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Alaska Communications Systems Reports Third Quarter 2011 Results

- Wireless Subscriber Counts Increased by 817 Compared to Prior Quarter -

- Post Paid Data ARPU Increased 43 Percent to $16.82 Compared to Prior Year -

- Enterprise Revenue increased by 8.9 percent to $13.1 Million Compared to Prior Year -

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2011.

"Alaska Communications' strategy to provide wireless and wireline broadband data products across all our customer segments continues to show positive results. We experienced our second sequential quarter of wireless subscriber growth and our enterprise revenues are improving year over year," said Anand Vadapalli, ACS president and chief executive officer.

"Third quarter wireless results reflect early benefits from new positioning with postpaid offerings through tiered data plans, and the refresh of our prepaid plans. Enterprise revenues benefited from a good quarter of new installations, and we look forward to continued momentum in this area," concluded Vadapalli.

Financial Highlights: Third Quarter 2011 Compared to Third Quarter 2010

  • Revenues of $90.3 million increased by $0.5 million, or 0.6 percent, from $89.8 million in the prior year. Third quarter 2010 revenue benefited from $2.0 million favorable out-of-period revenue:
    • Wireless revenue increased by $2.0 million, or 5.2 percent. A $3.9 million increase in roaming revenue was partially offset by $1.9 million of lower retail service and CETC revenue.
    • Enterprise revenue increased by $1.1 million, or 8.9 percent, with higher data revenue driving growth. Data revenue as a percent of total enterprise revenue now stands at 91 percent.
    • Retail, wholesale and access wireline revenue declined by $2.6 million, or 6.5 percent. The quarter was impacted by $2.1 million of lower interstate universal service revenue largely as a result of $1.5 million of out period access revenues in 2010. The quarter benefited from higher intrastate access revenue of $1.1 million associated with recent state-wide reforms. Continued erosion in the traditional wireline business contributed to the remaining decline.
  • EBITDA of $32.8 million decreased by $2.0 million, or 5.8 percent, from $34.8 million in the prior year.
    • Wireless EBITDA of $19.5 million increased $0.8 million, or 4.1 percent in the third quarter. $2.0 million of higher revenue and $1.2 million of higher expenses resulted in the change. Higher network costs associated with greater data usage accounted for the increased spending levels.
    • Wireline EBITDA of $13.3 million declined by $2.8 million, or 17.5 percent, driven by lower revenue of $1.5 million and higher expenses of $1.3 million. Expenses in the quarter were impacted by $0.4 million of project-related work and legal reserves and $0.4 million in higher intrastate access expenses.
  • Net loss of $0.8 million, or $0.02 per share, compared to net loss of $3.0 million, or $0.07 per share last year. Third quarter 2010 was impacted by $11.3 million charge to interest expense for losses on the termination of certain interest rate swaps associated with the 2005 credit facility refinancing.

Metric Highlights: Third Quarter 2011 Compared to Second Quarter 2011

  • Wireless subscribers increased by 817 to 117,496, representing the second sequential quarter of growth.
  • Wireless average monthly retail service revenue per subscriber (ARPU) was steady at $52.81.
  • Postpaid wireless data ARPU increased by 4.6 percent to $16.82.
  • Wireless subscriber churn increased to 2.4 percent from 2.1 percent.
  • Internet subscribers decreased by 902 to 48,374 and ARPU increased by 1.9 percent to $45.00, due primarily to upgrades to higher bandwidth plans.
  • Retail access lines declined by 2,713 to 149,840 sequentially and 5.2 percent on an annual basis, ARPU increased by 0.1 percent to $18.25.

"We are pleased with our financial performance for the quarter. Alaska Communications exited the quarter with total cash deposits of $28.5 million, including restricted cash, and with full access to our $30 million revolver facility. Our leverage ratio now stands at 4.4 EBITDA," said Wayne Graham, ACS chief financial officer.

2011 Business Outlook

ACS guidance for the year is updated as follows:

  • Revenue guidance to modesty exceed 2010 levels of $342 is unchanged;
  • EBITDA is expected to be about $125 million compared to previous guidance of in line with 2010 levels of $126 million;
  • Guidance for maintenance capital expenditures and cash interest remains unchanged at about $37 million and $34 million, respectively, and
  • Our 4G LTE build investment is anticipated to be between $12 - $15 million compared to previous guidance of $15 - $20 million.

Comments on the FCC's Order on the National Broadband Plan

On October 27, 2011, the Federal Communication Commission (FCC) unanimously voted to overhaul its Universal Service Fund ("USF") and Inter-carrier Compensation ("ICC") systems. USF High cost support and wireless CETC revenue, represented $10.5 million, and $35.6 million for the three and nine month period ended September 30, 2011, respectively. ACS management will provide an assessment of the USF overhaul during its conference call, noted below. We do not, at this time, expect the ICC changes to have a material impact on our future financial performance.

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 877-941-6010 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9723. 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, November 15, 2011 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4482998. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4482998.

About Alaska Communications

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (Nasdaq: ALSK), through its subsidiaries, is a leading provider of high-speed wireless, mobile broadband, Internet, local, long-distance and advanced data solutions for businesses and consumers in Alaska. The Alaska Communications network includes the most advanced wireline and wireless data 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 EBITDA Guidance

This press release includes information related to management's estimate of EBITDA for the year ending December 31, 2011. EBITDA, as defined by the company, may not be similar to EBITDA measures used by other companies and is not a measurement under generally accepted accounting principles (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 capital investments, interest and stock-based compensation expense that are not directly attributable to the underlying performance of the company's business operations. Management believes the most directly comparable GAAP measure would be "Net cash provided by operating activities." Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in this comparable GAAP measure, the company is not providing an estimate of year-end 2011 net cash provided by operating activities at this time.

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 or continued dividend payment and are subject to a number of uncertainties and other factors, many of which are outside ACS' control. Such factors include, without limitation, the entry of Verizon into the Alaska market, Universal Service Fund reform, 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, 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 and its dividend, 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   Nine Months Ended
        September 30,   September 30,
          2011       2010       2011       2010  
                     
Total operating revenues $ 90,306     $ 89,768     $ 261,842     $ 256,747  
                     
Operating expenses:              
  Cost of services and sales   34,505       33,157       100,880       97,623  
  Selling, general & administrative   24,121       23,200       68,385       66,022  
  Depreciation and amortization   14,392       18,606       43,510       55,974  
  (Gain) loss on disposal of assets, net   (709 )     9       (590 )     (479 )
Total operating expenses   72,309       74,972       212,185       219,140  
                     
Operating income   17,997       14,796       49,657       37,607  
                     
Other income and expense:              
  Interest expense   (9,529 )     (8,465 )     (28,815 )     (25,309 )
  Loss on extinguishment of debt   -       (11,258 )     (13,445 )     (11,258 )
  Interest income   10       8       26       31  
  Other     174       -       174       -  
Total other income and expense   (9,345 )     (19,715 )     (42,060 )     (36,536 )
                     
Income (loss) before income tax benefit (expense)   8,652       (4,919 )     7,597       1,071  
                     
  Income tax benefit (expense)   (9,468 )     1,901       (9,369 )     (30,492 )
                     
Net loss   $ (816 )   $ (3,018 )   $ (1,772 )   $ (29,421 )
                     
Net loss per share              
  Basis and diluted $ (0.02 )   $ (0.07 )   $ (0.04 )   $ (0.66 )
Weighted average shares outstanding              
  Basis and diluted   45,202       44,628       45,061       44,564  
                                 

 

          Schedule 2
           
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
           
           
      September 30,   December 31,
Assets   2011       2010  
           
Current assets:      
  Cash and cash equivalents $ 23,427     $ 15,316  
  Restricted cash   5,041       4,912  
  Accounts receivable-trade, net of allowance of $5,542 and $6,616   38,027       36,985  
  Materials and supplies   5,996       6,533  
  Prepayments and other current assets   5,242       3,999  
  Deferred income taxes   6,716       10,949  
    Total current assets   84,449       78,694  
           
Property, plant and equipment   1,424,782       1,416,718  
Less: accumulated depreciation and amortization   (1,023,715 )     (1,005,736 )
  Property, plant and equipment, net   401,067       410,982  
           
Non-current investments   -       355  
Goodwill   8,850       8,850  
Intangible assets, net   24,118       24,118  
Debt issuance costs   10,012       8,584  
Deferred income taxes   74,724       76,813  
Equity method investment   2,060       2,060  
Other assets   3,290       10,159  
Total assets $ 608,570     $ 620,615  
           
Liabilities and Stockholders' Equity (Deficit)      
Current liabilities:      
  Current portion of long-term obligations $ 5,772     $ 5,213  
  Accounts payable, accrued and other current liabilities   54,274       62,539  
  Advance billings and customer deposits   9,425       9,568  
    Total current liabilities   69,471       77,320  
           
Long-term obligations, net of current portion   564,243       548,096  
Other long-term liabilities   26,150       15,688  
Total liabilities   659,864       641,104  
               
Commitments and contingencies      
       
Stockholders' equity (deficit):      
  Common stock, $.01 par value; 145,000 authorized   452       447  
  Additional paid in capital   145,389       166,259  
  Accumulated deficit   (189,932 )     (188,160 )
  Accumulated other comprehensive income (loss)   (7,203 )     965  
    Total stockholders' deficit   (51,294 )     (20,489 )
           
Total liabilities and stockholders' equity (deficit) $ 608,570     $ 620,615  
               

 

                        Schedule 3  
                           

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS  
(Unaudited, In Thousands)  
                           
            Three Months Ended   Nine Months Ended  
            September 30,   September 30,  
              2011       2010       2011         2010      
Cash Flows from Operating Activities:                  
  Net loss   $ (816 )   $ (3,018 )   $ (1,772 )   $   (29,421

)

 

 
 

Adjustments to reconcile net loss to net cash provided by operating activities:

                 
    Depreciation and amortization     14,392       18,606       43,510         55,974      
    Unrealized loss on ineffective hedge adjustment     -       11,145       -         11,145      
    Amortization of debt issuance costs and debt discount     1,421       1,880       11,507         5,580      
    Stock-based compensation     1,188       1,187       2,620         2,665      
    Deferred income taxes     8,834       (1,788 )     8,735         33,273      
    Provision for uncollectible accounts     409       366       1,468         2,308      
    Other non-cash expenses     (726 )     309       (292 )       197      
    Changes in operating assets and liabilities     1,131       (3,511 )     (8,225 )       (12,267

)

 

 
  Net cash provided by operating activities     25,833       25,176       57,551         69,454      
                           
Cash Flows from Investing Activities:                  
    Investment in construction and capital expenditures     (15,191 )     (10,993 )     (33,463 )       (25,040

)

 

 
    Change in unsettled construction and capital expenditures     394       1,143       (943 )       (3,505

)

 

 
    Proceeds on sale of assets     2,665       -       2,665         -      
    Acquisitions, net of cash acquired     -       (2,060 )     -         (2,060

)

 

 
    Net change in restricted accounts     (127 )     (1 )     (129 )       954      
    Net change in non-current investments     529       100       529         500      
  Net cash used by investing activities     (11,730 )     (11,811 )     (31,341 )       (29,151

)

 

 
                           
Cash Flows from Financing Activities:                  
    Repayments of long-term debt     (1,490 )     (183 )     (102,738 )       (12,545

)

 

 
    Proceeds from the issuance of long-term debt     -       -       120,000         12,000      
    Debt issuance costs     336       -       (4,448 )       -      
    Payment of cash dividend on common stock     (9,733 )     (9,606 )     (29,082 )       (28,777

)

 

 
    Payment of withholding taxes on stock-based compensation     (8 )     (134 )     (2,030 )       (326

)

 

 
    Proceeds from issuance of common stock     -       24       199         350      
  Net cash used by financing activities     (10,895 )     (9,899 )     (18,099 )       (29,298

)

 

 
                           
Change in cash and cash equivalents     3,208       3,466       8,111         11,005      
                           
Cash and cash equivalents, beginning of period     20,219       13,810       15,316         6,271      
                           
Cash and cash equivalents, end of period   $ 23,427     $ 17,276     $ 23,427     $   17,276      
                           
Supplemental Cash Flow Data:                  
  Interest paid   $ 7,193     $ 8,761     $ 24,415     $   22,816      
  Income tax refunds   $ -     $ -     $ -     $   36      
                           
Supplemental Non-cash Transactions:                  
  Property acquired under capital leases   $ 679     $ 1,294     $ 1,841     $   1,295      
  Dividend declared, but not paid   $ 9,736     $ 9,617     $ 9,736     $   9,617      
  Additions to ARO asset   $ 104     $ 21     $ 118     $   71      
                           

 

                      Schedule 4
                       
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
SCHEDULE OF EBITDA CALCULATION
(Unaudited, In Thousands)
                       
          Three Months Ended   Nine Months Ended
          September 30,   September 30,
            2011       2010       2011       2010  
                       
                       
Net cash provided by operating activities   $ 25,833     $ 25,176     $ 57,551     $ 69,454  
 

Adjustments to reconcile net loss to net cash provided by

operating activities:

         
    Depreciation and amortization     (14,392 )     (18,606 )     (43,510 )     (55,974 )
    Unrealized loss on ineffective hedge adjustment     -       (11,145 )     -       (11,145 )
    Amortization of debt issuance costs and debt discount     (1,421 )     (1,880 )     (11,507 )     (5,580 )
    Stock-based compensation     (1,188 )     (1,187 )     (2,620 )     (2,665 )
    Deferred income taxes     (8,834 )     1,788       (8,735 )     (33,273 )
    Provision for uncollectible accounts     (409 )     (366 )     (1,468 )     (2,308 )
    Other non-cash expenses     726       (309 )     292       (197 )
    Changes in operating assets and liabilities     (1,131 )     3,511       8,225       12,267  
Net loss   $ (816 )   $ (3,018 )   $ (1,772 )   $ (29,421 )
  Add (subtract):                
    Interest expense     9,529       8,465       28,815       25,309  
    Loss on extinguishment of debt     -       11,258       13,445       11,258  
    Interest income     (10 )     (8 )     (26 )     (31 )
    Depreciation and amortization     14,392       18,606       43,510       55,974  
    (Gain) loss on disposal of assets     (709 )     9       (590 )     (479 )
    Gain on sale of long-term investments     (174 )     -       (174 )     -  
    Gift of services     (118 )     185       (51 )     254  
    Income tax (benefit) expense     9,468       (1,901 )     9,369       30,492  
    Stock-based compensation     1,188       1,187       2,620       2,665  
EBITDA   $ 32,750     $ 34,783     $ 95,146     $ 96,021  
                       
                       
Note: In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (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, amortization of intangibles and stock-based compensation expense (EBITDA) because the Company believes it is an important indicator as it provides information about our ability to service debt, pay dividends and fund capital expenditures. EBITDA is not a GAAP measure 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.
SCHEDULE OF OPERATING REVENUE AND EBITDA MARGIN BY SEGMENT
(Unaudited, In Thousands)
                       
                       
                       
          Three Months Ended   Nine Months Ended
          September 30,   September 30,
            2011       2010       2011       2010  
    Wireline revenue                
      Enterprise   $ 13,078     $ 12,009     $ 37,967     $ 35,526  
      Retail     20,244       20,650       60,904       62,012  
      Wholesale and Access     16,210       18,356       48,796       53,054  
      Total     49,532       51,015       147,667       150,592  
    Wireless revenue                
      Retail service     18,521       19,402       55,793       59,007  
      Equipment     1,219       1,323       3,191       4,171  
      Wholesale, roaming and other     21,034       18,028       55,191       42,977  
      Total     40,774       38,753       114,175       106,155  
Total operating revenue   $ 90,306     $ 89,768     $ 261,842     $ 256,747  
                       
                       
Wireline:                
    Operating revenue   $ 49,532     $ 51,015     $ 147,667     $ 150,592  
    Operating expenses (a)     (37,188 )     (36,164 )     (107,722 )     (106,470 )
    Gift of services     (118 )     185       (51 )     254  
    Stock-based compensation     1,050       1,047       2,300       2,353  
Wireline EBITDA   $ 13,276     $ 16,083     $ 42,194     $ 46,729  
                       
    Wireline EBITDA Margin     26.8 %     31.5 %     28.6 %     31.0 %
                       
                       
Wireless:                
    Operating revenue   $ 40,774     $ 38,753     $ 114,175     $ 106,155  
    Operating expenses (a)     (17,288 )     (16,050 )     (47,993 )     (45,075 )
    Cost of Equipment     (4,150 )     (4,143 )     (13,550 )     (12,100 )
    Stock-based compensation     138       140       320       312  
Wireless EBITDA   $ 19,474     $ 18,700     $ 52,952     $ 49,292  
                       
    Wireless EBITDA Margin     47.8 %     48.3 %     46.4 %     46.4 %
                       
(a)   Exclusive of depreciation, amortization and gain/loss on disposal of assets.
         

 

                Schedule 6
                 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
INVESTMENT IN CONSTRUCTION AND CAPITAL
(Unaudited, In Thousands)
                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
      2011     2010     2011     2010
                 
Maintenance capital   $ 11,268   $ 10,626   $ 27,615   $ 23,771
                 
Growth capital     3,390     -     4,462     -
                 
Capitalized Interest     533     367     1,386     1,269
                 
Investment in construction and capital   $ 15,191   $ 10,993   $ 33,463   $ 25,040
                         

 

              Schedule 7
               
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CASH AVAILABLE FOR DISTRIBUTION
(Unaudited, In Thousands)
               
          Nine Months Ended
          September 30,
            2011       2010  
               
  EBITDA     $ 95,146     $ 96,021  
               
  Subtract:          
    Maintenance capital expenditures   (27,615 )     (23,771 )
    Cash interest expense   (24,415 )     (22,816 )
               
  Distributable Cash   43,116       49,434  
               
    Dividends Paid   (29,082 )     (28,777 )
               
  Excess cash   $ 14,034     $ 20,657  
               
Payout Ratio       67 %     58 %
                   

 

                    Schedule 8
                     
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
                     
            Three Months Ended
            September 30,   June 30,   September 30,
              2011       2011       2010  
Wireline:                
                     
  Retail                
    Switched access lines     149,840       152,553       157,983  
    Quarterly growth rate in local telephone switched access lines     -1.8 %     -1.3 %     -1.2 %
   

Average monthly service revenue per subscriber

  $ 18.25     $ 18.24     $ 18.21  
                     
    Long distance subscribers            
      Long distance subscribers     60,067       61,034       59,078  
      Average monthly service revenue per subscriber   $ 16.22     $ 16.84     $ 18.15  
                     
    Internet subscribers            
      DSL subscribers     44,797       45,453       45,481  
      Dial-up subscribers     3,577       3,823       4,572  
      Average monthly service revenue per subscriber   $ 45.00     $ 44.16     $ 38.61  
                     
  Wholesale access lines            
    Wholesale access lines     14,057       14,535       16,424  
    Quarterly growth rate in wholesale local access lines     -3.3 %     -5.2 %     -9.0 %
    Average monthly revenue per line   $ 35.32     $ 30.94     $ 32.04  
                     
Wireless:                
                     
    Wireless subscribers     117,496       116,679       123,483  
    Average monthly churn for the quarter     2.4 %     2.1 %     2.6 %
    Average monthly service revenue per subscriber   $ 52.81     $ 53.39     $ 51.78  
    Average monthly data revenue per postpaid subscriber   $ 16.82     $ 16.08     $ 11.73  

Source: Alaska Communications Systems Group, Inc.

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