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2019 Annual MeetingMay 29, 2019
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.”
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 of these non-GAAP measures are contained in our quarterly earnings press releases. 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 in our earnings releases. 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.
2
Safe Harbor Statement
2 | Alaska Communications
ALSK Investment Thesis
Robust Broadband Growth
Favorable Competitive Dynamics
High Quality Fiber Assets
Technology Innovation
Strategic Customer Relationships
3 | Alaska Communications
Robust Broadband Growth
Sources: Cisco Visual Networking Index: Forecast and Methodology, 2016–2021, and Management estimates
Video Streaming
Internet video traffic growth at ~24% CAGR 2016-2021
Gaming, Augmented / Virtual Reality
Online gaming traffic growth at ~62% CAGR 2016-2021
Cloud Migration
Business IP traffic growth at ~23% CAGR 2016-2021
5G Wireless Backhaul
Small cell deployment increase ~35x in next 10 years
Distributed Content Delivery Networks
Traffic crossing CDN’s growth at ~38% CAGR 2016-2021
4 | Alaska Communications
~$1.6B Opportunity in Alaska
Offers Significant Runway for Growth
• ALSK has grown share in the Enterprise / Carrier market segments with significant growth
opportunity ahead
• Growth expected from growing the expanding broadband market and further share gain
from our competitors
• The ~$836M IT market, represents significant opportunity to grow via gaining share of
wallet
TELECOM50%
IT50%
GCI
$450M
Total Market: ~$1.6B
20%
55%
25%
Telecom Market: ~$820M
ALSK: $167M
GCI: $450M
All others:
~$203M
5 | Alaska Communications
Favorable Competitive Landscape
Alaska Market Dynamics
▪ One primary wireline competitor
▪ Broadband and technology key to managing operating costs for businesses
Differentiators
▪ Own and operate 2 of 4 submarine cables, with only diverse exit from Alaska
▪ MEF Certification, BGP Non Transit Peering and CDNs capabilities, FWA, Certified secure cloud connectivity
▪ Brand: recognized for local, trustworthy, reliable customer service
Opportunities for Growth▪ Grow with market
▪ Take share
▪ Expand share of wallet
6 | Alaska Communications
High Quality Fiber Assets
Recent investments in Fixed Wireless and Satellite capabilities extend network capabilities
7 | Alaska Communications
▪ Extensive and expanding fiber footprint covering major business areas in Alaska
▪ Own and operate 2 of the 4 subsea fiber cables connecting Alaska to Oregon and Washington with capacity on a third
−100G wavelengths in state backbone with diverse routes
−All major military bases on fiber−Extending fiber footprint into NW Alaska
with our partner−865 fiber lit buildings increasing annually−Over 75% of all buildings in our markets
with 50+ employees are within 500 feet of an ALSK splice point
−Metro fiber density increasing with 3rd
party small cell fiber builds−Own and operate two diverse submarine
routes to the Lower 48, with capacity on other systems for back-up/protection
−Fiber assets from relationship carrier in the Arctic (North / NW Alaska)
−25.3K submarine fiber miles (6.6K route miles) and 106.5K terrestrial fiber miles (11.6K route miles)
Network Serves as a Differentiator
High Quality Fiber & Broadband NetworkState of Art Secure IP Network
−Juniper IP/Advanced Ethernet core –statewide 2.0 Certified Ethernet services
−Widely deployed Metaswitch voice application soft-switch network
−N+1 design, multiple wire centers with distributed core network design incorporates redundancy
−Provisioning automation increases accuracy and decreases delivery intervals
−Standards based networking built to industry standards such as MEF 2.0 to ensure the broadest possible compatibility for our customers
−Track record of network peering relationships and Content Delivery Network integration brings our customers closer to the content and provides a superior user experience
8 | Alaska Communications
Technology Leadership and Innovation
Select Partnerships Next Generation Products
▪ First SIP product implementation in Alaska:‒ QoS Enabled, Secure, MEF
Certified IP Network
▪ Hosted Voice over Internet:‒HDVoice, Unified Communications, OTT self install
▪ Secure Cloud Enablement‒Only Microsoft Express Route Certified Provider in Alaska
‒Only CyrusOne InternetExchange Certified Provider in Alaska
▪ Internet Now for Multi-Dwelling Units (MDU’s) – Instant turn up, unlimited data
▪ IT Marketplace to serve small business with IT Services
Network Innovation
▪ Fixed Wireless (FiWi) (sub 6Ghz) Access‒CAF II and surrounding areas‒Major metro markets in Alaska
▪ P2P mmWave for Fixed Wireless Backhaul
▪ Extending satellite solutions‒Low Earth Orbit, C-Band, Ku-Band
▪ Converging networking and cloud with SD WAN
▪ Firsts in the market:‒Metro Ethernet & MPLS‒Carrier Ethernet 2.0 certified services
‒Voice over Internet and SIP next generation products
‒Microsoft Express Route
9 | Alaska Communications
STRATEGIC COMMERCIAL
HEALTHCARE / EDUCATIONSTATE / LOCALOIL & GAS
Kodiak Area Native Assoc.
CARRIER / FED
10 | Alaska Communications
Strategic Customer Relationships
11 | Alaska Communications
Top Line Performance Provides Support for Future
EBITDA Growth
Growth Revenues: Consumer broadband, Business broadband, Equipment Sales, Wholesale broadband and Managed IT ServicesLegacy Revenues: Consumer voice and other, Business voice and other, Wholesale voice and other, Access and High Cost SupportCAF II Revenues: High Cost Support
Impact of Rural Health Care
~$5
~$4
52%
Growth
48%
Legacy
~29%
Legacy
~62%
Growth
~9% CAF II
$230-$235
$219.8
$1.0
$(4.9)
$(5.4)
$(7)-$(9)
$12.0
$5
$4.5
$8-$10Net Legacy Decline of ~$(16)M - $(18)M
Net Growth Increase of ~$30M - $32M
Growth revenues expected to be ~62% of Total Revenue by YE 2019. Growth revenues expected to continue to increase, resulting in EBITDA expansion over time.
12 | Alaska Communications
• Growth revenues expected to be ~62% of total revenues in 2019:
• Tied to investments in fiber
• Closer to ~71% of total revenues when combined with stable CAF II revenues
• 2017 and 2018 growth revenue performance lower than norm:
• Impacted by adjustments to Rural Health Care program changes
• 2019 swings back to a meaningful step-up in growth revenues:
• Comparable to prior years, driven by strength in various large enterprise and carrier customer
verticals
• Legacy revenues trend lines remain predictable:
• Tied to legacy copper networks
• Voice connections will continue to decline, revenue mitigated by pricing actions where sustainable
• High Cost Support, aka CAF II, revenues flat through 2025
• Access revenues
• Reduction in 2019 tied to program restructuring
• Reverting to a more normal downward trajectory starting 2020
Growth Revenue Performance Back on Track
13 | Alaska Communications
Adj. EBITDA Expansion as Margin Contribution from Growth
Revenue Outpaces Margin Decline from Legacy Revenue
Growth Revenues: Consumer broadband, Business broadband, Equipment Sales, Wholesale broadband and Managed IT ServicesLegacy Revenues: Consumer voice and other, Business voice and other, Wholesale voice and other, Access and High Cost Support
Return on Prior Year Success CapEx
$15.5M $22.6M $19.9M
16% 14% ~39%
$7-$9 $60-$62
Contribution Margin from Growth RevenuesContribution Margin from Legacy Revenues Contribution Margin from SG&A and Adj.
$(4)-$(6)$(1)-$(3)
14 | Alaska Communications
• Trajectory of growth revenues increase directly tied to EBITDA expansion
• Success capital enables growth revenues and associated margin contribution
• Investment in fiber provide the growth: Fiber investments started a decade ago and will accelerate
• Returns on success capital in mid-teens for 2017 and 2018
• Tied to lower growth revenue performance from RHC impacts
• Returns on success capital expected to be closer to 40% for 2019
• Reflecting the anticipated trajectory of growth revenues
Success Capital: Fuels EBITDA Performance
15 | Alaska Communications
ALSK Shareholder Value Creation
Business Performance
✓Growth revenues continue to outpace legacy declines
✓Balance sheet strength creates runway and capacity
Corporate Actions
✓Opportunistic consideration of strategic alternatives
✓Consideration of shareholder friendly actions through capital allocation strategies