Alaska Communications Systems 8-K Alaska Communications Systems Reports Second Quarter 2013 Results

Exhibit 99.1

Alaska Communications Systems Reports Second Quarter 2013 Results

Total revenues increased $7.7 million or 8.6%

Broadband revenue as percentage of Retail service revenue exceeds 50% for the first time

Deleveraging continues with $30.4 million of repayments of long-term debt YTD June 30, 2013

Milestone AWN transaction resulting in $65.0 million in additional debt repayments in July 2013

Commencing a fiber-to-the-node build out in major markets to enhance broadband capabilities

ANCHORAGE, Alaska--(BUSINESS WIRE)--August 1, 2013--Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2013.

“We are extremely pleased with our performance in the first half of the year. We achieved very strong rates of growth, with retail broadband revenues increasing 21% over last year. Debt reductions have been solid, with over $30 million through free cash flow generation in the first half of the year and $65 million from the AWN transaction in July. We are on track to achieve our goal of $100 million of net debt reductions this year. These results are evidence of our business plan at work.

“This quarter we also initiated a fiber-to-the-node build plan to significantly improve our broadband capabilities for business customers and sustain our long-term growth. We start with Anchorage this year and roll out to other areas of the state over the next couple of years. We are delivering on our business plan of growth and deleveraging, with an uncompromising focus on creating long-term value for our shareholders, customers and employees,” said Anand Vadapalli, President and CEO of Alaska Communications.

Financial Highlights: Second Quarter 2013 Compared to Second Quarter 2012

• Revenues of $97.7 million increased by $7.7 million, or 8.6%, from $90.0 million in the prior year. $6.1 million of the growth was due to higher roaming revenue. Excluding this element of growth, overall revenue achieved 2.1% year over year growth.
  • Business and wholesale revenue increased $2.2 million, or 8.7%.
  • Consumer revenue increased $0.7 million, or 7.1%.
  • Wireless revenue increased $5.4 million, or 15.8%.
  • Access and CETC revenue declined, as expected, $0.6 million, or 3.0%.
  • Broadband revenue, as a percentage of total service revenue, was 52.3%, compared to 45.0% in the prior year.
• Adjusted EBITDA of $34.0 million increased $8.4 million, or 32.8%, from $25.6 million in the prior year.
  • Cost of services and sales of $37.2 million declined $2.9 million or 7.2%, driven primarily by a $4.3 million decrease in device and accessory costs in 2013 caused by our launch of the iPhone in the second quarter of 2012, offset by an increase in roaming payables.
  • Selling, general & administrative, excluding the impact of AWN transaction costs, increased $1.9 million, or 7.5%, resulting primarily from an increase of $1.7 million in labor associated with higher incentive compensation expense in 2013 as compared to the prior year.

Metric Highlights: Second Quarter 2013 Compared to First Quarter 2013

• Wireless subscribers increased by 328 to 114,419.
• Wireless average monthly retail service revenue per subscriber (“ARPU”) increased by 1.0% or $0.51 to $52.68. Wireless broadband ARPU increased by 8.5% or $1.92 to $24.55.
• Business broadband connections increased to 19,539 from 19,233 and business broadband ARPU increased by 4.2% or $6.94 to $171.29 from $164.35.
• Consumer broadband connections increased to 39,559 from 39,334 and consumer broadband ARPU increased by 5.9% or $2.62 to $47.37.
• Consumer access lines declined to 52,438 from 54,037, and business access lines decreased to 80,517 from 80,770.

“Alaska Communications continues to target free cash flow for debt reduction, and we are pleased to have made debt payments through June 30, 2013 of $30.4 million, achieving record debt reductions. Further, upon closing of the AWN transaction, we reduced debt by another $65 million, moving net debt to $444.9 million. The quarter was favorably impacted by a reversal of a previous reserve for an ongoing tax matter. We are pleased with the outcome of this matter as it further strengthens our balance sheet. On our upcoming conference call we will provide detailed guidance for the rest of the year in addition to discussing our longer term directional view now that we have the AWN transaction closed,” said Wayne Graham, ACS Chief Financial Officer.

High level guidance for the full year 2013 is as follows:

Total revenue is expected to be $340 - $350 million

EBITDA is expected to be $105 - $110 million

Capital spending is targeted to be around $50 million

Free Cash Flow is expected to be $20 - $25 million

Conference Call and On-Line Presentation

The company will host a conference call and live webcast today at 5:00 p.m. Eastern time to discuss these results. Parties in the United States and Canada can access the call at 1-800-762-9058. Parties outside the United States and Canada can access the call at 1-480-629-9645. The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's website (www.alsk.com). The conference call will also include a slide presentation that can be accessed in 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, August 8, 2013, at midnight Eastern time. To hear the replay, parties in the United States and Canada can call 1-800-406-7325 and enter pass code 4627862. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4627862.

About Alaska Communications

Alaska Communications is a leading provider of advanced broadband solutions for businesses and consumers in Alaska. We operate 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 www.alaskacommunications.com or www.alsk.com.

Non-GAAP Measures

Adjusted EBITDA, as defined by the Company, may not be similar to Adjusted EBITDA measures used by other companies and is not a measurement under generally accepted accounting principles (GAAP). Management believes that Adjusted 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, loss on extinguishment of debt, depreciation and amortization, loss on the sale of short-term investments, loss on the disposal of assets, taxes, long-term incentive compensation expense, loss for Equity method investments and AWN transaction related costs that are not directly attributable to the underlying performance of the Company’s operations. Management believes the most directly comparable GAAP measure would be “Net cash provided by operating activities.”

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 continued build out of their wireless network in Alaska, Universal Service Fund changes, AWN’s future financial and operational performance, 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 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; 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 Companys 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,
	2013			2012			2013			2012
Operating revenues	$	97,736		$	90,012		$	188,795		$	175,959
Operating expenses:
Cost of services and sales		37,204			40,094			72,651			75,256
Selling, general & administrative		27,646			29,442			54,443			54,937
Depreciation and amortization		11,450			12,578			24,082			25,520
Loss on disposal of assets, net		585			139			626			419
Total operating expenses		76,885			82,253			151,802			156,132
Operating income		20,851			7,759			36,993			19,827
Other income and expense:
Interest expense		(10,156	)		(9,376	)		(20,185	)		(18,935	)
Loss on extinguishment of debt		(276	)		-			(276	)		(323	)
Interest income		8			12			18			22
Other		(13	)		-			(13	)		-
Total other income and expense		(10,437	)		(9,364	)		(20,456	)		(19,236	)
Income (loss) before income tax (expense) benefit		10,414			(1,605	)		16,537			591
Income tax (expense) benefit		27,280			818			24,625			(249	)
Net income (loss)	$	37,694		$	(787	)	$	41,162		$	342
Net income (loss) per share:
Basic	$	0.81		$	(0.02	)	$	0.89		$	0.01
Diluted	$	0.80		$	(0.02	)	$	0.88		$	0.01
Weighted average shares outstanding:
Basic		46,550			45,505			46,304			45,434
Diluted		46,875			45,505			46,699			45,648

Schedule 2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
	June 30,			December 31,
Assets	2013			2012
Current assets:
Cash and cash equivalents	$	16,445		$	16,839
Restricted cash		3,827			3,875
Short-term investments		525			2,050
Accounts receivable-trade, net of allowance of $5,781 and $6,231		44,079			39,713
Materials and supplies		9,940			9,409
Prepayments and other current assets		5,884			5,566
Deferred income taxes		1,317			8,301
Total current assets		82,017			85,753
Property, plant and equipment		1,466,366			1,463,320
Less: accumulated depreciation and amortization		(1,067,505	)		(1,052,459	)
Property, plant and equipment, net		398,861			410,861
Goodwill		8,850			8,850
Intangible assets, net		24,118			24,118
Debt issuance costs		9,204			10,558
Deferred income taxes		102,491			69,049
Equity method investment		2,007			2,028
Other assets		477			3,510
Total assets	$	628,025		$	614,727
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations	$	11,302		$	21,628
Accounts payable, accrued and other current liabilities		56,785			56,378
Advance billings and customer deposits		8,913			8,970
Total current liabilities		77,000			86,976
Long-term obligations, net of current portion		515,050			533,772
Other long-term liabilities		26,895			28,662
Total liabilities		618,945			649,410
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized		467			458
Additional paid in capital		145,587			144,377
Accumulated deficit		(129,117	)		(170,279	)
Accumulated other comprehensive loss		(7,857	)		(9,239	)
Total stockholders' equity (deficit)		9,080			(34,683	)
Total liabilities and stockholders' equity (deficit)	$	628,025		$	614,727

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,
	2013			2012			2013			2012
Cash Flows from Operating Activities:
Net income (loss)	$	37,694		$	(787	)	$	41,162		$	342
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		11,450			12,578			24,082			25,520
Gain on ineffective hedge adjustment		(596	)		-			(1,016	)		-
Amortization of debt issuance costs and debt discount		1,614			1,396			3,040			3,002
Amortization of ineffective hedge		436			-			866			-
Stock-based compensation		499			976			1,718			1,693
Deferred income taxes		(27,280	)		(814	)		(24,625	)		249
Provision for uncollectible accounts		171			979			439			1,529
Loss from equity method investment		21			-			21			-
Other non-cash expense, net		781			114			862			543
Changes in operating assets and liabilities		(4,874	)		3,025			(1,065	)		4,160
Net cash provided by operating activities		19,916			17,467			45,484			37,038
Cash Flows from Investing Activities:
Capital expenditures		(7,629	)		(12,790	)		(13,597	)		(22,443	)
Capitalized interest		(387	)		(464	)		(870	)		(829	)
Change in unsettled capital expenditures		(678	)		(1,238	)		(3,829	)		(4,369	)
Proceeds on sale of assets		-			-			1,935			-
Net change in short-term investments		1,512			-			1,512			-
Net change in restricted accounts		49			(412	)		48			(544	)
Net cash used by investing activities		(7,133	)		(14,904	)		(14,801	)		(28,185	)
Cash Flows from Financing Activities:
Repayments of long-term debt		(15,366	)		(1,508	)		(30,381	)		(7,925	)
Debt issuance costs		(181	)		-			(181	)		-
Payment of cash dividend on common stock		-			(2,278	)		-			(4,546	)
Payment of withholding taxes on stock-based compensation		-			(8	)		(630	)		(239	)
Proceeds from issuance of common stock		115			179			115			180
Net cash used by financing activities		(15,432	)		(3,615	)		(31,077	)		(12,530	)
Change in cash and cash equivalents		(2,649	)		(1,052	)		(394	)		(3,677	)
Cash and cash equivalents, beginning of period		19,094			17,865			16,839			20,490
Cash and cash equivalents, end of period	$	16,445		$	16,813		$	16,445		$	16,813
Supplemental Cash Flow Data:
Interest paid	$	11,219		$	9,987		$	18,383		$	17,003
Income tax paid (refunded)	$	-		$	(24	)	$	-		$	(24	)
Supplemental Non-cash Transactions:
Property (retired) acquired under capital leases	$	-		$	(24	)	$	2		$	(24	)
Dividend declared, but not paid	$	-		$	2,285		$	-		$	2,285
Additions to ARO asset	$	107		$	32		$	137		$	54

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,
	2013			2012			2013			2012
Net cash provided by operating activities	$	19,916		$	17,467		$	45,484		$	37,038
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		(11,450	)		(12,578	)		(24,082	)		(25,520	)
Gain on ineffective hedge adjustment		596			-			1,016			-
Amortization of debt issuance costs and debt discount		(1,614	)		(1,396	)		(3,040	)		(3,002	)
Amortization of ineffective hedge		(436	)		-			(866	)		-
Stock-based compensation		(499	)		(976	)		(1,718	)		(1,693	)
Deferred income taxes		27,280			814			24,625			(249	)
Provision for uncollectible accounts		(171	)		(979	)		(439	)		(1,529	)
Loss from equity method investment		(21	)		-			(21	)		-
Other non-cash expense, net		(781	)		(114	)		(862	)		(543	)
Changes in operating assets and liabilities		4,874			(3,025	)		1,065			(4,160	)
Net income (loss)	$	37,694		$	(787	)	$	41,162		$	342
Add (subtract):
Interest expense		10,156			9,376			20,185			18,935
Loss on extinguishment of debt		276			-			276			323
Interest income		(8	)		(12	)		(18	)		(22	)
Depreciation and amortization		11,450			12,578			24,082			25,520
Loss on sale of short-term investments		13			-			13			-
Loss on disposal of assets		585			139			626			419
Income tax (expense) benefit		(27,280	)		(818	)		(24,625	)		249
Stock-based compensation and long term cash incentives		660			976			2,048			1,693
Loss from equity method investment		21			-			21			-
AWN transaction related costs		427			4,131			1,272			4,459
Adjusted EBITDA	$	33,994		$	25,583		$	65,042		$	51,918
Less:
Incurred capital expenditures		(7,629	)		(12,790	)		(13,597	)		(22,443	)
AWN transaction related capital costs, net change		14			-			(41	)		-
Cash interest expense		(11,219	)		(9,987	)		(18,383	)		(17,003	)
Free cash flow	$	15,160		$	2,806		$	33,021		$	12,472
Revenue	$	97,736		$	90,012		$	188,795		$	175,959
Adjusted EBITDA Margin		34.8	%		28.4	%		34.5	%		29.5	%

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 Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on short-term investments, gain or loss on asset purchases or disposals, provisions for taxes, stock-based compensation and long-term cash incentive expense, AWN Transaction related costs, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by Operating Revenues. Additionally, the Company has disclosed Free cash flow as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“Incurred capital expenditures”) less cash interest expense, less non recurring capital items we have incurred to preliminarily establish infrastructure with AWN (“AWN non recurring capital expenditures”). These measures are provided because the Company believes they are important indicators regarding our ability to make principle payments on debt and fund working capital. 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.

Schedule 5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE MIX
(Unaudited, In Thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
Operating revenues:	2013			2012			2013			2012
Business and wholesale
Retail service revenue
Voice	$	5,790		$	6,039		$	11,513		$	12,079
Broadband		9,962			8,425			19,429			16,543
Equipment sales		306			280			860			616
Wholesale and other		11,820			10,906			23,242			22,859
Total business and wholesale revenue		27,878			25,650			55,044			52,097
Consumer
Retail service revenue
Voice		4,353			4,848			8,672			9,784
Broadband		5,605			4,507			10,847			8,856
Equipment sales		37			42			75			84
Other		383			291			797			558
Total consumer revenue		10,378			9,688			20,391			19,282
Wireless
Retail service revenue
Voice		10,730			12,209			21,831			24,876
Broadband		7,300			6,001			14,103			11,552
Equipment sales		1,282			1,685			2,530			2,857
Foreign roaming		19,409			13,301			34,435			22,077
Other		1,049			1,149			2,150			2,095
Total wireless revenue		39,770			34,345			75,049			63,457
Access and CETC
CETC		6,030			5,163			10,954			10,690
High cost support		4,412			5,005			8,574			9,954
Switched, special and other access		9,268			10,161			18,783			20,479
Total access and CETC		19,710			20,329			38,311			41,123
Total revenues	$	97,736		$	90,012		$	188,795		$	175,959
Revenue Mix:
Business and wholesale		28.5	%		28.5	%		29.2	%		29.6	%
Consumer		10.6	%		10.8	%		10.8	%		11.0	%
Wireless		40.7	%		38.2	%		39.8	%		36.1	%
Access and CETC		20.2	%		22.6	%		20.3	%		23.4	%
Retail service revenue % of total revenues		44.8	%		46.7	%		45.8	%		47.6	%
Broadband % of Retail service revenue		52.3	%		45.0	%		51.4	%		44.2	%

Note -	Broadband contains the following dial-up revenue:
	Three and six months ended June 30, 2013: $77 Consumer and $21 Business, and $160 Consumer and $44 Business, respectively.
	Three and six months ended June 30, 2012: $99 Consumer and $26 Business, and $204 Consumer and $53 Business, respectively.

Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
	Three Months Ended
	June 30,			March 31,			June 30,
	2013			2013			2012
Voice:
Consumer access lines		52,438			54,037			59,480
Business access lines		80,517			80,770			82,083
Voice ARPU consumer	$	27.25		$	26.21		$	26.73
Voice ARPU business	$	23.93		$	23.61		$	24.49
Broadband:
Consumer connections		39,559			39,334			38,583
Business connections*		19,539			19,233			19,069
ARPU consumer	$	47.37		$	44.75		$	39.01
ARPU business*	$	171.29		$	164.35		$	147.25
Wholesale lines		18,595			19,228			21,278
Wireless:
Postpaid connections		88,876			90,363			95,322
Lifeline connections		9,859			9,494			12,382
Prepaid connections		15,684			14,234			12,346
Total		114,419			114,091			120,050
Retail wireless ARPU	$	52.68		$	52.17		$	51.26
Wireless broadband ARPU	$	24.55		$	22.63		$	18.74
Churn:
Voice access lines		1.4	%		1.3	%		1.4	%
Broadband connections		2.0	%		1.9	%		2.5	%
Wireless connections		2.4	%		2.6	%		2.0	%
Wireless equipment subsidy	$	3,463		$	3,527		$	7,318

*	Business broadband connections counts have been restated to correct how certain high bandwidth circuits types are measured. These change have no affect on our financial results, but will affect connection count and ARPU amounts presented above as compared to their presentation in prior periods.
Note -	Broadband contains the following dial-up connections:
	June 30, 2013: 1,948 Consumer and 435 Business.
	March 31, 2013: 2,024 Consumer and 439 Business.
	June 30, 2012: 2,482 Consumer and 499 Business.

CONTACT:
Alaska Communications
Investor relations: Wayne Graham, 907-564-7756
Media relations: Heather Cavanaugh, 907-564-7722