Alaska Communications : 4th Quarter and YE 2019 Earning Results - March 2020

4th Quarter and Full Year 2019 Earnings Results

March 11, 2020

Participants

Bill Bishop: President and Chief Executive Officer

Laurie Butcher: Chief Financial Officer

Leonard Steinberg: SVP, General Counsel

Tiffany Smith: Manager, Investor and Board Relations

2 | Alaska Communications

Safe Harbor Statement

Forward-Looking Statements

We have included in this presentation certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Such statements include all statements regarding our review of our current long-term business plan against a broad range of alternatives that have the potential to enhance shareholder value, the timing of such review, the possible outcomes of such review, our exploration of strategic options to address scale and geographic diversification, our current and projected financial and operating performance and all guidance related thereto, and any plans and initiatives to enhance shareholder value. You are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of risks, uncertainties and other factors, many of which are outside Alaska Communications' control.

For further information regarding risks and uncertainties associated with Alaska Communications' business, please refer to the Alaska Communications' SEC filings, including, but not limited to, our annual report on Form 10-K and amendments filed thereto, quarterly reports on Form 10-Q filed subsequently, and other filings with the SEC, included under headings such as "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt, which management utilizes to assess performance and believes provides useful information to investors. The definition and computation of these non-GAAP measures are on Schedules 4, 6, and 9 of our earnings press release. Adjusted EBITDA, and Adjusted Free Cash Flow are non-GAAP measures and should not be considered a substitute for Net Income, Net Cash Provided (Used) By Operating Activities and other measures of financial performance recorded in accordance with GAAP. Reconciliations of our non-GAAP measures to our nearest GAAP measures can be found at the end of this presentation. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications. We do not provide guidance for Net Income and Net Cash Provided (Used) By Operating Activities.

3 | Alaska Communications

2019 Highlights and Business Overview

Bill Bishop: President and Chief Executive Officer

4 | Alaska Communications

Alaska Communications

1st	885+	13,500+	6,000+
to market	on-net buildings	FiWi® locations	MDU locations
technology

~600 customer centric employees across 19 states

Infrastructure Technology

• Statewide network coverage
• 146K fiber miles
• 15 cable landing stations owned or managed
• 29 PoPs in 6 states
• Microwave and satellite networks
• Managed IT Services
• First to market technology and services

Business & Wholesale

Broadband Equipment

Voice	IT Managed
	Services

Consumer

BroadbandVoice

Locations Served

• Increasing number of
• • Multi-dwellingunits (MDUs)
  • FiWi® locations
  • Fiber fed commercial/ government buildings
• ~100K locations DSL available
• 95 markets served across 11 states

5 | Alaska Communications

Growth Driven by Business and Wholesale

Capacity demands continue to grow - cloud migration, 5G wireless backhaul, content streaming capacity demands

Increased fiber footprint 12% in 2019, continued growth planned for 2020

Detariffing creates flexibility and

increases competitiveness in the market

Oil & Gas	Federal	Education	Wholesale	State & Local	Health Care
				Government

6 | Alaska Communications

Focus on High Margin Consumer Business

Continuing to expand product offering with

increasingly robust service capabilities

	~6,000	~26%
MDUs	MDUs lit	penetration rate
Multi-Dwelling Units

36	~13,500
tower/colo sites	locations passed

Fi-Wi®

Fixed-Wireless

7 | Alaska Communications

Review of Third Quarter 2019 Results

Laurie Butcher, CFO

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Revenue Q1 2018 - Q4 2019 (millions)

Total

Business and Wholesale

*

*

Consumer

Regulatory

• A $2.1M adjustment to business broadband for the effect of Rural Health Care increases approved by the FCC in June 2018.

9 | Alaska Communications

Financial Highlights (millions)

		Total Revenue1		Adjusted EBITDA2
$220	$227	$227	$232	$232

Total Net Debt and Leverage3

Total Capex4

1. Pro forma for 2015 sale of Alaska Wireless Network.
2. Reconciliations of non-GAAP measures to the nearest GAAP measures can be found in the Appendix. The company does not provide guidance for Net Income and Net Cash Provided By Operating Activities.
3. Net Debt includes the addition of debt discounts and debt issuance costs to total debt, and subtracts only cash and cash equivalents. Net leverage is calculated based on current credit agreement.
4. 2015 capex of $44mm includes $11mm of expenditure related to the ConocoPhillips North Slope fiber optic network purchase.

10 | Alaska Communications

2019 Performance & 2020 Guidance

Operating Statement	2019	2020
($ in M)	Actuals	Guidance
Total Revenue	$231.7	$232	- $237
Adjusted EBITDA1	$62.7	$63	- $65
Net Capital Spending2	$41.4	$39	- $43
Adjusted Free Cash Flow2	$12.13	$8 - $10

1. Reconciliations of non-GAAP measures to the nearest GAAP measures can be found in the Appendix. The company does not provide guidance for Net Income and Net Cash Provided By Operating Activities.
2. Excludes pre-funded projects.
3. Adjusted Free Cash Flow of $16.0 million, without prefunded projects of $5.5 million and CEO severance expense of $1.7 million.

11 | Alaska Communications

Successfully Performing to Business Plan

Investing in

Growth Revenues:

Enhancing

Shareholder

Value:

Completed one- million share buyback,

Driving Operating

Performance:

Energized managementteam sets foundation for future growth with superior network solutions, business process transformation, and strong customer relationships

Network modernization,

5G build, Fi-Wi expansion, Carrier build program, and lighting multi-dwelling units

announced

~$5 million onetime dividend while continuing to invest in value creating projects

12 | Alaska Communications

Use of Non-GAAP Measures

The Company provides certain non-GAAP financial information, including Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt. Adjusted EBITDA eliminates the effects of period to period changes in costs that are not directly attributable to the underlying performance of the Company's business operations and is used by Management and the Company's Board of Directors to evaluate current operating financial performance, analyze and evaluate strategic and operational decisions and better evaluate comparability between periods. Adjusted Free Cash Flow is used to assess the Company's ability to generate cash and plan for future operating and capital actions. Adjusted EBITDA and Adjusted Free Cash Flow are common measures utilized by our peers (other telecommunications companies) and we believe they provide useful information to investors and analysts about the Company's operating results, financial condition and cash flows. Net Debt provides Management and the Board of Directors with a measure of the Company's current leverage position.

Adjusted EBITDA is defined as net income (loss) before interest expense and income, loss on extinguishment of debt, depreciation and amortization, other income and expense, gain or loss on asset purchases or disposals, provision for income taxes, stock-based compensation, cash severance expense for the Company's former CEO and net loss attributable to noncontrolling interest.

Adjusted Free Cash Flow is a non-GAAP liquidity measure and is defined as Adjusted EBITDA, less recurring operating cash requirements which include capital expenditures, less cash income taxes refunded or paid, cash interest paid, amortization of GCI capacity revenue, cash severance expense for the Company's former CEO, and cash receipts and payments, deferred costs and amortized revenue and expense associated with certain prefunded special projects as defined in the 2019 Senior Credit Facility. Amortization of deferred revenue associated with our interconnection agreement with GCI is excluded from Adjusted Free Cash Flow because no cash was received by the Company in connection with this agreement. Amortization of all other deferred revenue, including that associated with other IRU capacity arrangements, is included in Adjusted Free Cash Flow because cash was received by the Company, typically at contract inception, and is being recognized as revenue over the term of the relevant agreement. Items associated with certain prefunded special projects as defined in the 2019 Senior Credit Facility are excluded from Adjusted Free Cash Flow primarily due to the magnitude and timing of the cash receipts relative to the subsequent recognition of revenue and expense.

The Company does not provide reconciliations of guidance for Adjusted EBITDA to Net Income, and Adjusted Free Cash Flow to Net Cash Provided by Operating Activities, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company does not forecast certain items required to develop the comparable GAAP financial measures. These items are charges and benefits for uncollectible accounts, certain other non-cash expenses, unusual items typically excluded from Adjusted EBITDA and Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $12.3 million in the twelve-month period of 2019).

Adjusted EBITDA and Adjusted Free Cash Flow are not GAAP measures and should not be considered a substitute for net income, net cash provided by operating activities, or net cash provided or used. Adjusted EBITDA as computed below is not consistent with the definition of Consolidated EBITDA referenced in our 2019 Senior Credit Facility, and other companies may not calculate Non-GAAP measures in the same manner we do.

The following tables provide the computation of Adjusted EBITDA and reconciliation to Net Income, and the computation of Adjusted Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities for the three and twelve month periods ended December 31, 2019 and 2018.

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Reconciliation of Non-GAAP Measures

Adjusted EBITDA

						Three Months Ended				Twelve Months Ended
						December 31,				December 31,
						2019				2018					2019			2018
Net income	$	2,627	$	1,712	$	4,835	$	8,988
Add (subtract):
	Interest expense				2,910			3,238				12,059		13,429
	Loss on extinguishment of debt				-				-					2,830		-
	Interest income				(94)			(82)				(385)		(156)
	Depreciation and amortization				9,851			8,572				37,276		33,908
	Other expense (income), net				17			56				(175)		(23)
	Loss on disposal of assets, net				55			69				156		125
	Income tax expense (benefit)				1,537			(39)				2,765		2,041
	Stock-based compensation				814			548				1,580		1,757
	Cash severance expense				120			-					1,715		-
	Net	loss attributable to noncontrolling interest				17			8				93		92
Adjusted EBITDA	$	17,854	$	14,082	$	62,749	$	60,161

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Reconciliation of Non-GAAP Measures

Cash from Operating Activities to Adjusted Free Cash Flow

	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
	2019		2018		2019		2018

Net cash provided by operating activities

Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow:

Capital expenditures excluding prefunded projects Capital expenditures for prefunded projects Milestone payments received for prefunded projects Deferred cost of sales for prefunded projects Amortization of revenue for prefunded projects Amortization of deferred capacity revenue Amortization of GCI capacity revenue Amortization of debt issuance costs and debt discount Interest expense

Interest paid Interest income

Deferred income tax expense Income tax expense (benefit) Income taxes refunded (paid), net Charge for uncollectible accounts Other expense (income), net

Net loss attributable to noncontrolling interest Other non-cash expense, net

Changes in operating assets and liabilities Adjusted free cash flow

$

$

16,195	$	9,316	$
(9,981)		(12,525)
(3,227)		-
3,785		-
-		(500)
(113)		-
1,255		1,101

1. (522)

1. (331)
   2,9103,238

(2,992)		(3,531)
(94)		(82)
(1,385)		(658)
1,537		(39)
5,051		1
18		(374)
17		56
17		8
(18)		(57)
(2,414)		1,904
9,735	$	(2,995)	$

58,815	$	56,195
(41,355)		(37,957)
(3,409)		-
9,070		1,850
-		(500)
(113)		-
4,655		4,098
(2,071)		(2,071)
(1,215)		(1,353)
12,059		13,429
(12,228)		(14,254)
(385)		(156)
(2,919)		(2,767)
2,765		2,041
5,041		(3)

1. (2,745)

(175)		(23)
93		92
(70)		(225)
(12,332)		(8,425)
15,969	$	7,226

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Reconciliation of Non-GAAP Measures

Adjusted Free Cash Flow

					Three Months Ended		Twelve Months Ended
					December 31,		December 31,
					2019			2018					2019				2018
Adjusted EBITDA	$	17,854		$	14,082			$	62,749	$	60,161
Less:
Capital expenditures excluding prefunded projects				(9,981)		(12,525)				(41,355)			(37,957)
Amortization of GCI capacity revenue				(522)		(522)				(2,071)			(2,071)
Cash severance expense				(120)		-					(1,715)			-
Income taxes refunded (paid), net				5,051			1				5,041			(3)
Interest paid				(2,992)		(3,531)				(12,228)			(14,254)
					9,290			(2,495)				10,421			5,876
Impact of prefunded projects:
Capital expenditures for prefunded projects				(3,227)		-					(3,409)			-
Milestone payments received for prefunded projects				3,785			-					9,070			1,850
Deferred cost of sales for prefunded projects				-			(500)				-				(500)
Amortization of revenue for prefunded projects				(113)		-					(113)			-
					445		(500)				5,548			1,350
Adjusted free cash flow*	$	9,735		$	(2,995)			$	15,969	$	7,226

* Quarterly Adjusted Free Cash Flow fluctuates and should not be viewed as an indicator of annual performance. Onetime events, seasonality of capital spend and the timing of interest payments may result in negative Adjusted Free Cash Flow in one or more quarters.

16 | Alaska Communications