make dividend payments to its stockholders; 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 STATEMENTS OF OPERATIONS
(Unaudited, In Thousands, Except Per Share Amounts)
                       
                       
   

 

  Three Months Ended     Six Months Ended
        June 30,     June 30,
          2012       2011         2012       2011  
                       
Operating revenues   $ 90,012     $ 84,943       $ 175,959     $ 171,536  
                       
Operating expenses:                  
Cost of services and sales     40,094       33,490         75,256       66,375  
Selling, general & administrative     29,442       20,986         54,937       44,264  
Depreciation and amortization     12,578       14,183         25,520       29,118  
Loss on disposal of assets, net     139       76         419       119  
Total operating expenses     82,253       68,735         156,132       139,876  
                       
Operating income     7,759       16,208         19,827       31,660  
                       
Other income and expense:                  
Interest expense     (9,376 )     (9,594 )       (18,935 )     (19,286 )
Loss on extinguishment of debt     -       (13,445 )       (323 )     (13,445 )
Interest income     12       8         22       16  
Total other income and expense     (9,364 )     (23,031 )       (19,236 )     (32,715 )
                       
Income (loss) before income tax (expense) benefit     (1,605 )     (6,823 )       591       (1,055 )
                       
Income tax (expense) benefit     818       3,168         (249 )     99  
                       
Net income (loss)   $ (787 )   $ (3,655 )     $ 342     $ (956 )
                       
Net income (loss) per share:                  
Basic and diluted   $ (0.02 )   $ (0.08 )     $ 0.01     $ (0.02 )
                       
Weighted average shares outstanding:                  
Basic     45,505       45,169         45,434       44,989  
Diluted     45,505       45,169         45,648       44,989  
                                     

 

             
Schedule 2
             
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
             
             
        June 30,   December 31,
Assets     2012       2011  
             
Current assets:        
  Cash and cash equivalents   $ 16,813     $ 20,490  
  Restricted cash     5,500       4,956  
  Accounts receivable-trade, net of allowance of $6,060 and $5,788     39,653       36,986  
  Materials and supplies     10,075       5,412  
  Prepayments and other current assets     4,798       4,920  
  Deferred income taxes     7,941       6,596  
    Total current assets     84,780       79,360  
             
Property, plant and equipment     1,436,692       1,428,597  
Less: accumulated depreciation and amortization     (1,033,883 )     (1,023,360 )
  Property, plant and equipment, net     402,809       405,237  
             
Goodwill     8,850       8,850  
Intangible assets, net     24,118       24,118  
Debt issuance costs     8,512       9,515  
Deferred income taxes     72,364       72,814  
Equity method investment     2,060       2,060  
Other assets     3,556       3,154  
Total assets   $ 607,049     $ 605,108  
             
Liabilities and Stockholders' Equity (Deficit)        
Current liabilities:        
  Current portion of long-term obligations   $ 26,799     $ 30,930  
  Accounts payable, accrued and other current liabilities     58,312       48,919  
  Advance billings and customer deposits     8,906       9,218  
    Total current liabilities     94,017       89,067  
             
Long-term obligations, net of current portion     536,842       538,624  
Other long-term liabilities     30,814       28,340  
Total liabilities     661,673       656,031  
Commitments and contingencies        
Stockholders' equity (deficit):        
  Common stock, $.01 par value; 145,000 authorized     457       453  
  Additional paid in capital     141,869       144,631  
  Accumulated deficit     (187,346 )     (187,688 )
  Accumulated other comprehensive loss     (9,604 )     (8,319 )
    Total stockholders' equity (deficit)     (54,624 )     (50,923 )
             
Total liabilities and stockholders' equity (deficit)   $ 607,049     $ 605,108  
                 
                       
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,
          2012       2011         2012       2011  
Cash Flows from Operating Activities:                  
Net income (loss)   $ (787 )   $ (3,655 )     $ 342     $ (956 )
Adjustments to reconcile net income (loss) to net cash provided by              
operating activities:                  
Depreciation and amortization     12,578       14,183         25,520       29,118  
Amortization of debt issuance costs and debt discount     1,396       8,072         3,002       10,086  
Stock-based compensation     976       88         1,693       1,432  
Deferred income taxes     (814 )     (3,137 )       249       (99 )
Provision for uncollectible accounts     979       564         1,529       1,059  
Other non-cash expenses     114       206         543       434  
Changes in operating assets and liabilities     3,025       (6,297 )       4,160       (9,356 )
Net cash provided by operating activities     17,467       10,024         37,038       31,718  
                       
Cash Flows from Investing Activities:                  
Capital expenditures     (13,254 )     (10,084 )       (23,272 )     (18,272 )
Change in unsettled capital expenditures     (1,238 )     (478 )       (4,369 )     (1,337 )
Net change in restricted accounts     (412 )     (2 )       (544 )     (2 )
Net cash used by investing activities     (14,904 )     (10,564 )       (28,185 )     (19,611 )
                       
Cash Flows from Financing Activities:                  
Repayments of long-term debt     (1,508 )     (99,954 )       (7,925 )     (101,248 )
Proceeds from the issuance of long-term debt     -       120,000         -       120,000  
Debt issuance costs     -       (4,700 )       -       (4,784 )
Payment of cash dividend on common stock     (2,278 )     (9,721 )       (4,546 )     (19,349 )
Payment of withholding taxes on stock-based compensation     (8 )     (110 )       (239 )     (2,022 )
Proceeds from issuance of common stock     179       198         180       199  
Net cash provided (used) by financing activities     (3,615 )     5,713         (12,530 )     (7,204 )
                       
Change in cash and cash equivalents     (1,052 )     5,173         (3,677 )     4,903  
                       
Cash and cash equivalents, beginning of period     17,865       15,046         20,490       15,316  
                       
Cash and cash equivalents, end of period   $ 16,813     $ 20,219       $ 16,813     $ 20,219  
                       
Supplemental Cash Flow Data:                  
Interest paid   $ 9,987     $ 7,384       $ 17,003     $ 17,222  
Income tax refunds   $ (24 )   $ -       $ (24 )   $ -  
                       
Supplemental Non-cash Transactions:                  
Property acquired under capital leases   $ (24 )   $ 1,162       $ (24 )   $ 1,162  
Dividend declared, but not paid   $ 2,285     $ 9,733       $ 2,285     $ 9,733  
Additions to ARO asset   $ 32     $ 7       $ 54     $ 14  
                                   

 

 
Schedule 4
                     
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
                     
      Three Months Ended     Six Months Ended
      June 30,     June 30,
        2012       2011         2012       2011  
                     
                     
Net cash provided by operating activities   $ 17,467     $ 10,024       $ 37,038     $ 31,718  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
                 
Depreciation and amortization     (12,578 )     (14,183 )       (25,520 )     (29,118 )
Amortization of debt issuance costs and debt discount     (1,396 )     (8,072 )       (3,002 )     (10,086 )
Stock-based compensation     (976 )     (88 )       (1,693 )     (1,432 )
Deferred income taxes     814       3,137         (249 )     99  
Provision for uncollectible accounts     (979 )     (564 )       (1,529 )     (1,059 )
Other non-cash expenses, net     (114 )     (206 )       (543 )     (434 )
Changes in operating assets and liabilities     (3,025 )     6,297         (4,160 )     9,356  
Net income (loss)   $ (787 )   $ (3,655 )     $ 342     $ (956 )
Add (subtract):                  
Interest expense     9,376       9,594         18,935       19,286  
Loss on extinguishment of debt     -       13,445         323       13,445  
Interest income     (12 )     (8 )       (22 )     (16 )
Depreciation and amortization     12,578       14,183         25,520       29,118  
Loss on disposal of assets     139       76         419       119  
Gift of services     -       118         -       67  
AWN transaction related costs     4,131       -         4,459       -  
Income tax expense     (818 )     (3,168 )       249       (99 )
Stock-based compensation     976       88         1,693       1,432  
EBITDA   $ 25,583     $ 30,673       $ 51,918     $ 62,396  
                     
Less:                  
Cash capital expenditures     (14,492 )     (10,562 )       (27,641 )     (19,609 )
Cash interest expense     (9,987 )     (7,384 )       (17,003 )     (17,222 )
Free cash flow   $ 1,104     $ 12,727       $ 7,274     $ 25,565  
                     
Revenue   $ 90,012     $ 84,943       $ 175,959     $ 171,536  
                     
EBITDA Margin     28.4 %     36.1 %       29.5 %     36.4 %
                     
                     
                     

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 its net income before interest, provisions for taxes, depreciation expense, gain or loss on asset purchases or disposals, gift of services, AWN Transaction related costs, amortization of intangibles and stock-based compensation expense (EBITDA), and EBITDA Margin, defined as EBITDA divided by Operating Revenues, and Free Cash Flow as reconciled above, because the Company believes they are important indicators providing information about our ability to service debt, pay dividends and fund capital expenditures. EBITDA, 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 Except Per Share Amounts)
                           
            Three Months Ended     Six Months Ended
            June 30,     June 30,
  Operating revenues:     2012       2011         2012       2011  
    Business and wholesale                  
      Retail service revenue                  
      Voice   $ 6,039     $ 6,656       $ 12,079     $ 13,136  
      Broadband     8,425       7,550         16,543       14,570  
      Equipment sales     280       236         616       539  
      Wholesale and other     10,906       10,198         22,859       20,653  
        Total business and wholesale revenue     25,650       24,640         52,097       48,898  
                           
    Consumer                  
      Retail service revenue                  
      Voice     4,848       5,383         9,784       10,805  
      Broadband     4,507       4,298         8,856       8,454  
      Equipment sales     42       50         84       101  
      Other     291       267         558       525  
        Total consumer revenue     9,688       9,998         19,282       19,885  
    Wireless                  
      Retail service revenue                  
      Voice     12,209       13,384         24,876       27,323  
      Broadband     6,001       5,199         11,552       9,885  
      Equipment sales     1,685       1,408         2,857       2,781  
      Foreign roaming     13,301       9,881         22,077       16,067  
      Other     1,149       1,023         2,095       2,150  
        Total wireless revenue     34,345       30,895         63,457       58,206  
                           
    Access and CETC                  
      CETC     5,163       5,721         10,690       15,196  
      High cost support     5,005       4,739         9,954       11,529  
      Switched, special and other access     10,161       8,950         20,479       17,823  
        Total access and CETC     20,329       19,410         41,123       44,548  
                           
    Total revenues   $ 90,012     $ 84,943       $ 175,959     $ 171,537  
                           
  Revenue Mix:                    
      Business and wholesale     28 %     29 %       30 %     29 %
      Consumer     11 %     12 %       11 %     12 %
      Wireless     38 %     36 %       36 %     34 %
      Access and CETC     23 %     23 %       23 %     26 %
                           
                           
      Retail Service Revenue % of Total Revenues     47 %     50 %       48 %     49 %
      Broadband % of Total Service Revenue     45 %     40 %       44 %     39 %
                           
                           
Note: Broadband contains the following dial-up revenue:              
    Three months ended June 30, 2012: $96 Consumer and $26 Business.        
    Three months ended June 30, 2011: $127 Consumer and $30 Business.    
    Six months ended June 30, 2012: $197 Consumer and $52 Business.        
    Six months ended June 30, 2011: $262 Consumer and $61 Business.        
             

 

   
Schedule 6
                 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
                 
        Three Months Ended
        June 30,   March 31,   June 30,
          2012       2012       2011  
                 
Voice:            
Consumer access lines     59,480       61,422       65,399  
Business access lines     82,083       82,317       84,896  
                 
Voice ARPU consumer   $ 26.73     $ 26.55     $ 27.19  
Voice ARPU business   $ 24.49     $ 24.35     $ 26.03  
                 
Broadband:            
Consumer connections     38,583       38,449       40,471  
Business connections     19,069       19,076       19,054  
                 
ARPU consumer   $ 39.01     $ 37.56     $ 35.15  
ARPU business   $ 147.25     $ 141.60     $ 132.41  
                 
Wholesale lines     21,278       22,157       23,959  
                 
Wireless:            
Postpaid connections     107,704       106,133       108,533  
Prepaid connections     12,346       11,023       8,146  
Total     120,050       117,156       116,679  
                 
Retail wireless ARPU   $ 51.26     $ 51.83     $ 53.39  
Wireless broadband ARPU   $ 18.74     $ 17.35     $ 16.08  
                 
Churn:            
                 
Voice access lines     1.4 %     1.3 %     1.4 %
Broadband connections     2.5 %     2.3 %     2.1 %
Wireless connections     2.0 %     2.3 %     2.1 %
                 
                 
Wireless equipment subsidy ($ = Thousands)   $ 7,318     $ 1,799     $ 3,875  
                 
                 
                 
                 
                 

Note:

Broadband contains the following dial-up connections:

  June 30, 2012: 2,248 Consumer and 499 Business.
  March 31, 2012: 2,620 Consumer and 516 Business.
  June 30, 2011: 3,300 Consumer, and 579 Business.
           

Alaska Communications Investors:
Vice President, Investor Relations and Financial Planning & Analysis
Michael Allen, 907-564-7556
investors@acsalaska.com

Source: Alaska Communications Systems Group, Inc.

News Provided by Acquire Media

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