ALSK

Alaska Communications Systems Group, Inc. (ALSK)

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Industry: Public Utilities
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Alaska Communications Systems Group Inc., (ALSK)

Q2 2010 Earnings Call

July 29, 2010 5:00 p.m. ET

Executives

Liane Pelletier – Chief Executive Officer, President and Chair

David Wilson – Executive Vice President, Chief Financial Officer

Anand Vadapalli – Chief Operating Officer

Leonard Steinberg – Vice President, General Counsel and Corporate Secretary

Analysts

David Barden – Bank of America Merrill Lynch

David Coleman – RBC Capital Markets

Chris King – Stifel Nicolaus

Jason Frazier – Raymond James

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Alaska Communications Systems Q2 2010 earnings conference call. (Operator instructions.) This conference is being recorded today, Thursday, July 29th, 2010. I would now like to turn the conference over to our host, Mr. David Wilson, Chief Financial Officer. Please go ahead, sir.

David Wilson

Thank you, Damian. Good afternoon and welcome to Alaskan Communications Systems Q2 conference call. With me today are Liane Pelletier, President, Chief Executive Officer, and Chairman of ACS; Anand Vadapalli – Chief Operating Officer; and Leonard Steinberg, General Counsel.

During this call, company statements may include forward looking statements as defined in the US Securities laws. Forward looking statements are such statements that are not historical facts and may include financial projections, estimates of shareholder returns, or other descriptions of the company’s plans, objectives, expectations, or intentions. You are cautioned not to put undue reliance on forward looking statements as actual results could differ materially from expectations as a result of a variety of factors, many of which are outside the company’s control. We discuss these factors in our SEC filings.

Lastly, any non-GAAP measurements referred to during this call have been reconciled to the nearest GAAP measure. You may find these reconciliations, today’s press release, and our SEC filings on our investor website at www.alsk.com.

We will begin the call with Liane providing an overview. Then Anand will discuss operating details; I will cover Q2 metrics and financial performance, and highlights of our strategic investments just announced. With that I would like to turn the call over to Liane. Liane?

Liane Pelletier

Thank you, David. The company delivered strong EBIDTA this quarter from both Wireline and Wireless lines of business. While total revenues fell about 1.5% compared to last year we’re growing where we want to, with Enterprise and Wireless revenues now at 55% of total company revenues. In every quarter we work to outrun secular declines in legacy products with growth in Wireless data and Enterprise data where our strengths lie and market demand is high. Our strategy to navigate the industry transformation consistently placed us well, as we shift the business model with solid execution. We build dominance in data and limit the impact from shrinking commodity voice. We invest behind growth, train our workforce, transform our local assets, shed non-strategic assets and manage costs in lower-value areas.

Within Enterprise we managed transformation as well and we closed Q2 with a revenue split of 88% data and 12% voice. We also announced a compelling investment and an exciting partnership with TekMate, a successful Alaskan IT professional service firm that will help extend the ACS business model in several ways. Immediately it will drive new customer relationships, bandwidth, and hosting sales – all key components of ACS Enterprise data revenue.

Within Wireless, while we lost subscribers again over 40% of post-paid disconnects came from low-value segments – Lifeline, non-pay, and one government contract. As we manage the Wireless business for the long run we focus on financial returns and not on subscriber metrics. Central to our Wireless performance is data growth, up 52% over last year. Anand and David will share some more details in a few minutes.

And since our target Wireless data users rely on our superior network performance we continue to deepen our 3G network. As we sit here today we’ve nearly completed our 2010 build program, an expansion program that covers 72% of Alaska population with EVDO Rev A. The network team performed exceptionally well, mastering both build and performance requirements in a high-traffic quarter.

We remain bullish about the Wireless business and we aim to stabilize it and define our market position more clearly for customers we serve best. Anand will now fill in some details on Enterprise sales translating to Enterprise revenue, and on Wireless operations that move us to a better second half. Anand?

Anand Vadapalli – Chief Operating Officer

Thank you, Liane. I’ll first begin with Enterprise. We closed a large number of contracts in the quarter, with an annual value of $5 million, all data. These wins are working their way through our service delivery pipeline, providing a healthy revenue backlog for the Enterprise segment, and giving us better visibility into future revenues than we had exiting the Q1. Given the mix of sales we closed we also benefit from lower exposure to price compression from carryover in voice, now only 12% of Enterprise revenue.

So, we are delighted with the dollar value of our data wins and we’re delighted with the sources of the growth spanning a range of carriers, commercial, and federal customers who understand and appreciate the creative solutions and network reliability we bring to the market. Several of our recent wins combine ACS’ professional services with our top notch Wireline and Wireless services. For some of our recently acquired customers we serve as their national representatives. These are Alaska-based companies that have business locations in the lower 48. And conversely, we also serve as the Alaska boot from the ground for some lower 48-based companies doing business in Alaska now through ACS.

Read the rest of this transcript for free on seekingalpha.com