Investor Presentation May 2016 alaskacommunications.com 1 | - - PowerPoint PPT Presentation

1 | Alaska Communications

alaskacommunications.com

Investor Presentation

May 2016

2 | Alaska Communications

alaskacommunications.com

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. 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, 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.”

3 | Alaska Communications

alaskacommunications.com

Investment Highlights

Serving Alaska’s unique, attractive and growing $1.5B broadband and managed IT market Differentiated product set and high quality network and customer service drives retention and acquisition Record of consistently posting industry leading revenue growth and committed to expanding Adjusted EBITDA margins and FCF Capturing Unique Opportunity Leveraging Competitive Advantages Creating Shareholder Value

4 | Alaska Communications

alaskacommunications.com

$1.5 Billion Market, 85% Business, Growing 3-5% a Year

Broadband, 27% Voice, 11% Managed Network Services, 15% IT Services, 47% Opportunity: High Margins: Moderate Competition: Fragmented Opportunity: High Margins: Moderate Competition: Limited Opportunity: High Margins: High Competition: Limited Opportunity: Low Margins: High Competition: Limited Unique mix of competitive environment, growth opportunity and margin potential creates conditions for driving profitable growth over the long term

5 | Alaska Communications

alaskacommunications.com

Alaska Economy: Change Creates Opportunity

• The State goes into Fiscal 2017 with:

‒ ~$50B in State’s Permanent Fund, which will continue to generate earnings over time ‒ ~$13.7B in State reserves providing runway ‒ Projected deficit of ~$3.5B

• Levers available for a thoughtful fiscal policy:

‒ Lower Spending on Government ‒ State income and sales taxes ‒ Modify how Permanent Fund earnings are used

• Reserves provide runway for the State to adjust

to its new fiscal policy Alaska’s Options for Securing Future

• Creates incentive to look for change. Sectors

with the greatest, direct exposure to oil prices: ‒ State Government ‒ Energy Sector

• Alaska Communications has

‒ low exposure to both sectors – collectively less than 5% of our total revenues ‒ low share of wallet in both sectors – less than 10% – far lower than our aggregate market share

• Creates new revenue opportunities for Alaska

Communications as customers seek greater value not currently provided by the incumbent Economic Conditions Create Opportunity

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alaskacommunications.com

Superior Network Coverage Positions Us for Growth

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Extensive long haul fiber network:

• 6,000 miles submarine and 8,000 miles of terrestrial route miles
• 100G wavelengths in-state backbone with diverse routes
• - Secured key fiber assets on Alaska’s North Slope supporting the oil and gas industry
• High-capacity network extensions into L48 to customer locations and data centers including

CyrusOne in Houston. Strong metro access fiber & broadband network:

• Over 450 buildings, representing 85% of multi-story multi-tenant facilities, on fiber
• 45% of consumer locations at or above 10Mbps capability
• Commencing deployment of GPON access nodes in business areas
• All military bases on fiber

State-of-art service IP capability on network:

• Juniper IP/Advanced Ethernet core – provides statewide IP & MEF 2.0 Certified Ethernet

services

• 50% of business locations MEF 2.0 enabled
• Widely deployed Metaswitch voice application soft-switch network

Superior Fiber Based Broadband Network

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alaskacommunications.com

Selected by Leading Businesses and Organizations

CARRIER/FED OIL & GAS STATE/LOCAL HEALTHCARE EDUCATION SMB STRATEGIC COMMERCIAL

Kodiak Area Native Assoc.

DIVERSE CUSTOMER VERTICALS

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alaskacommunications.com

Customer Relationships Drive Top Line Growth

New and Strengthened Customer Relationships

• Secured several large and strategic wins

‒ State of Alaska ‒ Akeela ‒ Federal Agency ‒ Educational Institution

• Added 600+ new Small / Medium Business

customers

• Retained several existing customer

relationships with multi year contract extensions, including: ‒ Large National Carrier ‒ Large Federal Contractor ‒ Chugach Electric Great Technology and Better People: We Win on Service

• “…Your solution provided options for our

business that we hadn’t even considered

• before. We are excited to be a business

partner with ACS…”

• “... response to [our] WAN RFP was well

written and provided the greatest value to [us] going forward and in this fiscal environment will allow [us ] to future-proof our Network capacity for some time to come ...”

• “ … The system installed in our facility is hands

down the best of all 11 educational institutions like ours … Using your infrastructure drawings as a baseline … will have capabilities beyond what we could have imagined prior to this project.”

• “…You really listened to us, really listened to
• ur needs and it showed in your value adds…”

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alaskacommunications.com

Product Capabilities Create Differentiation and Value

Expanding Roster of Partnerships

• Managed Security:

‒ Watchguard IT: Gold Partner

• Communications:

‒ Avaya: Silver Partner

• IT Infrastructure:

‒ Microsoft: Gold Partner, Small Mid-Market

Solutions, Data Center Silver Partner

‒ Barracuda: Storage MSP Partner

• Cloud:

‒ Microsoft: Silver Partner, Small Mid-Market

Cloud Solutions, Azure ExpressRoute Partner

‒ CyrusOne: IX (Internet Exchange)

Connection First with Next Generation Products

• SIP Trunking:

‒ All major metro markets in Alaska ‒ Based on QoS Enabled, Secure, MEF Certified IP Network

• Hosted Voice over Internet

‒ All major metro markets in Alaska ‒ Upgraded to High Definition Voice ‒ With Unified Communications for Collaboration

• Managed Networks:

‒ Proactive management of Enterprise Class networks ‒ Customer Portal capabilities for self management and reporting

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Operational Initiatives Drive Service Improvements and Margin Expansion

Collectively, increased capacity drives margin expansion, while improved service quality drives customer retention and acquisition

• Committed to LEAN

‒ Eliminates waste while improving service ‒ Develops capacity and scale in our operations

• Implementing technologies drives service improvements

‒ Online and mobile customer service capabilities ‒ Automation in Field Operations management is driving improved service capacity

• Rigorously measuring customer service at nearly all customer touchpoints

‒ Net Promoter Score measured for all customer interactions. ‒ Strong improvements in year over year transactional NPS indicate service quality improvements

12 | Alaska Communications

alaskacommunications.com

Superior Revenue Growth Continues

($ in M) Q1 2016 Q1 2015 % Increase YE 2015 YE 2014 % Increase Business and Wholesale $33.5 $30.0 11.9% $126.5 $115.1 9.8% Consumer $9.5 $10.2 (7.0)% $40.0 $41.5 (3.5)% Regulatory $13.3 $13.5 (1.9)% $53.3 $58.5 (8.9)% Total Wireline Revenue $56.3 $53.7 4.8% $219.8 $215.1 2.2%

TOTAL WIRELINE REVENUE GROWTH Quarterly Performance Annual Performance

Sources: Respective company public filings.

Reclassified revenues, providing more transparency in our wireline business including concise reporting for regulatory revenue.

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alaskacommunications.com

Superior Revenue Growth Driven By Broadband

$25.7 $25.6 $23.2 $28.1 $44.5 $51.1 YE 2014 YE 2015 Business Broadband Wholesale Broadband Consumer Broadband $6.6 $6.1 $6.6 $7.6 $11.8 $14.2 Q1 2015 Q1 2016 Business Broadband Wholesale Broadband Consumer Broadband $27.9

($ in M) ($ in M)

$25.0 $93.4 $104.8

BROADBAND REVENUE GROWTH Quarter Annual

The peer group average includes CBB, CTL, FRP, FTR, HCOM, LMOS and WIN. Sources: Respective company public filings.

PEER BROADBAND REVENUE GROWTH COMPARISONS Quarter Annual

12.3% 4.5% ALSK Peer Group Average 11.3% 13.0% 8.6% 16.0% 11.4% 4.0% 3.2% 4.5% 5.2% 5.0% Q115 Q215 Q315 Q415 Q116 ALSK Peer Group Average

(2014 - 2015)

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alaskacommunications.com

Performing to Plan and Reaffirming 2016 Guidance

($ in M) Q1 2016 Results 2016 Guidance Total Wireline Revenue $56.3 ~$228 Adjusted EBITDA $13.9 ~$59 Net Capital Spending $5.2 ~$35 Free Cash Flow $9.1 ~$5

• Quarterly Free Cash Flow fluctuates and should not be viewed as an indicator of annual performance.

While onetime events, seasonality of capital spend and the timing of interest payments may result in negative Free Cash Flow in one or more quarters, we reaffirm our guidance for annual Free Cash Flow.

($ in M) 3/31/16 12/31/15 Total Debt $179.4 $188.7 Cash $28 $36

• Strong cash balance after the repurchase of $10 million of convertible notes in the quarter.

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alaskacommunications.com

One of the Lowest Debt Leverage Ratios in our Industry

NET DEBT LEVERAGE RATIO AT MARCH 31, 2016

Source: Publicly available information.

Median 3.5x

Net Debt Leverage Ratio is defined as net debt divided by Adjusted EBITDA or Adjusted OIBDA. Net Debt is defined as long-term debt including current portion and net of debt issuance costs and premiums/discounts, less cash. Adjusted EBITDA and Adjusted OIBDA are trailing twelve months at March 31, 2016 as reported by each company or by Nasdaq IR Insight.

2.9x 2.9x 4.1x 3.5x 6.7x 2.2x 4.7x 3.5x

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alaskacommunications.com

Solid Foundation for 2016

• Delivering strong performance in the first quarter

‒ Industry leading broadband revenue growth of 11.4% ‒ Business and wholesale revenues grew 11.9% ‒ Total Wireline revenues increased 4.8% ‒ Top line growth will drive future cash flow performance

• Gaining market share and building customer relationships with the addition of key

strategic contracts

‒ Providing a wide range of services to the State’s largest educational institution, including connectivity to the Lower 48 which enables the institution to effectively utilize its Arctic Region Super Computer. This positions the institution as a world class research institute.

• Core network strength advances position as business partner and premier cloud enabler

‒ Secure connectivity and data storage in partnership with CyrusOne ‒ Business continuity and security solutions in partnership with Barracuda ‒ On-site and cloud data storage solutions in partnership with Nimble Storage ‒ Only Microsoft Express Route partner based in Alaska with secure connection to Microsoft Azure ‒ IP product set includes Voice over Internet and SIP trunking portfolio

17 | Alaska Communications

alaskacommunications.com

Directional View over the Next Two – Three Years

Strong Free Cash Flow growth creates favorable conditions for shareholder value creation Revenue Share of 2015 Total Wireline Revenue Directional Annualized Growth

Total Wireline 2% - 5%

• Business and Wholesale

58% At or above 8%

• Consumer

18% Stable starting 2017

• Regulatory Revenue

24%

• High Cost Support

9% Flat

• Access

15% (4)% - (5)%

Directional Annualized View

Adjusted EBITDA 4% to 8% growth Free Cash Flow Positive 2016, strong growth thereafter

• CapEx

~$35M

• Cash Interest

~$13M

• Cash Taxes

Subject to AMT, expected to be de minimis

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alaskacommunications.com

Committed to Driving Shareholder Value

Unique Competitive Dynamic Growing Market Products and Partnerships LEAN creates organizational capacity Customer service drives retention and acquisition EBITDA and FCF growth drives shareholder value creation Top Line Growth Margin Expansion Shareholder Value

19 | Alaska Communications

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Appendix

20 | Alaska Communications

alaskacommunications.com

Company History

2016 Alaska Communications strengthens cloud enablement for business. 2015 Alaska Communications buys network on the North Slope. 2015 Alaska Communications sells its interest in the Alaska Wireless Network, pays down debt with proceeds, and becomes one of the lowest levered companies in the industry. 2013 Alaska Communications launches the Alaska Wireless Network joint venture with GCI. 2008 ACS acquires the Northstar submarine cable, and builds AKORN, giving Alaska diverse submarine routes to the LOWER 48. 2000 ACS acquires Internet Alaska Inc., the second largest Internet service provider in Alaska. 1999 ACS completes an initial public offering of stock to become the state’s first statewide telecommunications company. 1998 Alaska Communications Systems Group, Inc., (ACS), now Alaska Communications, is formed. 1949 Telephone Utilities of the Northland begins operations. 1921 Anchorage Telephone Utility begins operations. 1893 The Juneau and Douglas Telephone Company begins operations.

21 | Alaska Communications

alaskacommunications.com

Use of Non-GAAP Measures

Management believes certain financial measures not in accordance with generally accepted accounting principles (“GAAP”) are useful measures of operations, in particular with regards to liquidity and capital resources. The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, gain or loss on asset purchases or disposals including the gain on the sale of our wireless operations, earnings from equity method investments, taxes, wireless transaction- related costs, loss attributable to non-controlling interest, stock-based compensation, pension adjustments, and expenses under the company’s long term cash incentive plan (“LTCI”). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA. Free cash flow is defined as Adjusted EBITDA, less recurring operating cash requirements which include capital expenditures, net of cash received for a fiber build for a carrier customer, less cash interest expense, significant non-cash revenue associated with our interconnection agreement with AWN and GCI, cash payments associated with the purchase of the North Slope fiber network and proceeds on sale of fiber to our joint venture partner. Adjusted EBITDA, and Free Cash Flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP.

22 | Alaska Communications

alaskacommunications.com

Reconciliation of Non-GAAP Measures – Adjusted EBITDA

(unaudited, in thousands) Three Months Ended March 31, 2016 Three Months Ended March 31, 2015 Net income $ 53 $ 16,217 Add (subtract): Interest expense 3,869 7,419 Loss on extinguishment of debt 336 2,628 Interest income (5) (25) Depreciation and amortization 8,520 8,941 Loss (gain) on disposal of assets, net 24 (38,662) Earnings from equity method investments

• (3,056)

AWN distributions received/receivable, net

• 765

Income tax expense 63 13,074 Stock-based compensation 805 484 Long-term cash incentives 211 334 Pension adjustment 21

• Net loss attributable to noncontrolling interest

33

• Wireless sale transaction-related and wind down costs
• 4,346

Adjusted EBITDA $ 13,930 $ 12,465

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Reconciliation of Non-GAAP Measures – Free Cash Flow

(unaudited, in thousands) Three Months Ended March 31, 2016 Three Months Ended March 31, 2015 Adjusted EBITDA $ 13,930 $ 12,465 Less: Capital expenditures (5,175) (5,900) Milestone billings for fiber build project for a carrier customer

• 2,500

Net capital expenditures (5,175) ( 3,400) Proceeds on sale of fiber to joint venture partner 2,650

• Amortization of GCI/AWN capacity revenue

(509) (615) Cash interest expense (1,797) (3,384) Free cash flow $ 9,099 $ 5,066