ALSK

Alaska Communications Systems Group, Inc. (ALSK)

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Alaska Communications Systems Group, Inc. (ALSK)

Q2 2008 Earnings Call

August 5, 2008  5:00 pm ET

Executives

Paula Dobbyn – Director of Corporate Communications

Liane Pelletier – President, Chief Executive Officer and Chairman

David Wilson – Chief Financial Officer

Leonard Steinberg – General Counsel

Analysts

David Barden – Banc of America Securities

Frank Louthan – Raymond James

David Coleman – RBC Capital Markets

Christopher King – Stifel Nicolaus and Company, Inc.

Presentation

Operator

Welcome to the Alaska Communications Systems second quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to Paula Dobbyn, Director of Corporate Communications for Alaska Communications Systems.

Paula Dobbyn

With me today are Liane Pelletier, President, Chief Executive Officer and Chairman of ACS; David Wilson, Chief Financial 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 fact 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 their nearest GAAP measure. You may find these reconciliations in today’s press release and our SEC filings on our investor website at www.alsk.com. We will begin the call with Liane discussing the company’s progress towards its strategic transformation, then David will review the details of our operating and financial performance and guidance for the year. Liane will then open the call for questions. With that I would like to turn the call over to Liane. Liane.

Liane Pelletier

Thank you Paula. Welcome and thank you all for participating today. We’ve had a lot going on since the last call. There is much to share regarding the market, the company’s growth in wireless and the company’s progress for building a differentiated quality wireline operation for enterprise customers.

We want to share insights into the components of the financial results we’ve posted today and the adjustments we’re making to recurring revenue and EBITDA guidance of approximately 1% each. First Alaska economic indicators still show it to be largely counter-cyclical to the rest of the U.S. Specifically housing, employment and investment in the state’s energy resources show continued strength.

And disposable income promises to be boosted by one perhaps two checks to be distributed to every Alaskan citizen by year end that result from the state’s record permanent fund earnings and the state’s record budget surplus attributed to higher oil royalties. And significant activities continue on the gas pipeline development front.

Next the company’s results. Q2 ’08 revenues are flat to Q2 ’07 revenues as the much discussed transition and mixed shift of the business takes hold. Growth in the strategic high value retail parts of the business added about 10% to the top line or $4 million, but nearly all of that was eroded by revenue declines in wholesale, local and network access. Q2 ’08 recurring EBITDA reached $31 million versus $33.6 million last year with decline attributable to favorable access settlements in the prior period and a reset to wireless pricing in the current period.

Onto two strategic segments where ACS allocates its resources, wireless and enterprise. They are where demand is growing and where we can create value for customers and where we can create value for shareholders. Wireless is now 37% of company revenues and 47% of company EBITDA. Wireless has gone through a momentous shift this year. The company simultaneously repositioned its operations for long term competitiveness with the entry of a national brand, completed migration from PDMA to all CDMA and just recently upgraded to EBDO Rev A.

As evidenced by our Q2 operating metrics, execution was solid. Wireless growth ads were higher in Q2 than in any of the prior six quarters and churn among our post paid subscribers 94% of all subscribers, improved to 1.5% monthly levels. ACS grew most in the high quality subscriber segment with unlimited voice calling plans and data cards accounting for 30% of gross adds in Q2. Over one third of our customer base now uses 3D devices.

ACS messaging in the market is all about wireless data and wireless internet usage has grown over 50% in the last four months. We’ve also been positioning for success in the enterprise segment. Enterprise revenues are up 44% this quarter over a year ago and the sales funnel is very strong. We have hired new and trained existing employees to serve enterprise customers. We continue to re-purpose our local plants for data.

We’ve added over 100 new fiber entrance facilities to buildings in the metro areas. We’ve upgraded and extended our differentiated metro Ethernet and MPLS networks. We will execute a contract this week for a second knock in the lower 48 to provide world class management network services and customer interfaces with the turn up of AKORN.

The AKORN cable build is on schedule and ACS obtained final regulatory approval last week for the acquisition of Crest. These are just a few of the transformative actions taking place, making what was once a collection of local telephone assets into a 21st century network built to serve enterprise customers who need security, flexibility, convergence and speed.

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