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Alaska Communications Systems Group (NASDAQ:ALSK)

Q3 2010 Earnings Call

October 28, 2010 5:00 p.m. ET

Executives

Liane Pelletier – Chief Executive Officer, President and Chair

Anand Vadapalli – Chief Operating Officer

David Wilson – Executive Vice President, Chief Financial Officer

Leonard Steinberg – Vice President, General Counsel and Corporate Secretary

Analysts

David Barden – Bank of America

Tim Horan – Oppenheimer

Frank Louthan – Raymond James

David Coleman – RBC Capital Markets

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Alaska Communications Systems third quarter 2010 earnings conference call. [Operator Instructions.] This conference is being recorded today, Thursday, October 28, 2010. I would now like to turn the conference over to David Wilson, Chief Financial Officer. Please go ahead, sir.

David Wilson

Thank you, operator. Good afternoon and welcome to Alaska Communications Systems third quarter 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 [assistants] 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 Q3 metrics and financial performance, and recap our recently executed term loan refinancing. With that I would like to turn the call over to Liane. Liane?

Liane Pelletier

Thank you, David. Since Q3 of last year, we've generated $5.2 million of growth in enterprising wireless data revenues. Access points and other revenues were $6.5 million, lower this year versus last, and about half of that difference is associated with out of period revenues hitting 2009. Our company practice of process improvement and strategic focus helped maintain third quarter 2010 EBITDA to be level with that of third quarter 2009.

Since our last call, we funded a major brand relaunch and a new website. We refinanced our term loan and revolver. We designed and turned up some complex enterprise data networks, and we closed the TekMate investment with significant market activity proving the power of that partnership.

Earlier this week we issued press releases that describe how customers have taken advantage of the solutions enabled by the ACS TekMate CONNECT/HOST/MANAGE capabilities. Anand will profile the very different solution approach we bring to the market, shifting boldly from the commodity connectivity [plays] that the Alaska market is used to getting, and really playing off the brand promise of delivering smarter thinking to our customers.

The thinking extends beyond enterprise data solutions and extends into our wireless business, where we also help customers live the mobile lifestyle with our fast mobile network and devices like MiFi and a growing Android lineup.

Anand is going to start by putting some meat on the bones of how our operations are growing the data business in differentiated ways. Anand?

Anand Vadapalli

Thank you Liane. Picking up from Liane's comments, I'm satisfied with how we are generating new opportunities to keep our funnel strong, and how we are winning deals where we go in with a differentiated solution set that delivers high value to customers and to us, that generates sticky relationships, and that makes us more immune from commodity pricing.

I'll now share some of the customer stories we reported in press releases this week. One: For Sitnasuak Native Corporation, an Alaska village corporation with business in Alaska, the lower 48, and Puerto Rico, ACS provides data and application hosting out of our facilities in Hillsborough, Oregon. We host their Microsoft applications, providing full data backup and business capabilities. This is an example of how we follow our customers outside Alaska, and how we sell connectivity and hosting.

Two: For the Alaska Rural Telehealth Network, we provide fully integrated connectivity, network management, and videoconferencing. This network and organization is designed to serve medical providers that address more than 50% of Alaska's rural population. With our solution, we enable doctors and nurses to focus on patient care and not worry about technology. This is an example of our expanded portfolio including the all-important videoconferencing capability for remote healthcare applications in Alaska.

Three: For Rivada Sea Lion, we are doing the engineering and design for their 4G rural wireless network. They received federal stimulus funding to bring much-needed broadband services to southwest Alaska. We are pleased to be chosen to help them. Through this project we may in fact be associated with the 4G wireless network operational as early as summer 2011. Our reputation as quality builders and operators of networks in rugged conditions distinguished us as the right player for them.

These examples showcase our full portfolio of CONNECT/HOST/MANAGE solutions at work: The breadth of our competencies, the degree of strategic value we bring to our customers, and the way we define the market for ACS. More than connectivity, more than Alaska, and more than ACS.

And by "more than ACS" I refer to our investment in, and partnership with, TekMate. TekMate's products and competencies layer on top of ours to provide some exciting new solutions to customers, and we are actively selling into each other's space.

So while we did not repeat the blockbuster sales of the second quarter, I see our strategy at work in the market. It is illustrated by one: the examples I just shared, two: the sales funnel, and three: testimonials from our customers. Our funnel is strong, and the percentage of our funnel from differentiated solutions is quite meaningful, and will only grow to be more so over time. As to customer response, I invite you to visit our website in a couple of weeks for the stories they will tell you about ACS and TekMate.

Wrapping here, I'll share that we made significant progress in delivering on the sales closed in the second quarter, and I expect to see the revenue impact in our fourth quarter results.

Now, moving on to wireless, I'm pleased with the continued success of our focus in wireless data. Data device penetration and data RPU growth are highlights for us. Nearly 50% of our device sales were data devices in the quarter. 30% of our post-pay base now holds a data-centric device, double from over a year ago. Post-pay data RPU now stands at $11.73, up over $3 from a year ago. We've generated this growth despite continued difficulties with our access to, and supply of, devices.

For the better part of the year, we were operating with one Android device, adding two more towards the end of September. And after launching the two new ones, [more so a milestone in HTC design], in the third week of September, we more than doubled our sales of Android devices in that month compared to prior months. This is encouraging, but we have to continue to work with our suppliers who are in turn dealing with component shortages.

We see data-centric devices as a key ingredient to impacting subscriber metrics, especially churn. So while we still have room for improvement on churn reduction, total wireless churn moved in the right direction, at 2.6% for the quarter, down from 2.8% in the previous quarter. The loss of the state contract represented 17 basis points of churn, and accounted for a third of post-paid business disconnects in the quarter.

Base erosion from this contract loss is now largely behind us. As we have mentioned, we launched a new brand identity and campaign late in the quarter, and so have moved from being almost dark in the market to being more visible, which clearly serves us well. And the new brand was expressed in a new web store. With just about 30 days live, we see both a meaningful increase in traffic and conversion rate. Much more to come with our web strategy, that will only improve our results.

Now to David for the financial review.

David Wilson

Thank you Anand. The company exceeded consensus expectations, while cash generation remained robust, with cash from operations of $25.2 million, up 18% from the prior year. Looking at top line performance, while revenues declined by $1.3 million to $89.8 million, from $91.1 million, the prior year benefitted from an incremental $3 million in out of period network access and other reserves.

Looking at the components of revenue, we continue to post strong growth in enterprise and wireless data revenue, $5.2 million more than last year. This growth in data was offset by a decline in voice and access revenue, at $6.2 million, and the expiration of the capacity exchange valued at $300,000.

Notably, the business is now benefitting from changes enacted by the SEC, which broadened eligibility for local switching support. This contributed approximately $1.5 million to wireline access and DECT revenues in the quarter, of which approximately $1 million was for the first half of 2010. I'll provide more color on this and other changes that will have a positive impact on future expectations for network access revenue in a moment.

Though robust data revenue growth and local switching support gains did not fully offset other revenue declines, quarterly EBITDA of $34.8 million was right in line with the prior period, with the benefit of our tight focus on margin management again evident in the numbers.

Wireline EBITDA declined by $2 million to $16.1 million, and margins tightened to 31.5% from 33.3%, with the prior period benefitting from an incremental $3 million in out of period network access and other reserves.

Looking at sequential performance, wireline EBITDA increased by $800,000 and margins expanded by 60 basis points. Wireline EBITDA increased by $2 million to $18.7 million over the prior year, with an 82% gain in data revenue and a $700,000 pickup in DECT revenue following the change in local switching support, easily offsetting lower subscriber levels. With costs contained at prior year levels, EBITDA margins expanded to 48.3% from 45.2%.

Now onto metrics. Wireless post-pay users remain our focus and represent well over 90% of the base. Data device users in the post-pay base grew to 30% from 26% in Q2, and 14% in Q3 2009. Data RPU grew to $11.73, up 9% sequentially and 45% annually.

Looking at retail access lines, trailing 12-month decline improved to 5.1% from 6% a year ago, as a result of continued business line strength and conversion of some AT&T retail customers to ACS.

And now the 2010 financial guidance. ACS is maintaining guidance for revenues to be slightly below 2009 levels, EBITDA [inaudible] 2009 levels. Cap ex to be around $36 million, and to pay $29 million in recurring cash interest.

Looking beyond 2010, as promised earlier, additional color on network access revenue, which over the past three years has declined precipitously from $79 million in 2007 to $60 million on trailing 12-month basis.

Looking to the future, and using current federal regulations as a basis for projections, we now expect access revenues to be comparatively stable over the medium term versus our prior expectation of continued, steady decline. Major recalibration drivers are changes in FCC regulations covering local switching support that I noted earlier have provided an immediate revenue pickup and in the future will partially offset declines arising from ongoing structural pressure on line count, and changes to intra-state access regulations that are set to be implemented in the first quarter of 2011.

As a result of these changes, we now expect there to be short-term growth in intra-state access revenue together with incremental support as local lines continue to decline.

Finally, a quick recap of the refinancing activity, where we are delighted to have taken full advantage of a suitable financing window in the credit market to extend the maturity profile of our term loans by six years and to put in place a new five-year revolving credit agreement at a highly competitive rate of 5.5% inclusive of a 1.5% LIBOR floor.

While the LIBOR floor of 1.5% provides good protection against rising rates in the short-term, we have proactively managed interest rate risk in the medium to longer term by entering into a series of interest rate swaps that effectively fix the rate on $385 million of notional value of the term loan at the rate of 6.47% for the period from June 30, 2012 to September 30, 2015.

In an abundance of caution, we have also protected ourselves against any unexpected short-term spikes in LIBOR prior to June 30, 2012 by entering into an agreement to cap the LIBOR component of the term loan at 3% at a modest up front cost of $119,000.

Looking at the recurring annual cash interest costs of our new debt structure, prior to June 30, 2012 commencement of our new swaps, it is expected to be approximately $32.5 million. At June 30, 2012, cash interest is expected to be approximately $36.5 million.

These levels of cash interest cost are in line with levels incurred in prior periods. For example, cash interest in 2009 was $35.5 million. In connection with the refi, we have also taken a third quarter interest charge of $11.3 million out of the main interest rate swap that hedge the [old] facility. We expect to settle for cash in the fourth quarter and we'll also take a non-cash charge of $2.2 million for other debt extinguishment costs.

Now back to Liane.

Liane Pelletier

Thank you David. You can hear that we're quite disciplined about executing our strategy, and that we continue to innovate how we bring that strategy to market and deliver meaningful value to our customers. We believe that this focus and this approach will serve us well as the fastest-growing segments of our market continue to learn about, and rely on, smarter solutions from ACS.

Operator, will you please open the line for questions now?

Question-and-Answer Session

Operator

[Operator Instructions.] And our first question comes from the line of David Barden with Bank of America. Please go ahead sir.

David Barden – Bank of America

Maybe two questions. The first is just related to the enterprise revenue segment. Could you guys update us on how much time is going to continue to pass to start to realize billings on that $5 million of bookings that you guys realized last quarter, and I think there was a comment on how this quarter wasn't as strong as last quarter. I was wondering if you could give us some color on that. And then I guess the second question has about 15 subparts. David, I guess that's kind of up to you, which is I kind of got lost in all of the one-time moving parts related to the regulations on CETC or USF on the one hand and then the interest rate stuff on the other hand. Could you just kind of step us through that again? It would be appreciated. Thanks.

Liane Pelletier

Dave, I'll start, and Anand will certainly join in with any additional color. And I'm going to leave the multi-part to David. On the enterprise revenue segment, the banner sales quarter we had - some of those did get installed during the third quarter, and yet there wasn't enough in the quarter to demonstrate the revenues in the final P&L. So they will show up in the fourth quarter. And these are networks you should think about, Dave, as having multiple locations, some in and out of state and with different kinds of componentry. And so it's actually in line with our expectations in terms of when the sale would convert to revenue, but expect to see that in Q4.

In terms of sales, Anand, you want to cover that one?

Anand Vadapalli

Sure. I guess the best way for me to answer your question on third quarter sales is let me just use a baseball analogy here. We certainly hit a good home run in the second quarter and I'd say we hit a pretty solid base hit in the third quarter. Certainly love my home runs, but I'll take a base hit whenever I get one.

Liane Pelletier

And just to round off for that, we certainly knew we were going to be much more active with TekMate inside our customers' offices, and that closed at the latter part of the quarter. And so that's really picked up market activity, to begin to influence future [inaudible].

David Barden

And just so I could, on that, obviously you guys talked about how you kind of lost $700,000 of revenues related to voice and the expiration of this capacity exchange agreement. Are there any more of those things coming in the fourth quarter that we can anticipate now?

David Wilson

No, the capacity [inaudible] agreement was really year-over-year, so it's not a sequential impact. Carrier voice, again, is an increasingly small part of the enterprise revenue pie that we have, so it has less room for impact on enterprise rev.

Liane Pelletier

Is that responsive, Dave?

David Barden

Yeah, that's great, thanks.

Liane Pelletier

Okay. And now, David.

David Wilson

Sure. So pen and papers ready, Dave.

David Barden

I've got my pen ready, David.

David Wilson

Good. Thank you. So we talked about $1.5 million as being the pickup that we had for changes in local switching support. So we booked in the quarter $1.5 million. $800,000 of that would have been access, about $700,000 would have hit wireless DETC, so the wireless DETC mirrors the subsidies that the [inaudible] receives, so that's why it impacts both. In terms of the $1.5 as a whole, about $1 million of that relates to funding for the first half of 2010. So just a quick perspective. This was a change in regs that went into place from the FCC in March of this year, and we did the filings and we saw the money flow through in Q3 and we recognized revenue in line with the cash. Does that help?

David Barden

So basically a $1 million out of period benefit split between wireline and wireless?

David Wilson

Yes, and obviously out of period for the quarter, but in period for the year. That's the recurring revenue stream on a go forward basis too.

Operator

And we do have a question coming from the line of Tim Horan with Oppenheimer. Please go ahead.

Tim Horan – Oppenheimer

Three questions if you don't mind. Dave, can you just give us a little more simple explanation on why you think access charges are going to stay stable for the next couple of years? I know there's some rule changes, but what do they boil down to, because obviously [inaudible] you guys?

David Wilson

So we'll do it in order. Thank you. Do you want me to answer that first then before you start -

Tim Horan

Yes, please.

David Wilson

So, you're right, it is a change. You just need to look historically that line item to see how steeply that's been falling, so the fact that it's leveling off is a huge boost to the business. In terms of what's driving better expectations on a go forward basis, the first one is the change in local switching support I mentioned earlier. What that does is as the lines continue to decline, below certain thresholds you get a pickup in terms of incremental local switching support. This is something that benefits us but it's also a national event, so there are a number of LECs out throughout the nation that will also see similar benefits as we go forward.

Tim Horan

Does that mean if you go below 50% market share in a certain switching office that your subsidies would actually increase because you have less access liens per switch?

David Wilson

It's actually a little bit different. It's based on individual LECs within our group company, so we have certain LECs that are standalone and subsidiary. And as their lines decline, it has an impact. So the thresholds are moving below 50,000 has an impact, moving below 20,000 has a positive impact, moving below 10,000 has a positive impact. So not at the [CO] level. So local switching support is one change. The other thing that we mentioned was intra-state access regime change, that goes into effect Q1 of 2011. What that is doing is providing additional carrier of last resort support to a number of the LECs that we have, and from a funding standpoint the end-users within the state will be paying higher network access fees and there'll be an increase in terms of Alaska universal support fees and that funding will be used in part to provide additional co-lo support to LECs within the state.

Tim Horan

So it was just those two items mainly on the access charge front?

David Wilson

Exactly, yeah.

Tim Horan

And what was driving these changes. Is the FCC trying to help out more variable carriers, or the states? What was the impetus for this?

David Wilson

Leonard's probably in the best place to give you a little bit more color.

Leonard Steinberg

With regard to the local switching support, I believe the FCC was cognizant of the continual structural change in the industry and the declining lines, and realized that they were creating disparities between carriers and so decided to change its rules. Its rules had previously been that if your lines increased you jumped from one graduated level, from one bucket if you will, to the next, but if your lines decreased, you couldn't go the other direction. And I believe the FCC thought that that was not a fair and just result, and changed their rules accordingly. With regard to the intra-state access paradigm change, it is consistent with national direction in taking Alaska's direct intra-state access charges down and replacing that with other forms of revenue. And the notion there was given all of the changes in technology and market with regard to how people communicate across regions, i.e. long distance, and the declining piece of long distance void that again structural changes were needed to make the systems work. So that was a primary driver and certainly the decrease in intra-state access, which had been very high in Alaska, was also a big part of it and essentially they are substituting end user fees for what had been intra-state access charges.

Tim Horan

Thanks, that's very, very helpful. David, it sounds like you should be able to kind of comfortably at this point, for the next few years, see low to mid-single-digit revenue growth on wireline? Not looking for direct guidance but this is a fairly large sea change?

David Wilson

It absolutely helps, and it provides a much stronger foundation for the growth [inaudible] enterprise. You're absolutely right.

Tim Horan

Unless - are there any other moves you need to do on the balance sheet front? I know you have a fairly large, well not that large, but some convertible debt outstanding. Just some thinking on how comfortable you are with the timing on that?

David Wilson

We have plenty of time for the convert, so I think the next key date for the convert is December 2012, looking at our new agreement, so over two years away.

Operator

And our next question comes from the line of Frank Louthan with Raymond James. Please go ahead sir.

Frank Louthan – Raymond James

First off, can you tell us what the roaming revenue was in the quarter? And then can you give us a little more color on the 4G build out that you're doing. What sort of technology is that going to be? How long is that contract going to last? And what exactly are you doing to support Sea Lion in that?

David Wilson

I'll cover the roaming and others will touch base on the 4G. So third quarter, as you well know, is the peak quarter for us. We've certainly worked in partnership with our key roaming customers to make sure that their customers, while they're in the state, have the best possible level of service. So we did expand by 50 percentage points the number of 3G-capable sites. Many of those were in the key cruise corridors in southeast Alaska. So we've definitely seen a pickup from that. So for the quarter, roaming revenue was $9.6 million.

Liane Pelletier

The 4G question may dovetail from the prepared remarks and the press release, that show that we are helping design and engineer a 4G network in a very remote part of Alaska for a customer that's really a joint venture between Sea Lion and Rivada. And so they're the awardees from the federal stimulus grant and looked for the best expertise to assist. And it's through that project that we're going to learn a lot and create a lot of value for them in positioning a mobile broadband solution for an interesting part of the state. So that's a little bit more color on that. Anand can go into additional pieces, but I wanted to make sure that was the reference of your question?

Anand Vadapalli

The only thing I would add to that is certainly the stimulus funding was for providing broadband wireless access. The specific technology choice is something that we'll be reviewing as part of the design work, and we'll make that determination over the next several months.

Frank Louthan

So you're just helping them with the design and engineering standpoint and I assume that what you're saying is that you're not actually going to be operating, and I assume doesn't overlap with any of your properties given the geography that the press release describes. But are there any other incumbent wireless carriers there, or is this all brand new sort of territory?

Liane Pelletier

This is the region of the state that I think DCI operates a 2G cellular business in. What we're doing with Rivada Sea Lion is a phased approach to the project. So at this stage it was a design and engineer phase. I don't anticipate it will stop there, but that's all we can share at this point.

Frank Louthan

The wireless subscribers have been sliding for a few quarters. Any thoughts on being able to show positive wireless adds going forward?

Anand Vadapalli

Certainly we've seen an improvement in churn. We've moved from 2.8% in the second quarter down to 2.6% in Q3, and if you look at Q3 that 2.6% also has some of the trailing residual losses from the sale of Alaska contract loss that we talked about earlier. It also has some lifeline losses. So when I look ahead, I certainly see devices as one of the major components of impacting churn and subscriber metrics. We just got two Android devices in the third week of September. We were operating with one through the better part of this year. Certainly more in the pipeline, and as we get more I expect to see a beneficial impact looking ahead.

Liane Pelletier

And maybe the [lens] is also true gross add, so in the quarter we were dark for most of it, and we didn't advertise with the old brand identity or campaign until the back half of September. And we got the last two weeks of the quarter two more Androids. And we know how meaningful device variety is to gross adds. So that's a piece of what gross adds -

Operator

And our next question comes from the line of Dave Coleman with RBC Capital Markets. Please go ahead.

David Coleman – RBC Capital Markets

Just wondering if you could update us on for the enterprise business the percentage of revenues that are from voice now at the end of the third quarter. And then regarding the sale funnel or transaction pipeline, if it's possible to quantify the amount of booked but not yet billed revenues, I guess signed contracts but not yet currently billing. And then just on the income statement, just for the fourth quarter, the past two years, corporate overhead expense has ticked up in the fourth quarter and just wondering if we should expect to see a similar move this quarter.

David Wilson

I think I can probably run through those. So in terms of the percentage of enterprise that's voice, essentially the same as last time, so no significant change there. In terms of what we've sold that's booked but not billed, we said in our prepared remarks that the strong sales in Q2 you were going to see in the fourth quarter. We don't share a number in terms of what the provisioning backlog is, but again we're well-positioned. And in terms of expenses, advertising generally ticks up in the fourth quarter. There's more volume too on the wireless side. So that will drive incremental expense. And there were certain charges we took last year in the fourth quarter that I don't think will repeat, so fourth quarter last year was a little bit unusual. So you shouldn't expect the same level of expenses Q4 '10 that you saw in Q4 '09.

David Coleman

But just going back to the enterprise segment, it seems to be an area where a few customer wins announced. Voice continues to be a drag. I think that's down to about low teens as a percentage of revenue. And I guess I'm just trying to understand or at least figure out when we'd expect to see enterprise growth really take hold versus increases of $100,000 to $200,000 per quarter.

David Wilson

You should expect to see significant improvement Q4 of this year. So Q4 of this year.

David Coleman

Well that's from that one contract, so after that's installed do we go back to $100,000 to $200,000 of additional revenue, or is the deal pipeline robust enough, is the amount of business booked strong enough, that we can start seeing a more significant growth rate in the enterprise revenue line?

Anand Vadapalli

While I won't provide any guidance on growth rates going forward, I will just say that the deal pipeline remains strong. What I find most positive about the deal pipeline is the increasing shift from being a pure connectivity player, which is has been for a long time, to now having a meaningful share of the connect-host-manage integrated solution. And that's really come with the investment we made in TekMate and how we're going to market with. In fact we are going to market at all levels with that integrated solution. We don't lead with connectivity, and that's a huge differentiator.

David Coleman

Just sort of on that point, what's the sales cycle for connectivity versus managed hosting? It's my understanding that managed hosting tends to have a longer sales cycle than just simple bandwidth. So would we anticipate the same for 2011? That we could expect a longer sales cycle?

Anand Vadapalli

Right now I'm seeing that all over the map. It's not one set of answers there, so certainly more as I'm able to share as we build more of a track record there.

Operator

[Operator Instructions.] And we do have a followup question coming from the line of David Barden with Bank of America. Please go ahead.

David Barden – Bank of America

I wanted to just, if I could, sorry, not to be boring David, but just revisit this cash interest picture. It sounded like you were going to have a settlement now in the fourth quarter of this year. We've got some 2010 cash interest guidance, but we've got some swaps that are going to move it up to about $32 and change next year and then it goes to $36 million by the end of '12. Could you kind of walk us through that again just one last time?

David Wilson

So in terms of the cash charge this year, we took a charge in the third quarter of about $11.3 million for out of the money [spots] that were tied to the old term loan. We expect to settle that liability for cash in the fourth quarter, so you'll see that cash go out in Q4. So that's sort of a one-time extinguishment cost for those out of the money [spots]. In terms of looking to the future in terms of the cash interest costs, with the term loan we have a LIBOR floor of 1.5 percentage points, and looking at the forward curve for the 3-month LIBOR, that 1.5 percentage point floor provides significant protection against any increase in rates between now and June 2012. You could actually look at the forward curve - it doesn't actually reach 1.5 until September 2013, so we expect to be paying about 5.5 percentage points on the term loan between now and June of 2012 when the swaps go into place. So we've entered into a forward swap agreement that starts mid-2012. So during that time up through June 2012 expect our cash interest costs to be about $32.5 million. So that's in effect the all-in cost of our current debt structure. Between now and then we have good protection from the 1.5% LIBOR floor. And we want to protect ourselves against changes in interest rates in the medium to longer term. That's why we entered into these forward swaps, and when they go into play the cash cost of our term loan will increase from about 5.5% to just under 6.5%. And at that time, our cash interest cost will increase to about $36.5 million from $32.5 million. Does that help?

Operator

Sir, he has left the queue. [Operator Instructions.] And it doesn't look like he's going to re-queue up sir. And there are no further questions in the queue at this time.

Liane Pelletier

Thank you operator, and thank you all for joining us today. We appreciate your interest and patience in the Q&A process. We appreciate your support of ACS and we'll look forward to communicating full 2010 results to you in the new year.

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Source: Alaska Communications Systems Group CEO Discusses Q3 2010 Results - Earnings Call Transcript
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