ALSK

Alaska Communications Systems Group, Inc. (ALSK)

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

Q1 2010 Earnings Call

April 29, 2010 5:00 pm ET

Executives

Melissa Fouts – Investor Relations

Liane Pelletier – President, Chief Executive Officer, Chairman

David Wilson – Chief Financial Officer

Anand Vadapalli – Chief Operating Officer

Leonard Steinberg – General Counsel

Analysts

David Barden - BofA Merrill Lynch

David Coleman - RBC Capital Markets

Jason Fraser - Raymond James

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Alaska Communications Systems first quarter earnings conference call. (Operator Instructions) This conference is being recorded today, Thursday, April 29, 2010.

I would now like to turn the conference over to Miss Melissa Fouts. Please go ahead, ma’am.

Melissa Fouts

Good afternoon and welcome to the Alaska Communications Systems first quarter conference call. With me today are Liane Pelletier, President, Chief Executive Officer and Chairman of ACS; David Wilson, Chief Financial Officer; Anand Vadapalli, Chief Operating Officer; and Leonard Steinberg, General Counsel.

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, 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 of 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 of our results and strategies. Anand will discuss our operational imperatives and David will review our preliminary Q1 metric and financial performance. With that, I would like to turn the call over to Liane. Liane?

Liane Pelletier

Thank you Melissa. Our strategy and our first quarter results are all about capturing data users. Capturing these users is reflected in our marketing, our network enhancements, our product roadmap and our execution across all customer touchpoints. This strategy requires disciplined marketing and market research. We’re honing our skills and knowledge every day in these areas.

Revenue and EBITDA came roughly in line with what we had planned for the quarter. These numbers are preliminary, though, and David will provide the commentary on this and in the press release today. In wireless, you’ll see growth in data revenue, data ARPU and data users. In late January, we launched the HTC Hero, the first of many Android devices we’ll bring to market this year. Pick up from our customers clearly showed that they were eager to pair an app centric device with the state’s fastest and most extensive data network.

Smartphones comprised 27% of device sales in the quarter, up from 12% last year. Data devices are held by 21% of the base, up from 10% last year. Data ARPU grew by 28% to $9.34 and we see lots of headroom in that metric. Data revenues accounted for 18% of total wireless service revenue in the quarter, up from 13% a year ago. And while we now have the Android, of course the wait and appeal of the iPhone hasn’t totally diminished in Alaska or elsewhere, so while they have been muted, ACS departures to the iPhone continue. Although our headline churn rate in Q1 was high, we did achieve lower churn in our highest value and largest retail postpaid customer segment.

In enterprise, data revenues grew 19% annually as we continue to make steady progress across a wide range of customers with our advanced data product line. We are generating with each sale higher value than before and are serving a growing number of customer locations outside of Alaska. As always, process improvement and margin management are priorities, and they were during this quarter. The team has delivered for the same operating expense level, higher quality revenues this year than last.

Anand will now share the operating framework that delivered the strategy and the financial results that we guided on our last call for the full year 2010. Anand?

Anand Vadapalli

Thank you Liane. Our focus centers on driving share gains in the fast growing data market, extracting operating efficiencies and enhancing brand strength while moving the wireless business again into a situation of net adds. It’s clearly a goal for 2010. I’m pleased with our performance and driving quality wireless revenue.

In the past year, we doubled the penetration of data centric devices in our base, contributing to a 28% year-over-year increase in data ARPU. Over the last six months, we’ve seen a 50% increase in 3G data sessions. Customers who use heavy data services are more engaged with the product and network, and we are seeing a beneficial impact on retention among data users. At the same time as these users continue to use heavy amounts of data, our network provides the best data experience in the state. We have allocated a significant portion of our 2010 capital budget to expand and deepen our 3G coverage to keep our data users happy. We will increase our e-video sites by close to 50% this year, and we will complete the vast majority of this work by Q3.

We are leveraging both the quality of our network and demonstrating our focus on customer value as we get ready to launch a series of innovative wireless products in our 2010 roadmap, creating secure relationships with our customers. In a nutshell, our game plan for wireless centers on quality growth and we see interesting ways to pursue that in our market. More to share in the upcoming quarters.

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