Alaska Communications Systems 8-K Alaska Communications Systems Reports First Quarter 2014 Results

Exhibit 99.1

Alaska Communications Systems Reports First Quarter 2014 Results

-Total Service and Other Revenues increased $3.8 million or 7.7%, led by Broadband growth-

-Adjusted EBITDA of $22.9 million-

-Free Cash Flow of $8.4 million-

-Deleveraging continues with over $13 million of repayments of long term debt-

ANCHORAGE, Alaska--(BUSINESS WIRE)--May 8, 2014--Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its first quarter ended March 31, 2014.

“We are starting 2014 on strong footing, and have delivered solid results for the quarter. Top line growth was robust, driven by continued strength in broadband revenues, while EBITDA performance positions us well to meet our guidance for the year. We continue to pay down debt ahead of schedule which directly translates to shareholder value creation.

"Looking ahead, we are pleased with our performance in the market. We’ve seen strategic customer wins which provide momentum for the rest of the year. Further, since closing the TekMate transaction in January, sales have exceeded expectations which bode well for continued growth in the managed services area. We have a sound operating plan for the year and we are doing well performing to our plan,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: First Quarter 2014 Compared to First Quarter 2013

• The quarter experienced strong revenue performance in our key areas of focus:

o Business and wholesale service revenue of $26.4 million grew $1.8 million or 7.2%, with broadband revenues growing 17.1%.

o Consumer service revenue of $10.2 million grew $0.2 million, or 1.9%, with broadband revenues growing 11.8%.

o Wireless revenue of $19.4 million, declined $0.8 million, or 4.2%, as connections continued to decline.

• Adjusted EBITDA was $22.9 million and is consistent with our overall guidance expectations for the year.
• Free Cash Flow was strong at $8.4 million.
• Persistent deleveraging continues, with debt balances of $444 million at the end of the quarter, compared to $456 million at December 31, 2013. Cash stands at approximately $32 million.

Metric Highlights: First Quarter 2014 Compared to Fourth Quarter 2013

• Business broadband connections increased to 19,304 from 19,285 and business broadband ARPU increased to $191.21 from $181.77.
• Consumer broadband connections increased to 39,468 from 38,677 and consumer broadband ARPU increased to $49.46 from $48.59.
• Wireless subscribers decreased by 873 to 107,975 and Wireless ARPU decreased to $52.51 from $53.14.

“Our financial metrics for the quarter were strong, and our balance sheet is strengthening as we pay down debt ahead of schedule while maintaining strong cash reserves. As anticipated, total revenue of $78.3 million decreased $12.7 million reflecting the shift of $15.7 million in AWN revenue categories, including roaming, which the company no longer reports but reside in its AWN affiliate. Our focus is on Total Service and Other revenue, which grew $3.8 million or 7.7%. Close attention to cost management will result in continued free cash flow performance which will be dedicated to further debt reductions," said Wayne Graham, ACS chief financial officer.

2014 Guidance:

We reaffirm guidance for the year as follows:

Revenue is expected to be approximately $310 million.

Adjusted EBITDA is expected to be approximately $90 million.

Capital spending is expected to be approximately $40 million.

Free cash flow is expected to be approximately $20 million.

Conference Call

The company will host a conference call and live webcast on Friday, May 9, 2014 at 2:00 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 1-877-941-8609. All other parties can access the call at 1-480-629-9692.

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 June 9, 2014 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 4678703. All other parties can call 1-303-590-3030 and enter pass code 4678703.

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 EBTDA 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, 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, 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.

					Schedule 1
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
		Three Months Ended
		March 31,
			2014			2013
Operating revenues:
	Operating revenues, non-affiliates	$	76,545		$	90,996
	Operating revenues, affiliates *		1,786			63
Total operating revenues			78,331			91,059
Operating expenses:
	Cost of services and sales, non-affiliates		30,058			35,319
	Cost of services and sales, affiliates *		14,760			128
	Selling, general & administrative		24,595			26,797
	Depreciation and amortization		8,790			12,632
	Loss on disposal of assets, net		401			41
	Earnings from equity method investments		(8,523	)		-
Total operating expenses			70,081			74,917
Operating income			8,250			16,142
Other income and (expense):
	Interest expense		(8,857	)		(10,029	)
	Interest income		8			10
Total other income and (expense)			(8,849	)		(10,019	)
(Loss) income before income tax benefit (expense)			(599	)		6,123
	Income tax benefit (expense)		214			(2,655	)
Net (loss) income		$	(385	)	$	3,468
Net (loss) income per share:
	Basic	$	(0.01	)	$	0.08
	Diluted	$	(0.01	)	$	0.07
Weighted average shares outstanding:
	Basic		48,913			46,055
	Diluted		48,913			46,563
* Affiliate balances are related to activity with our equity method investees TekMate and AWN

						Schedule 2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
			March 31,			December 31,
Assets				2014			2013
Current assets:
	Cash and cash equivalents		$	31,920		$	43,039
	Restricted cash			467			467
	Accounts receivable-trade, non-affiliates, net			33,864			34,066
	Materials and supplies			10,784			10,131
	Prepayments and other current assets			7,413			7,300
	Deferred income taxes			9,975			7,144
		Total current assets		94,423			102,147
Property, plant and equipment				1,351,056			1,344,949
Less: accumulated depreciation and amortization				(999,300	)		(992,936	)
	Property, plant and equipment, net			351,756			352,013
Goodwill				5,892			4,650
Debt issuance costs				6,226			6,929
Deferred income taxes				12,435			15,572
Equity method investments				262,130			266,972
Other assets				396			502
Total assets			$	733,258		$	748,785
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
	Current portion of long-term obligations		$	4,798		$	14,256
	Accounts payable, accrued and other current liabilities, non-affiliates			51,170			55,475
	Accounts payable, accrued and other current liabilities, affiliates, net *			17,725			14,566
	Advance billings and customer deposits			9,115			9,104
		Total current liabilities		82,808			93,401
Long-term obligations, net of current portion				438,847			442,001
Other long-term liabilities				15,558			16,947
Deferred AWN capacity revenue, net of current portion				62,422			63,263
Total liabilities				599,635			615,612
Commitments and contingencies
Stockholders' equity (deficit):
	Common stock, $.01 par value; 145,000 authorized			494			487
	Additional paid in capital			152,258			152,193
	Accumulated deficit			(14,283	)		(13,898	)
	Accumulated other comprehensive loss			(4,846	)		(5,609	)
		Total stockholders' equity (deficit)		133,623			133,173
Total liabilities and stockholders' equity (deficit)			$	733,258		$	748,785
* Affiliate balances are related to activity with our equity method investees TekMate and AWN

						Schedule 3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
			Three Months Ended
			March 31,
				2014			2013
Cash Flows from Operating Activities:
	Net (loss) income		$	(385	)	$	3,468
	Adjustments to reconcile net income to net cash provided by
	operating activities:
		Depreciation and amortization		8,790			12,632
		Loss on the disposal of assets		401			41
		Gain on ineffective hedge adjustment		-			(420	)
		Amortization of debt issuance costs and debt discount		1,398			1,426
		Amortization of ineffective hedge		607			430
		Amortization of deferred AWN capacity revenue		(841	)		-
		Stock-based compensation		653			1,219
		Deferred income taxes		(227	)		2,655
		Provision for uncollectible accounts		565			268
		Cash distribution from equity method investments		8,523			-
		Earnings from equity method investments		(8,523	)		-
		Other non-cash expense, net		(3	)		40
		Changes in operating assets and liabilities		2,868			3,809
	Net cash provided by operating activities			13,826			25,568
Cash Flows from Investing Activities:
		Capital expenditures		(7,164	)		(5,968	)
		Capitalized interest		(738	)		(483	)
		Change in unsettled capital expenditures		(7,186	)		(3,151	)
		Proceeds on sale of assets		-			1,935
		Return of capital from equity investment		4,010			-
		Non-cash acquisition, cash received		68			-
		Net change in restricted accounts		-			(1	)
	Net cash used by investing activities			(11,010	)		(7,668	)
Cash Flows from Financing Activities:
		Repayments of long-term debt		(13,354	)		(15,015	)
		Payment of withholding taxes on stock-based compensation		(581	)		(630	)
	Net cash used by financing activities			(13,935	)		(15,645	)
Change in cash and cash equivalents				(11,119	)		2,255
Cash and cash equivalents, beginning of period				43,039			16,839
Cash and cash equivalents, end of period			$	31,920		$	19,094
Supplemental Cash Flow Data:
	Interest paid		$	6,562		$	7,164
	Income tax paid (refunded), net		$	13		$	-
Supplemental Non-cash Transactions:
	Property (retired) acquired under capital leases, net		$	44		$	2
	Additions to ARO asset		$	214		$	30
	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
			March 31,
				2014			2013
Net (loss) income			$	(385	)	$	3,468
	Add (subtract):
		Interest expense		8,857			10,029
		Interest income		(8	)		(10	)
		Depreciation and amortization		8,790			12,632
		Loss on disposal of assets		401			41
		Earnings from equity method investment in TekMate		(12	)		-
		Earnings from equity method investment in AWN		(8,511	)		-
		AWN distributions received		12,500			-
		AWN distributions received for the prior period		(4,167	)		-
		AWN distributions receivable within 12 days		4,167			-
		Income tax expense (benefit)		(214	)		2,655
		Stock-based compensation		653			1,219
		Long-term cash incentives		684			169
		AWN transaction-related costs		172			845
Adjusted EBITDA			$	22,927		$	31,048
	Less:
		Incurred capital expenditures		(7,164	)		(5,968	)
		Amortization of deferred AWN capacity revenue		(841	)		-
		AWN transaction-related capital costs, net change		-			(55	)
		Cash interest expense		(6,562	)		(7,164	)
	Free cash flow		$	8,360		$	17,861
Revenue			$	78,331		$	91,059
Adjusted EBITDA Margin				29.3	%		34.1	%

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
		March 31,
Service Revenue:			2014			2013
Business and Wholesale Customers
	Voice	$	5,611		$	5,723
	Broadband		11,088			9,467
	Other		1,792			1,856
	Wholesale		7,913			7,591
	Business and Wholesale service revenue		26,404			24,637
Consumer Customers
	Voice		3,876			4,319
	Broadband		5,861			5,242
	Other		423			414
	Consumer service revenue		10,160			9,975
Total Service Revenue			36,564			34,612
Growth in Service Revenue			5.6	%
Growth in Broadband Service Revenue			15.2	%
Other Revenue:
Equipment Sales			837			592
Access			8,993			9,515
High Cost Support			6,274			4,162
Total Service and Other Revenue			52,668			48,881
Growth in Service and Other Revenue			7.7	%
Growth excluding equipment sales			7.3	%
Wireless Revenue:
Business and Consumer service revenue			17,056			17,904
Equipment sales			1,004			1,248
Other			1,347			1,101
AWN Related:
Foreign Roaming			-			15,026
Wireless Backhaul			70			1,975
CETC			5,345			4,924
Amortization of deferred AWN capacity revenue			841			-
Total AWN Related			6,256			21,925
Total Wireless & AWN Related Revenue			25,663			42,178
Total Revenue		$	78,331		$	91,059

									Schedule 6
	ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
	KEY OPERATING STATISTICS
	(Unaudited)
			Three Months Ended
			March 31,			December 31,			March 31,
				2014			2013			2013
	Voice:
		Consumer access lines		48,165			49,297			54,037
		Business access lines		79,841			79,816			80,770
		Voice ARPU consumer	$	26.51		$	26.65		$	26.21
		Voice ARPU business	$	23.43		$	23.53		$	23.61
	Broadband: (1)
		Consumer connections		39,468			38,677			37,310
		Business connections (2)		19,304			19,285			18,794
		ARPU consumer	$	49.46		$	48.59		$	46.57
		ARPU business (2)	$	191.21		$	181.77		$	167.85
	Wireless:
		Postpaid connections		86,238			85,982			90,363
		Lifeline connections		6,510			7,145			9,494
		Prepaid connections		15,227			15,721			14,234
		Total		107,975			108,848			114,091
		Retail wireless ARPU	$	52.51		$	53.14		$	52.17
	Churn:
		Voice connections (3)		1.0	%		1.3	%		1.2	%
		Broadband connections (1) (3)		1.9	%		2.1	%		1.9	%
		Wireless connections		3.0	%		3.4	%		2.6	%
	Wireless equipment subsidy (4)			(463	)		(1,100	)		(3,527	)
(1)	Consumer and business broadband connections, ARPU, and churn have been restated to exclude dial up lines.
(2)	Business broadband connections counts have been restated to correct how certain high bandwidth circuit types are measured. These changes have no material affect on our financial results, but will affect connection count and ARPU amounts presented above compared to their presentation in prior periods.
(3)	Voice and broadband churn have been restated to exclude wholesale lines.
(4)	For the quarters ending March 31, 2014 and December 31, 2013, respectively, these amounts are net of AWN subsidy reimbursement.

						Schedule 7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt
(Unaudited, In Thousands)
			March 31
				2014			2013
	2010 senior credit facility term loan due 2016		$	332,700		$	429,375
	Debt discount - 2010 senior credit facility term loan due 2016			(1,479	)		(2,613	)
	6.25% convertible notes due 2018			114,000			120,000
	Debt discount - 6.25% convertible notes due 2018			(8,726	)		(11,131	)
	Capital leases and other long-term obligations			7,150			5,350
				443,645			540,981
	Less current portion			(4,798	)		(10,108	)
	Long-term obligations, net of current portion		$	438,847		$	530,873
		Maturities
		2014 (April 1 - December 31)	$	952
		2015 (January 1 - December 31)		15,417
		2016 (January 1 - December 31)		318,788
		2017 (January 1 - December 31)		506
		2018 (January 1 - December 31)		114,287
		2019 (January 1 - December 31)		278
		Thereafter		3,622
			$	453,850

			Schedule 8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Summary AWN information
(Unaudited, In Thousands)
Alaska Wireless Network, LLC
Stand Alone Selected Operating Results
		Q1 - 2014
Operating revenues		$ 63,037
Operating expenses:
	Cost of services and sales	19,119
	Selling, general & administrative	5,954
	Depreciation and amortization	10,995
Total operating expenses		36,068
Operating income		26,969
Other income and (expense)		(92	)
Net income		26,877		A
Plus:	Depreciation Expense	10,995
	Other, net	1,706
Minus:	Capital Spending	3,639
	Management Fee to GCI	1,438
Adjusted Free Cash Flow		$ 34,501
Distributions paid to ACS:		12,500
Distributions to ACS as a proportion of FCF:		36.2	%
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:
Wireless business and consumer service revenue		$	17,056
AWN wholesale charges *		$	11,905
Handset subsidy support *			(2,664	)
Equipment subsidy			3,127
Other *			235
Total		$	12,603
Wholesale Margin		$	4,453		26	%
* 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:
		Q4
AWN net income		$	26,877				A
Adjusted for step-up in GCI assets			(1,345	)			B
AWN stepped-up earnings		$	25,532				C
ACS ownership percentage of AWN			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				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
Cash distributions received during the quarter		$	12,500
Less:	Distributions received during the quarter related to the
	previous period		(4,167	)
Plus:	Distributions received within 14 business days of quarter-end		4,167
	Amortization of deferred AWN capacity revenue		841
Equals	AWN impact to Adjusted EBITDA	$	13,341
Less:	Amortization of deferred AWN capacity revenue		841
Equals	AWN impact to Free Cash Flow	$	12,500
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.

CONTACT:
Alaska Communications Systems Group, Inc.
Heather Cavanaugh, APR, 907-564-7722
Director, Marketing and Corporate Communications
Heather.Cavanaugh@acsalaska.com