ALSK

Alaska Communications Systems Group, Inc. (ALSK)

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Alaska Communications Systems Group, Inc. (ALSK)

Q3 2012 Earnings Call

November 1, 2012 5:00 PM ET

Executives

Michael Allen – Vice President, Investor Relations

Anand Vadapalli – President and CEO

Wayne Graham – Chief Financial Officer

Leonard Steinberg – General Counsel

Analysts

Frank Louthan – Raymond James

Julia Senior – Bank of America

Presentation

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Alaska communications Systems third quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions). As a reminder, this conference is being recorded today, Thursday, November 1st, 2012.

I’d now like to turn the call over to Leonard Steinberg, General Counsel. Please go ahead sir.

Leonard Steinberg

Good afternoon. And welcome to Alaska Communications third quarter 2012 conference call. I am Leonard Steinberg, General Counsel and with me today are Anand Vadapalli, President and Chief Executive Officer of Alaska Communications and Wayne Graham, Chief Financial Officer.

During this call, company participants will make forward-looking statements as defined under U.S. securities laws. Forward-looking statements are statements that are not historical facts and may include financial projections, estimations of shareholder returns, or other descriptions of the company’s business plans, objectives, expectations, or intention.

You’re 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.

Important risk factors regarding our expected results such as Verizon’s entry into the Alaska market and FCC rule changes have substantial disclosures in our most recent SEC filings and in our Form 10-K and Form 10-Q. We would encourage investors to refer to these documents.

Any non-GAAP measurements referred to during the call have been reconciled to their nearest GAAP measure. You may find this reconciliation in today’s press release and our FCC filings on our investor’s website at www.alsk.com. Following our remarks we will open the line for questions.

With that, I would like to turn the call over to Anand. Anand?

Anand Vadapalli

Thank you Leonard and welcome to everyone on the call today. Over the last year, we’ve charted a new trajectory for Alaska communications and are performing on this plan to strengthen your company for the long term. First, we are 10 months into executing to a business plan, focused on increasing retail broadband revenues in a billion dollar and growing telecom market in Alaska, while strengthening our balance sheet through dealer reaching program. Second, we announced the AWN transaction, which positions us to provide the most expansive, fastest wireless services in Alaska and even more importantly, allows us to further accelerate dealer reaching.

I’m pleased to report solid progress on both fronts. Let me start with a business update. We’re adding new business customer relationships every day. The new small medium business team we created this year, combined with our enterprise sales team is ahead of their sales plan and we expect to close the year with about 25% more in monthly sales compared to last year. With the refresh of our home and business broadband products, more of our customers are moving into higher bandwidth products and we’re seeing sequential and year over increases in broadband output.

Broadband revenues as a percentage of retail revenues are now at 46%, up 10% over last year. Our wireless business continues to show strength with connections and our pool increasing. Importantly, we launched our 4G LTE network a few weeks ago with three devices and multicon. This is the most extensive deployment of 4G LTE in Alaska today.

Adjusted EBITDA performance was at record levels for the quarter, up 12% year-over-year. We knew we were making investments in our business in the first half of the year. We also shared with you that the elevated levels of device subsidies in the second quarter would be managed. We have and with our spending returning to more normal levels, we are now seeing the benefits on our bottom line. More importantly, we expect to maintain and build on this performance going into 2013 and beyond.

Leading onto our works and sales service I discussed previously, other drivers of our performance include a robust product funnel and road map. There are customers who continue to see value add products later this year and through the course of next year. We’re adding additional sales people for our business segment where we see continued opportunity to grow revenues and our continued investment in systems and process, both of which will further simplify how we conduct business and improve the speed and quality with which we deliver our services.

Moving on to AWN. First, as a reminder, AWN makes us stronger by allowing us to better compete with new entrants giving us the most expansive and advanced wireless network in the state and an accelerated path to deleveraging. In fact, we’ll use $65 million of the initial $100 million proceeds to pay down debt upon closing of the transaction. In the four months since we announced the deal, we’ve secured two important agreements and in the process moved the overall business forward for future success.

First, we’ve signed a three year extension to our collective bargaining agreement. In addition to securing an agreement from the IBEW to move forward with AWN, this also positions us well for the future. For new employees, this agreement allows us to introduce defined contribution plans and cost sharing for defined benefit plans. The agreement also allows us to pursue options to perform work at lower cost while providing certain job security protections for our valuable employees and implementing a new success share compensation model. This have substantial improvements in our labor relations model and reflect a shared commitment with the IBEW to secure our future.

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