Alaska Communications Reports First Quarter 2005 Results; Revenue Incr

Alaska Communications Reports First Quarter 2005 Results; Revenue Increases to $77.4 Million from $75.4 Million in Fourth Quarter 2004; EBITDA Up 23% to $27.6 Million Compared to First Quarter 2004

    Business Editors/High-Tech Editors

    ANCHORAGE, Alaska--(BUSINESS WIRE)--May 2, 2005--

Wireless Revenue Up 47% Compared to First Quarter 2004 and Sixth Consecutive Quarter of Record Subscriber Growth
    Alaska Communications Systems Group, Inc. ("ACS") (Nasdaq:ALSK) today reported financial results for its first quarter ended March 31, 2005.
    "Execution of ACS' strategic priorities remains on track in 2005," stated Liane Pelletier, ACS president and chief executive officer. "Completing a series of key financial transactions in the first quarter, we strengthened our financial structure and lowered our cost of capital. Consequently, the company has never been better positioned financially."
    Pelletier added, "We continue to drive profitable revenue growth by increasing retail relationships. In both the business and consumer segments, our wireless and data product lines are most often used to establish new relationships, into which we upsell local and long distance. With those steps, we help make the customer's life easier as we grow ACS' share of wallet. The full range of market-facing activities is complemented by an organization-wide emphasis on process improvement. Each to varying degrees, the ten process improvement teams launched at the end of 2004 are focused on streamlining the customer experience, driving cost efficiency and stimulating revenue productivity."
    "In terms of investing behind the growth, we have found that the market reception of our CDMA-based products coupled with our more efficient build procedures are allowing ACS to complete the deployment of our statewide CDMA network on an accelerated basis and remain within capex guidance. Finally, the volumes of traffic generated across our various network platforms prompted us to initiate the process of exercising ACS' option to assume additional fiber capacity within the state."

    Financing Transactions

    During the quarter, ACS issued and sold approximately 9.9 million new common shares in a public offering, receiving total net proceeds of approximately $76.5 million after payment of underwriting discounts and other stock issuance costs. Additionally, a series of debt transactions were completed, including:

--	Entry into a new $380 million senior secured credit facility, consisting of a $335 million term loan facility and a $45 million revolving credit facility;
--	Entry into two 5-year interest rate swaps: one rate swap fixing $135 million of the new senior secured term loan at 6.13% and a second swap fixing $85 million of the senior secured term loan at 6.50%;
--	Repayment of the outstanding balance of $198.0 million under the previous senior secured credit facility;
--	Repurchase of approximately $59.4 million outstanding principal amount of 9.875% senior notes due 2011; and
--	Repurchase of all of the $147.5 million outstanding principal amount of 9.375% senior subordinated notes due 2009.

    As a result, total debt declined by $66.5 million from December 31, 2004, to $461.1 million, as of March 31, 2005. In addition, as of the end of first quarter 2005, ACS had fixed rates on 75 percent of its total debt and floating rates on the remaining $115 million generally bearing interest at LIBOR plus 200 basis points.
    David Wilson, ACS senior vice president and chief financial officer, said, "This lower cost capital structure, in conjunction with our confidence in the continued strength of our cash flows, contributed to the decision in March to increase ACS' quarterly cash dividend to $0.20 per share, an 8 percent increase over the prior dividend rate of $0.185. In addition, we have initiated a dividend reinvestment and direct stock purchase plan providing a convenient and cost-effective way for investors to purchase ACS common stock."

    Quarterly Financial Highlights

    For the first quarter ending March 31, 2005:

    -- Revenues were $77.4 million, which represented a 2.6 percent
    increase over first quarter 2004 revenues of $75.4 million;

    -- EBITDA increased by 23.5 percent to $27.6 million from $22.4
    million for the first quarter of 2004, which was impacted by
    $3.5 million of restructuring charges;

    -- Operating income increased 136 percent to $7.3 million
    compared to the first quarter 2004; and

    -- Net loss increased to $28.2 million from $8.8 million and to a
    loss of $0.77 per share from $0.30 per share in the prior
    year. The increase in net loss is attributable to an increase
    in interest expense, which rose to $36.0 million from $12.1
    million. Interest expense included $26.2 million of
    non-recurring charges associated with our accretive debt
    restructuring, comprised of $12.8 million of tender premiums
    and $13.4 million for the write off of unamortized debt
    issuance costs and settlement of original issue discounts.

    Wilson added, "Our effective execution against strategic priorities is evident in our first quarter results. Standout areas of performance include wireless, in which a 47.0 percent increase in revenue paired with an operating expense increase of just 20.9 percent drove wireless EBITDA margins from 31.7 percent to 43.8 percent. In addition, Internet and interexchange services recorded year-over-year revenue increases and simultaneous decreases in associated costs."
    "Cash used in operating activities in the quarter was $5.2 million and uses included a settlement of tender premiums and accrued interest expense of $12.8 million and $7.3 million, respectively. As a result, ACS closed the quarter with a cash balance of $68.2 million. Looking ahead, we are confident that we have the right business model and mix of assets in the right market to sustain and grow cash flow over time."

    Metric Highlights: First Quarter 2005 Compared to Fourth Quarter 2004

    Wilson commented, "Postpaid wireless is the primary driver of growth for ACS, and we continue to deliver compelling results against four key factors that demonstrate the strength of our product offerings and customer loyalty. We are rapidly growing our postpaid subscriber base, which increased by 5.2 percent sequentially to 88,200. Postpaid ARPU continues to move higher resulting from the depth of our product offering and the advent of CETC revenue, increasing 21.1 percent to $53.28 compared to $43.98 in the first quarter of last year. The cost of gross additions remains consistently low at ACS and was less than $200 per subscriber in the first quarter. Lastly, our postpaid churn rate is industry leading coming in at 1.6 percent per month for the latest quarter.
    "At the end of the first quarter, we performed a review of our subscriber count methodology for prepaid wireless and determined that we would cease to count subscribers whose accounts had been inactive for six months. While this resulted in a 2,300 reduction in our prepaid base, it had no impact on previously reported revenue, net income or cash flows."
    ACS recorded the following for the first quarter 2005 compared to the fourth quarter 2004:

    -- Increased the total number of retail customer relationships
    across all product lines by approximately 2,600 to over
    398,800 total.

    -- Recorded a sixth consecutive quarter of record subscriber
    growth by adding approximately 1,600 wireless subscribers,
    bringing the total to approximately 102,300. Churn, inclusive
    of a 2,300 reduction in prepaid subscribers, averaged 2.4
    percent per month.

    -- Recorded wireless average revenue per unit (ARPU) of $48.65,
    inclusive of CETC revenue of $3.37, compared to $45.17.

    -- Increased digital subscriber lines (DSL) 9.7 percent to over
    27,100 as a result of increased emphasis on marketing
    activities.

    -- Increased long distance subscribers almost 1,500 to 48,500
    customers, a 3.2 percent increase, principally as a result of
    a focused selling effort and the bundling of the long distance
    product with other ACS services.

    -- Recorded over 289,100 total local network access lines, which
    reflects a 510 line reduction due to a reclassification of
    revenue generating trunk lines used to service cellular
    carriers rather than end user lines. Net of this
    reclassification, access lines decreased by approximately
    5,800 lines, or 2.0 percent, which is reflective of industry
    trends.

    Business Outlook

    For the year 2005, ACS reiterates its previous outlook: Revenue for the full year is expected to be in the range from $310 million to $320 million and EBITDA to be in the range from $108 million to $112 million.
    Net cash interest expense is expected to decline to approximately $31 million, pro forma for the first quarter debt restructuring being in place from January 1, 2005. ACS expects capital expenditures for 2005 to range from $65 million to $70 million, comprised of maintenance capital expenditures of approximately $35 million and pre-funded growth capital expenditures of between $30 million and $35 million.

    Conference Call

    The company will host a conference call and live webcast today at 5:00 p.m. Eastern Time to discuss first quarter results. For parties in the United States and Canada, call 800-218-0204 to access the earnings call. International parties can access the call at 303-262-2075.
    The live webcast of the conference call is accessible from the "Investor Relations" 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 2 hours after the call and will run until Friday, May 6, 2005 midnight Eastern time. To hear the replay, parties in the United States and Canada should call 800-405-2236 and enter pass code 11028616. International parties should call 303-590-3000 and enter pass code 11028616.

    About Alaska Communications Systems

    ACS is the leading integrated communications provider in Alaska, offering local telephone service, wireless, long distance, data, and Internet services to business and residential customers throughout Alaska. More information can be found on the company's website at www.acsalaska.com or at its investor site at www.alsk.com.

    Forward Looking EBITDA Guidance

    This press release includes management's estimate of EBITDA for the year ended December 31, 2005. 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 net cash provided by operating activities at this time.

    Safe Harbor Statement

    Statements about future results and other expectations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. A number of factors in addition to those discussed herein could cause actual results to differ materially from expectations. The company's financial planning is affected by business and economic conditions and changes in customer order patterns. Any projections are inherently subject to significant economic and competitive uncertainties and contingencies, many of which are beyond the control of ACS. Important assumptions and other important factors, including risk factors, which could cause actual results to differ materially from those in the forward-looking statements, are specified in the company's Form 10-K for the year ended December 31, 2004 and other filings with the SEC, including under headings such as "Risk factors" and "Management's discussion and analysis of financial condition and results of operations." The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

    Tables Follow

Schedule 1

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in Thousands, Except per Share Amounts)

Three Months Ended March 31, -------------------- 2005 2004 ----------- -------- Operating revenues: Local telephone $51,565 $55,832 Wireless 17,056 11,601 Internet 5,061 4,613 Interexchange 3,726 3,409 ----------- -------- Total operating revenues 77,408 75,455

Operating expenses: Local telephone 30,523 32,574 Wireless 9,582 7,928 Internet 5,237 7,506 Interexchange 4,400 5,016 Depreciation and amortization 20,413 19,106 Loss (gain) on disposal of assets, net (68) 227 ----------- -------- Total operating expenses 70,087 72,357

Operating income 7,321 3,098

Other income and expense: Interest expense (35,970) (12,052) Interest income 494 242 Equity in income of investments 4 4 Other (49) (61) ----------- -------- Total other income (expense) (35,521) (11,867) ----------- --------

Loss before income taxes (28,200) (8,769)

Income tax benefit (expense) - - ----------- --------

Net loss $(28,200) $(8,769) =========== ========

Loss per share - basic and diluted: Net loss $(0.77) $(0.30) =========== ========

Weighted average shares outstanding: Basic 36,730 29,333 =========== ======== Diluted 36,730 29,333 =========== ========

Schedule 2

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)

March 31, December 31, Assets 2005 2004 ----------- ------------ Current assets: Cash and cash equivalents $63,466 $85,860 Restricted cash 4,690 4,690 Accounts receivable-trade, net of allowance of $4,895 and $4,869 38,440 39,413 Materials and supplies 7,056 6,623 Prepayments and other current assets 4,419 3,724 ----------- ------------ Total current assets 118,071 140,310

Property, plant and equipment 1,068,740 1,061,767 Less: Accumulated depreciation and amortization 668,596 649,455 ----------- ------------ Property, plant and equipment, net 400,144 412,312

Goodwill 38,403 38,403 Intangible Assets 21,826 21,871 Debt issuance costs 14,294 15,482 Deferred charges and other assets 9,337 8,749 ---------- ------------ Total assets $602,075 $637,127 ========== ============

Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $393 $2,298 Accounts payable-affiliate 2,686 3,973 Accounts payable, accrued and other current liabilities 48,862 53,843 Advance billings and customer deposits 8,893 8,948 ---------- ------------ Total current liabilities 60,834 69,062

Long-term obligations, net of current portion 457,321 523,591 Other deferred credits and long-term liabilities 74,784 77,916 Commitments and contingencies

Stockholders' equity (deficit): Preferred stock, no par, 5,000 authorized, no shares issued and outstanding - - Common stock, $.01 par value; 145,000 shares authorized, 45,167 and 35,245 shares issued and 40,617 and 30,695 outstanding, respectively 452 352 Treasury stock, 4,549 shares at cost (18,443) (18,443) Paid in capital in excess of par value 350,493 287,966 Accumulated deficit (321,292) (298,786) Accumulated other comprehensive loss (2,074) (4,531) ---------- ------------ Total stockholders' equity (deficit) 9,136 (33,442) ---------- ------------ Total liabilities and stockholders' equity $602,075 $637,127 ========== ============

Schedule 3 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in Thousands)

Three Months Ended March 31, 2005 2004 --------- --------

Cash Flows from Operating Activities: Net loss $(28,200) $(8,769) Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on disposal of assets and asset impairments (68) 227 Depreciation and amortization 20,413 19,106 Amortization of debt issuance costs, warrants and original issue discount 13,807 928 Other deferred credits (4,082) (2,285) Changes in components of working capital: Accounts receivable and other current assets (155) 4,964 Accounts payable and other current liabilities (8,784) (8,658) Deferred charges and other assets 1,869 206 --------- --------

Net cash (used) provided by operating activities $(5,200) $5,719

Cash Flows from Investing Activities: Construction & capital expenditures (7,182) (10,356) --------- -------- Net cash used by investing activities (7,182) (10,356)

Cash Flows from Financing Activities: Repayments of long-term debt (405,157) (828) Proceeds from the issuance of long-term debt, net of discounts 335,000 - Debt issuance costs (10,637) - Payment of stock dividend (5,679) - Purchase of treasury stock - (63) Issuance of common stock 84,278 9 Stock issuance costs (7,817) - --------- -------- Net cash used by financing activities (10,012) (882)

Decrease in cash (22,394) (5,519)

Cash, Beginning of period 85,860 97,798 --------- --------

Cash, End of period $63,466 $92,279 ========= ========

Supplemental Cash Flow Data: Interest paid $30,915 $11,876 ========= ======== Income taxes paid, net of refund $- $1,120 ========= ========

Supplemental Noncash Transactions: Interest rate swap marked to market $2,457 $- ========= ======== Dividend declared, but not paid $(8,140) $- ========= ========

Schedule 4

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF LOCAL TELEPHONE REVENUES (Unaudited, in Thousands) Three Months Ended March 31, ================== 2005 2004 ========= ========

Local telephone revenues: Local network service $22,218 $22,753 Network access revenue 23,350 27,695 Deregulated and other 5,997 5,384 --------- -------- Local telephone revenues $51,565 $55,832 ========= ========

Schedule 5

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF EBITDA CALCULATION (Unaudited, in Thousands)

Three Months Ended March 31, ================= 2005 2004 ======== ======== Net loss $(28,200) $(8,769) Add (subtract): Interest expense 35,970 12,052 Interest income (494) (242) Depreciation and amortization 20,413 19,106 (Gain) loss on disposal of assets and asset impairment charges, net (68) 227 -------- -------- EBITDA $27,621 $22,374 ======== ========

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 gain before interest expense, provisions for taxes, depreciation expense, amortization 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 income and loss and other measures of financial performance recorded in accordance with GAAP.

The calculation of "EBITDA" as presented in this press release differs from the calculation of, and therefore is not directly comparable to, "Indenture EBITDA" as presented in ACS' prospectus supplement, dated January 26, 2005, primarily because the calculation of "Indenture EBITDA" allows for adjustments that meet the criteria of being "non- cash", "extraordinary" or otherwise "non recurring" in nature.

Schedule 6A

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited) March December March 31, 31, 31, 2005 2004 2004 ======== ======== ======== Local telephone: Retail access lines(a) 204,458 207,395 213,784 Wholesale access lines 15,897 16,590 20,068 UNE loop lines 62,263 64,589 69,624 UNE platform lines 6,551 6,365 5,178 -------- -------- -------- Total local telephone access lines 289,169 294,939 308,654 ======== ======== ========

Average local telephone access lines for the quarter 292,054 298,073 309,805 Average local telephone revenue per line for the quarter $58.85 $56.99 $60.07 Quarterly growth rate in local telephone access lines -2.0% -2.1% -0.7%

Wireless Covered population 482,251 482,251 480,422

Post paid cellular subscribers 88,174 83,828 72,998 Average post paid cellular subscribers 86,001 81,478 72,191 Quarterly growth rate - post paid cellular subscribers 5.2% 5.9% 2.3%

Activations for the quarter 8,653 9,393 4,029 Deactivations for the quarter 4,307 4,692 2,414 Average monthly churn for the quarter 1.6% 1.8% 1.1%

Average monthly revenue per subscriber for the quarter(c) $53.28 $50.34 $43.98

Prepaid cellular subscribers 8,560 10,404 8,393 Wholesale cellular subscribers 5,545 6,425 6,600

Total cellular subscribers 102,279 100,657 87,991 Average subscribers for the quarter 101,468 98,093 87,504 Quarterly growth rate 1.6% 5.4% 1.1%

Activations for the quarter 9,382 10,642 5,561 Deactivations for the quarter 7,760 5,514 4,587 Average monthly churn for the quarter 2.4% 1.7% 1.7%

Penetration 21.2% 20.9% 18.3% Quarterly minutes of use (000's)(b) 92,907 90,483 72,156 Average monthly revenue per subscriber for the quarter(c) $48.65 $45.17 $40.30

Long Distance: Long distance subscribers 48,542 47,050 42,053 Quarterly minutes of use (000's) 36,557 34,779 32,139 Average subscribers for the quarter 47,796 45,692 42,610 Average monthly revenue per subscriber for the quarter $25.99 $26.09 $26.67

Internet: DSL subscribers 27,115 24,711 19,433 Dial-Up and other service subscribers 21,984 22,842 26,257 -------- -------- -------- Total Internet subscribers 49,099 47,553 45,690 ======== ======== ========

Average subscribers for the quarter 48,326 46,924 45,876 Average monthly DSL & dial up revenue per subscriber for the quarter(d) $30.55 $28.86 $28.06

(a) Prior period retail access lines impacted by change in line count methodology. (b) Wireless MOU have been restated to include prepaid airtime certificates. (c) Wireless ARPU has been restated to better reflect ongoing revenue derived from ACS's wireless customers. The restated ARPU excludes equipment sales, space and power, foreign roaming (non-ACS customers roaming on ACS's network) and access termination revenue. Previously, wireless ARPU was based on all wireless revenues, including those that were not derived from ACS's customer base. In addition, ACS has been granted competitive eligible telecommunications carrier status (CETC) in the first Q of 2005 which added $3.37 to cellular ARPU. (d) Internet ARPU has been restated to include only DSL and dial-up revenues. Previously, internet ARPU included all internet revenues; however, the customer base included only DSL and dial- up subscribers. The restated ARPU provides consistency between revenues and customer counts.

Schedule 6B

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited)

March 31, December 31, Net 2005 2004 Movement ========= ============= ==========

Local telephone retail access lines 204,458 207,395 (2,937)

Wireless subscribers 102,279 100,657 Less adjustment for resellers (5,545) (6,425) --------- ------------- 96,734 94,232 2,502 ========= =============

Long distance subscribers 48,542 47,050 1,492

DSL and dial up subscribers 49,099 47,553 1,546 --------- ------------- ---------- Total 398,833 396,230 2,603 ========= ============= ==========

Schedule 7

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF FREE CASHFLOWS (Unaudited, in Thousands)

Three Months Ended March 31, ================== 2005 2004 ========= ========

Net cash (used) provided by operating activities $(5,200) $5,719

Total construction and capital expenditures (7,182) (10,356) --------- --------

Free Cashflow (12,382) (4,637)

CDMA Growth 597 2,050 --------- --------

Adjusted free cashflow $(11,785) $(2,587) ========= ========

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 net cashflow provided by operations net of total construction and capital expenditures (free cashflow) and free cashflow adjusted for growth capital investments in CDMA wireless technology, which the Company plans to fund from existing cash reserves (Adjusted free cashflow). The Company believes it is an important indicator because it provides information about our ability to service debt and pay dividends. Free cashflow and adjusted free cashflow are not GAAP measures and should not be considered a substitute for increase (decrease) in cash and other measures of financial performance recorded in accordance with GAAP.

--30--AD/sf*

CONTACT: ACS Mary Ann Pease, 907-297-3000 (Media) mpease@acsalaska.com or Lippert/Heilshorn & Associates (for ACS Investors) Kirsten Chapman, 415-433-3777 David Barnard, 415-433-3777 david@lhai-sf.com

KEYWORD: ALASKA INDUSTRY KEYWORD: TELECOMMUNICATIONS NETWORKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Alaska Communications Systems Group, Inc.

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