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Alaska Communications Systems Reports Strong Second Quarter 2014 Results

Companies mentioned in this article: Alaska Communications Systems Group, Inc.

ANCHORAGE, Alaska -- (BUSINESS WIRE) -- Alaska Communications Systems Group, Inc. (“ACS,” “the Company”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2014.

“We posted strong results for the quarter, with operating and financial metrics tracking ahead of our full year guidance.

“Our top line performance is at levels that exceed our industry. This is a combination of our superior network, focus on customer service, and strong sales momentum. Additionally, performance in managed services through TekMate continues to track ahead of our expectations. Our focus on expense management and margin improvement is reflected in the bottom line, with sequential EBITDA growth and strong free cash flow performance.

“We have a sound operating plan for the year and are performing very well to that plan,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: Second Quarter 2014

  • Results from the quarter demonstrate we are performing ahead of plan in our key areas of focus:
    • Business and wholesale service revenue of $27.7 million grew $2.3 million or 9.2% year over year, with broadband revenues growing 11.3%.
    • Consumer service revenue of $10.4 million grew $0.1 million, or 1.0% year over year, with broadband revenues growing 11.4%.
    • Other revenue of $17.3 million grew $3.3 million, or 23.5% year over year, benefiting from $2.1 million of revenue reserve releases.
    • Wireless revenue of $19.7 million, declined $0.7 million, or 3.3%, year over year. Performance in wireless is stabilizing sequentially, with higher connections compared to the first quarter, and wireless revenue increasing $0.3 million.
  • Adjusted EBITDA was $23.8 million for the quarter, and stands at $46.8 million year to date, well ahead of our guidance for the year.
  • Free Cash Flow is within expectations at $2.8 million for the quarter, and stands at $11.2 million year to date, well ahead of guidance for the year.
  • Deleveraging continues, with debt balances of $438.9 million at the end of the quarter, compared to $456.3 million at December 31, 2013. Debt balances have declined $17.3 million since the beginning of the year. Cash balances are strong at $27.7 million.

Metric Highlights: Second Quarter 2014 Compared to First Quarter 2014

  • Business broadband connections increased to 19,618 from 19,304 and business broadband ARPU increased to $189.54 from $182.96.
  • Consumer broadband connections decreased to 39,022 from 39,468 though consumer broadband ARPU increased to $52.51 from $49.46.
  • Wireless subscribers increased to 109,578 from 107,975 and Wireless ARPU increased to $52.55 from $52.51.

“Our financial performance for the year has been strong. This is our first full year following the AWN transaction, and our commitment to shareholders was to deliver on our financial guidance for the year using free cash flow to reduce debt. We are tracking well with these objectives.

“Strong Adjusted EBITDA and Free Cash Flow accelerate our deleveraging strategy because the combination of Adjusted EBITDA performance and lower net debt improves our leverage ratios over time," said Wayne Graham, ACS chief financial officer.

2014 Guidance:

Guidance for the following categories is reaffirmed as follows:

  • Revenue of approximately $310 million.
  • Adjusted EBITDA of approximately $90 million.
  • Free cash flow of approximately $20 million.

Guidance for capital expenditures is revised as follows:

  • Capital expenditures of approximately $40 million, revised to between $40-$45 million.

Our guidance for capital spending has increased to reflect a two year project, which commenced in the second half of 2014, to build fiber facilities on behalf of a customer. The customer is funding the project during the period of the build and in 2014 cash payments will offset this higher capital spending. Accordingly, our capital spending guidance has increased but our free cash flow guidance is unchanged. We anticipate that this multi-year project will be accretive to free cash flow in 2015.

On July 25, 2014, our undersea cable serving Juneau, Alaska was damaged by debris generated by an earthquake. The cost to repair this facility, while leasing alternative capacity, is expected to be approximately $2 million. The costs from this unusual event will be excluded from the above guidance considerations.

Conference Call

The Company will host a conference call and live webcast on Thursday, August 7, 2014 at 5:00 p.m. Eastern Time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-888-471-3830 and enter pass code 269043. All other parties can access the call at 1-719-325-2219.

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 September 8, 2014 at 4:00 p.m. Eastern Time. To hear the replay, parties in the United States and Canada can call 1-888-203-1112 and enter pass code 3635655. All other parties can call 1-719-457-0820 and enter pass code 3635655.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The Company operates 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 http://www.alaskacommunications.com or http://www.alsk.com.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedule 4 to this press release. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are non-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. Other companies may not calculate non-GAAP measures in the same manner as ACS.

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 retail entry into the Alaska market, Universal Service Fund changes, AWN’s financial and operational performance and the competitiveness of the wholesale plans it offers, 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 supplier’s 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 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 SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
2014     2013 2014     2013
 
Operating revenues:
Operating revenues, non-affiliates $ 78,803 $ 97,699 $ 155,348 $ 188,695

Operating revenues, affiliates*

  1,755     58     3,541     121  
Total operating revenues   80,558     97,757     158,889     188,816  
 
Operating expenses:
Cost of services and sales, non-affiliates 29,800 37,015 59,858 72,334

Cost of services and sales, affiliates*

15,001 189 29,761 317
Selling, general & administrative 25,314 27,646 49,909 54,443
Depreciation and amortization 8,475 11,450 17,265 24,082
Loss on disposal of assets, net 410 585 811 626
(Earnings) loss from equity method investments   (9,168 )   21     (17,691 )   21  
Total operating expenses   69,832     76,906     139,913     151,823  
 
Operating income 10,726 20,851 18,976 36,993
 
Other income and (expense):
Interest expense (8,672 ) (10,156 ) (17,529 ) (20,185 )
Loss on extinguishment of debt - (276 ) - (276 )
Interest income 6 8 14 18
Other   -     (13 )   -     (13 )
Total other income and (expense)   (8,666 )   (10,437 )

 

  (17,515 )   (20,456 )
 
Income before income tax benefit (expense) 2,060 10,414 1,461 16,537
 
Income tax benefit (expense)   (975 )   27,280     (761 )   24,625  
 
Net income $ 1,085   $ 37,694   $ 700   $ 41,162  
 
Net income per share:
Net income applicable to common shares $ 1,085 $ 37,694 $ 700 $ 41,162
Tax-effected expense attributable to convertible notes   -     1,465     -     2,924  
Net income assuming dilution $ 1,085   $ 39,159   $ 700   $ 44,086  
 
Basic $ 0.02   $ 0.81   $ 0.01   $ 0.89  
Diluted $ 0.02   $ 0.67   $ 0.01   $ 0.76  
 
Weighted average shares outstanding:
Basic   49,377     46,550     49,146     46,304  
Diluted   49,910     58,547     49,649     58,371  

* Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.

 
Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
        June 30,     December 31,
Assets 2014 2013
 
Current assets:
Cash and cash equivalents $ 27,659 $ 43,039
Restricted cash 467 467
Accounts receivable-trade, non-affiliates, net 38,513 34,066
Materials and supplies 12,449 10,131
Prepayments and other current assets 7,972 7,300
Deferred income taxes   7,198     7,144  
Total current assets 94,258 102,147
 
Property, plant and equipment 1,358,974 1,344,949
Less: accumulated depreciation and amortization   (1,004,245 )   (992,936 )
Property, plant and equipment, net 354,729 352,013
 
Goodwill 5,892 4,650
Debt issuance costs 5,619 6,929
Deferred income taxes 12,460 14,107
Equity method investments 258,798 266,972
Other assets   394     502  
Total assets $ 732,150   $ 747,320  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 8,265 $ 14,256
Accounts payable, accrued and other current liabilities, non-affiliates 50,031 55,475

Accounts payable, accrued and other current liabilities, affiliates, net*

21,628 14,309
Advance billings and customer deposits   8,970     9,104  
Total current liabilities 88,894 93,144
 
Long-term obligations, net of current portion 430,653 442,001
Other long-term liabilities 16,324 16,947
Deferred AWN capacity revenue, net of current portion   58,362     59,965  
Total liabilities   594,233     612,057  
 
Commitments and contingencies
 
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 495 487
Additional paid in capital 152,927 152,193
Accumulated deficit (11,108 ) (11,808 )
Accumulated other comprehensive loss   (4,397 )   (5,609 )
Total stockholders' equity (deficit) 137,917 135,263
 
Total liabilities and stockholders' equity (deficit) $ 732,150   $ 747,320  

* Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.

 
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,
2014     2013 2014     2013
Cash Flows from Operating Activities:
Net income $ 1,085 $ 37,694 $ 700 $ 41,162

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

Depreciation and amortization 8,475 11,450 17,265 24,082
Loss on the disposal of assets 410 585 811 626
Gain on ineffective hedge adjustment - (596 ) - (1,016 )
Amortization of debt issuance costs and debt discount 1,268 1,614 2,666 3,040
Amortization of ineffective hedge 307 436 914 866
Amortization of deferred AWN capacity revenue (849 ) - (1,690 ) -
Stock-based compensation 540 499 1,193 1,718
Deferred income tax expense (benefit) 974 (27,280 ) 747 (24,625 )
Provision for uncollectible accounts 910 171 1,475 439
Cash distribution from equity method investments 9,168 - 17,691 -
(Earnings) loss from equity method investments (9,168 ) 21 (17,691 ) 21
Other non-cash (income) expense, net (155 ) 196 (158 ) 236
Changes in operating assets and liabilities   (6,738 )   (4,874 )   (3,870 )   (1,065 )
Net cash provided by operating activities   6,227     19,916     20,053     45,484  
 
Cash Flows from Investing Activities:
Capital expenditures (10,710 ) (7,629 ) (17,874 ) (13,597 )
Capitalized interest (624 ) (387 ) (1,362 ) (870 )
Change in unsettled capital expenditures 2,772 (678 ) (4,414 ) (3,829 )
Proceeds on sale of assets - - - 1,935
AWN excess distribution - 1,512 - 1,512
Return of capital from equity investment 3,332 - 7,342 -
Non-cash acquisition, cash received - - 68 -
Net change in short-term investments - 1,512 - 1,512
Net change in restricted accounts   -     49     -     48  
Net cash used by investing activities   (5,230 )   (5,621 )   (16,240 )   (13,289 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (5,388 ) (15,366 ) (18,742 ) (30,381 )
Debt issuance costs - (181 ) - (181 )
Payment of withholding taxes on stock-based compensation (2 ) - (583 ) (630 )
Proceeds from issuance of common stock   132     115     132     115  
Net cash used by financing activities   (5,258 )   (15,432 )   (19,193 )   (31,077 )
 
Change in cash and cash equivalents (4,261 ) (1,137 ) (15,380 ) 1,118
 
Cash and cash equivalents, beginning of period   31,920     19,094     43,039     16,839  
 
Cash and cash equivalents, end of period $ 27,659   $ 17,957   $ 27,659   $ 17,957  
 
Supplemental Cash Flow Data:
Interest paid $ 9,466 $ 11,219 $ 16,028 $ 18,383
Income tax paid $ 1 $ - $ 14 $ -
 
Supplemental Non-cash Transactions:
Property acquired under capital leases $ - $ - $ 44 $ 2
Additions to ARO asset $ 75 $ 107 $ 289 $ 137
Non-cash acquisition purchase price, net of cash received $ - $ - $ 1,850 $ -
 
 

Schedule 4
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
2014     2013 2014     2013
 
Net income $ 1,085 $ 37,694 $ 700 $ 41,162
Add (subtract):
Interest expense 8,672 10,156 17,529 20,185
Loss on extinguishment of debt - 276 - 276
Interest income (6 ) (8 ) (14 ) (18 )
Depreciation and amortization 8,475 11,450 17,265 24,082
Loss on sale of short-term investments - 13 - 13
Loss on disposal of assets 410 585 811 626
Loss (earnings) from equity method investment in TekMate - 21 (12 ) 21
Earnings from equity method investment in AWN (9,168 ) - (17,679 ) -
AWN distributions received 12,500 - 25,000 -
AWN distributions received for the prior period (4,167 ) - (4,167 ) -
AWN distributions receivable within 12 days 4,167 - 4,167 -
Income tax expense (benefit) 975 (27,280 ) 761 (24,625 )
Stock-based compensation 540 499 1,193 1,718
Long-term cash incentives 301 161 985 330
AWN transaction-related costs   40     427     212     1,272  
 
Adjusted EBITDA $ 23,824   $ 33,994   $ 46,751   $ 65,042  
 
Less:
Incurred capital expenditures (10,710 ) (7,629 ) (17,874 ) (13,597 )
Amortization of deferred AWN capacity revenue (849 ) - (1,690 ) -
AWN transaction-related capital costs, net change - 14 - (41 )
Cash interest expense   (9,466 )   (11,219 )   (16,028 )   (18,383 )
Free cash flow $ 2,799   $ 15,160   $ 11,159   $ 33,021  
 
Revenue $ 80,558   $ 97,757   $ 158,889   $ 188,816  
 
Adjusted EBITDA Margin 29.6 % 34.8 % 29.4 % 34.4 %
 

NonGAAP Measures:

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 Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, provisions for taxes, AWN transaction-related costs, stock-based compensation, and expenses under the company’s long term cash incentive plan (“LTCI”). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA.

Adjusted EBITDA Margin, is defined as Adjusted EBITDA divided by Operating Revenues.

Free cash flow is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), less amortization of deferred AWN capacity revenue (a non cash revenue item), less AWN transaction-related capital costs, less cash interest expense.

Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-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. Other companies may not calculate Non-GAAP measures in the same manner as ACS.

 
Schedule 5
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH
(Unaudited, In Thousands)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
Service revenue: 2014     2013 2014     2013
Business and wholesale customers
Voice $ 5,671 $ 5,790 $ 11,282 $ 11,513
Broadband 11,085 9,962 21,696 19,429
IT Services 945 - 1,533 -
Other 1,775 2,187 3,456 4,043
Wholesale   8,266     7,461   16,179     15,052
Business and wholesale service revenue   27,742     25,400   54,146     50,037
 
Consumer customers
Voice 3,837 4,353 7,713 8,672
Broadband 6,244 5,605 12,105 10,847
Other   359     383   782     797
Consumer service revenue 10,440 10,341 20,600 20,316
 
Total service revenue   38,182     35,741   74,746     70,353
Growth in service revenue 6.8 % 6.2 %
Growth in broadband service revenue 11.3 % 11.6 %
 
Other revenue:
Equipment sales 1,274 343 2,111 935
Access 8,968 9,268 17,961 18,783
High cost support   7,075     4,412   13,349     8,574
Total service and other revenue   55,499     49,764   108,167     98,645
Growth in service and other revenue 11.5 % 9.7 %
Growth excluding equipment sales 9.7 % 8.5 %
 
Wireless revenue:
Business and consumer service revenue 17,129 18,030 34,185 35,934
Equipment sales 1,115 1,282 2,119 2,530
Other 1,450 1,049 2,797 2,150
 
AWN related:
Foreign roaming - 19,409 - 34,435
Wireless backhaul - 2,193 70 4,168
CETC 4,516 6,030 9,861 10,954
Amortization of deferred AWN capacity revenue   849     -   1,690     -
Total AWN related   5,365     27,632   11,621     49,557
Total wireless & AWN related revenue   25,059     47,993   50,722     90,171
 
Total revenue $ 80,558   $ 97,757 $ 158,889   $ 188,816
 
 

Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
    Three Months Ended
June 30,     March 31,     June 30,
2014 2014 2013
 
Voice:
Consumer access lines 46,740 48,165 52,438
Business access lines 80,172 79,841 80,517
 
Voice ARPU consumer $ 26.95 $ 26.51 $ 27.25
Voice ARPU business $ 23.63 $ 23.43 $ 23.93
 
Broadband: (1)
Consumer connections 39,022 39,468 37,611
Business connections 19,618 19,304 19,104
 
ARPU consumer $ 52.51 $ 49.46 $ 49.21
ARPU business (2) $ 189.54 $ 182.96 $ 174.87
 
Wireless:
Postpaid connections 83,468 86,238 88,876
Lifeline connections 7,447 6,510 9,859
Prepaid connections   18,663       15,227       15,684  
Total   109,578       107,975       114,419  
 
Retail wireless ARPU $ 52.55 $ 52.51 $ 52.68
 
Churn:
 
Voice connections (3) 1.9 % 1.0 % 1.3 %
Broadband connections (1) (3) 2.4 % 1.9 % 2.0 %
Wireless connections 2.4 % 3.0 % 2.4 %
 
 
Wireless equipment subsidy (263 )

(4)

(463 )

(4)

(3,463 )
 

(1)

  Consumer and business broadband connections, ARPU, and churn have been restated to exclude dial up lines.

(2)

Business broadband ARPU was restated to reflect the movement of IT Services revenue into a separate category.

(3)

Voice and broadband churn have been restated to exclude wholesale lines.

(4)

For the quarters ending June 30, 2014 and March 31, 2014, respectively, these amounts are net of AWN subsidy reimbursement.
 
 

Schedule 7
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt
(Unaudited, In Thousands)
 
    June 30,     December 31,     June 30,
2014 2013 2013
2010 senior credit facility term loan due 2016 $ 327,700 $ 345,900 $ 414,550
Debt discount - 2010 senior credit facility term loan due 2016 (1,315 ) (1,687 ) (2,358 )
6.25% convertible notes due 2018 114,000 114,000 120,000
Debt discount - 6.25% convertible notes due 2018 (8,229 ) (9,213 ) (10,650 )
Capital leases and other long-term obligations   6,762     7,257     4,810  
438,918 456,257 526,352
Less current portion   (8,265 )   (14,256 )   (11,302 )
Long-term obligations, net of current portion $ 430,653   $ 442,001   $ 515,050  
 
 
Maturities
 
2014 (July 1 - December 31)     $ 565
2015 (January 1 - December 31) 15,417
2016 (January 1 - December 31) 313,788
2017 (January 1 - December 31) 506
2018 (January 1 - December 31) 114,287
2019 (January 1 - December 31) 278
Thereafter   3,621
$ 448,462
 
 

Schedule 8
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Summary AWN information
(Unaudited, In Thousands)
 
Alaska Wireless Network, LLC
Stand Alone Selected Operating Results
 
   

Q1 - 2014

    Q2 - 2014     YTD - 2014    
Operating revenues $ 63,037 $ 64,665 $ 127,702
 
Operating expenses:
Cost of services and sales 19,119 18,880 37,999
Selling, general & administrative 5,954 5,898 11,852
Depreciation and amortization   10,995     10,644     21,639  
 
Total operating expenses 36,068 35,422 71,490
 
Operating income 26,969 29,243 56,212
 
Other income and (expense)   (92 )   (88 )   (180 )
 
Net income 26,877 29,155 56,032 A
 
Plus: Depreciation Expense 10,995 10,644 21,639
Other, net 1,706 1,631 3,337
Minus: Capital Spending 3,639 7,110 10,749
Management Fee to GCI   1,438     1,372     2,810  
Adjusted Free Cash Flow $ 34,501   $ 32,948   $ 67,449  
 
Distributions paid to ACS: 12,500 12,500 25,000
 
Distributions to ACS as a proportion of FCF: 36.2 % 37.9 % 37.1 %
 
The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.
 
 
Wholesale Margin Contribution from AWN:
Q1 - 2014 Q2 - 2014 YTD - 2014
Wireless business and consumer service revenue $ 17,056 $ 17,129 $ 34,185
 

AWN wholesale charges*

$ 11,905 $ 12,750 $ 24,655

Handset subsidy support*

(2,664 ) (3,095 ) (5,759 )
Equipment subsidy 3,127 3,358 6,485

Other*

  235     830     1,065  
Total $ 12,603 $ 13,843 $ 26,446
 
Wholesale Margin $ 4,453 $ 3,286 $ 7,739 23 %
 
* Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN.
 
 
Key AWN Results included in the ACS Consolidated Income Statement:
Q1 - 2014 Q2 - 2014 YTD - 2014
AWN net income $ 26,877 $ 29,155 $ 56,032 A
Adjusted for step-up in GCI assets   (1,345 )   (1,650 )   (2,995 ) B
AWN stepped-up earnings $ 25,532 $ 27,505 $ 53,037 C
 
ACS ownership percentage of AWN 33.33 % 33.33 % 33.33 % D
 
"Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.
 
Earnings on equity method investment in AWN $ 8,511   $ 9,168   $ 17,679   C * D
 
AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage.
 
 
Key AWN Results Included in the ACS Non GAAP financial measures:
Q1 - 2014 Q2 - 2014 YTD - 2014
Cash distributions received during the quarter $ 12,500 $ 12,500 $ 25,000

Less:

Distributions received during the quarter related to the previous period

(4,167 ) (4,167 ) (4,167 )

Plus:

Distributions received within 14 business days of quarter-end

4,167 4,167 4,167
Amortization of deferred AWN capacity revenue   841     849     1,690  
Equals AWN impact to Adjusted EBITDA $ 13,341   $ 13,349   $ 26,690  
 
Less: Amortization of deferred AWN capacity revenue   841     849     1,690  
Equals AWN impact to Free Cash Flow $ 12,500   $ 12,500   $ 25,000  
 
In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.


Copyright © Business Wire 2014
Contact:

Alaska Communications Investors:
Tiffany Dunn, 907-564-3314
Manager Investor Relations
investors@acsalaska.com