Alaska Communications Systems Reports Second Quarter 2009 Results

Alaska Communications Systems Group, Inc. ("ACS”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2009.

"ACS demonstrated momentum in a challenging quarter, posted growth overall and outpaced losses in declining segments of local telephone voice and access. Continuous process improvement again enabled key efficiency and productivity gains as the company transforms itself into a leader in high quality Wireless and Enterprise data services,” said Liane Pelletier, ACS president and chief executive officer. "Fifty percent of ACS revenues this quarter were generated in the Wireless and Enterprise segments.”

"Enterprise revenues grew 47 percent annually, with progress stemming from customers’ response to our end-to-end solutions, even as we continue to develop additional IP-based services to enhance the differentiation already held in the Alaska market. The sales pipeline is at record levels as is the level of contract renewals,” noted Pelletier.

"While wireless revenues were essentially flat, EBITDA margins expanded from 41.3 percent to 45.6 percent year-over-year, with execution in gross adds, data revenue, customer retention and cost management all improving sequentially. Challenges for the quarter included lower tourist traffic which affected roaming revenue and major iPhone promotions which muted subscriber metrics. Our "Alaska focused” go-to-market strategy is playing well, leveraging testimonials with locals, expanded coverage in key areas and devices like the water-proof and rugged Casio Boulder which was the fastest selling phone in the quarter,” concluded Pelletier.

Financial Highlights: Second Quarter 2009 Compared to Second Quarter 2008

• Revenues of $96.1 million increased 1.9 percent from $94.4 million in the prior year.
  • Enterprise and wireless revenues increased $4.2 million, or 9.6 percent, over the prior year and comprised 50 percent of revenue for the quarter.
  • Retail, wholesale and access wireline revenues declined by $2.4 million, or 4.8 percent.

• EBITDA of $31.1 million was up 2.3 percent from prior year EBITDA of $30.4 million, with gains in enterprise and wireless more than offsetting structural declines in retail, wholesale and access wireline revenue.
• Net cash provided by operating activities of $23.7 million was up 55 percent from $15.3 million in the prior year.
• Net income of $2.5 million, or $0.06 per diluted share, compared to net income of $0.6 million, or $0.01 per diluted share, in the prior year.

"In the current economic climate, maximizing cash flow is a primary priority,” said David Wilson, ACS executive vice president and chief financial officer. "Through tight expense and working capital management, net cash provided by operating activities increased by 55 percent from the prior period to a record $23.7 million for a second quarter. Cash and cash equivalents increased $5.4 million sequentially to $8.2 million providing excess liquidity over our final $2.0 million funding requirement to complete AKORN that can be used to opportunistically buy down debt.”

"Our enterprise line of business is now cash flow positive and grew 47 percent on an annual basis. Sequential revenue grew 6 percent despite a shift of traffic off of our network for much of the quarter. This traffic returned to the ACS network in late June, complementing new customer wins that will be provisioned in the third quarter,” noted Wilson.

Metric Highlights: Second Quarter 2009 Compared to First Quarter 2009

• Average retail wireless monthly churn of 2.0 percent improved from 2.4 percent in the first quarter, which was impacted by accelerated prepaid disconnects following a change in policy regarding expired minutes.
• Retail wireless subscribers decreased by approximately 1,600 to 141,700 as a result of heavy iPhone promotions in the market.
• Retail wireless ARPU declined by $0.28 to $62.61 from $62.89 with a $0.62 decline in CETC partially offset by a $0.55 gain in data ARPU. Data ARPU increased by 8.1 percent to $7.30 from $6.75.
• While DSL lines declined by 200 to 46,800, ISP ARPU increased by 0.6 percent to $34.04 from $33.83 as customers purchased higher speed plans.
• Retail local access lines declined by 1.1 percent to 169,600 as a result of cord cutting and tougher economic conditions.
• Total local access lines decreased by approximately 1.4 percent to 194,300.

Six Month Financial Review

For the six months ended June 30, 2009, revenues were $192.1 million, compared to $191.1 million in the same period last year. Net income was $3.4 million, or $0.08 per diluted share, compared to net income of $6.4 million, or $0.14 per diluted share, in the same period in 2008. Net cash provided by operating activities for the first six months of 2009 was $51.7 million up 28.6 percent from $40.2 million in the same period in 2008. EBITDA for the six months ended June 30, 2009 was $63.7 million, compared to $65.3 million in the same period last year.

2009 Business Outlook

As previously reported ACS expects:

• Revenue and EBITDA to exceed 2008 levels;

• Maintenance capital expenditures are expected to be below the $40 million spent in 2008;
• Funding required for the turn up of AKORN; the upgrade of Northstar; and the start up of a second geographically diverse fiber route between Anchorage and Fairbanks to be $11 million; and
• Net cash interest expense of $36 million.

Our FCC approved conversion to price cap regulation went into effect July 1, 2009. At the effective date, ACS will cease to follow regulatory accounting rules resulting in the elimination of certain intercompany transactions with regulated affiliates that are not currently eliminated during consolidation. While this change will reduce the absolute level of reported revenue by approximately 10 percent and will improve EBITDA margins, it will have no impact on the absolute levels of reported EBITDA or cash flows. In association with these accounting changes, we also expect to extinguish certain regulatory liabilities through the recognition of an extraordinary gain of approximately $60 million in the third quarter. This gain will have no impact on reported EBITDA or cash flows.

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 800-762-9441 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9675. 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 2 hours after the call and will run until Monday, August 3, 2009 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4120531. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4120531.

About Alaska Communications Systems

Headquartered in Anchorage, ACS is Alaska's leading provider of broadband and other wireline and wireless solutions to Enterprise and mass market customers. The ACS wireline operations include the state's most advanced data networks and the only diverse undersea fiber optic system connecting Alaska to the contiguous United States. The ACS wireless operations includes statewide 3G CDMA network, reaching across Alaska from the North Slope to Ketchikan, with coverage extended via best-in-class CDMA carriers in the Lower 49 and Canada. By investing in the fastest-growing market segments and attracting the highest-quality customers, ACS seeks to drive top- and bottom-line growth, while continually improving customer experience and cost structure through process improvement. 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 information related to management's estimate of EBITDA for the year ending December 31, 2009. 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 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 and are subject to a number of uncertainties and other factors, many of which are outside ACS' control. Such factors are, without limitation, adverse national economic conditions, including continuing disruption in the U.S. capital markets, adverse local economic conditions, including an unexpected downturn in the Alaskan oil and gas or tourism markets, changes in capital expenditures, 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 from the construction of AKORN and purchase and integration of Crest Communications Corporation; adverse changes in labor matters, including workforce levels and labor negotiations; 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.