Business Wire | Nov 4, 2020 04:06PM EST

Alaska Communications Reports Third Quarter 2020 Results

Nov. 04, 2020

ANCHORAGE, Alaska--(BUSINESS WIRE)--Nov. 04, 2020--Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for the third quarter of 2020.

"Our results for the third quarter reflect execution of our strategic initiatives to deliver industry-leading telecommunications products and services. Prioritizing superior customer service and fiber-based network solutions, we have established Alaska Communications as a premier provider. We continue to strengthen our fiber infrastructure, to facilitate our multiyear transition to IP-based services, and to evaluate means to increase our access and core network. This includes optical transport network upgrades to our subsea Northstar fiber resulting in a capacity increase of over five times, as well as securing CBRS spectrum in 135 cities ranging from southeast Alaska to the North Slope. Our biggest strengths in 2020 have been to manage the unexpected, quickly offer customers solutions, and continue to drive ahead adding many route miles of fiber. In addition to benefiting our customers, we are creating opportunities.

"Also, after years in development, in October, we went live with our new business and operating systems that will enhance the customer experience through streamlined ordering process; improve business analytics and reporting; and simplify operations that we expect to yield expense savings and drive operational excellence in coming years. We are committed to connecting the people and businesses of Alaska and beyond, investing in our future and driving growth to benefit our constituents. We are very excited about the future," said Bill Bishop, president & CEO.

Three Months Ended September 30, 2020 Compared to 2019

* Total revenue was $60.5 million, compared to $59.1 million, an increase of 2.3%. Business and wholesale revenue was $40.9 million, compared to $38.7 million, up 5.6%. Consumer revenue was steady at $9.3 million for both periods. Regulatory revenue was $10.3 million, compared to $11.1 million, a decrease of 7.0%. * Operating expenses were $54.7 million, compared to $53.4 million. * Operating income was $5.8 million for both periods. * Net income attributable to Alaska Communications was $2.3 million, compared to $2.0 million. * Capital expenditures were $14.5 million, compared to $11.1 million, or excluding prefunded projects $11.7 million, compared to $10.9 million. * Adjusted EBITDA was $16.6 million, compared to $15.8 million. * Adjusted Free Cash Outflow was $7.3 million, compared with Adjusted Free Cash Flow of $6.3 million, or excluding prefunded projects Adjusted Free Cash Flow was $1.7 million, compared to $1.2 million.

Balance Sheet Highlights

* Cash was $33.8 million at September 30, 2020, compared to $28.3 million at December 31, 2019. * Net debt was $141.6 million at September 30, 2020, compared to $153.8 million at December 31, 2019.

Nine Months Ended September 30, 2020 Compared to 2019

* Total revenue was $178.2 million, compared to $173.4 million, an increase of 2.8%. Business and wholesale revenue was $119.7 million, compared to $112.3 million, up 6.6%. Consumer revenue was $27.6 million, compared to $27.8 million, a decrease of 0.8%. Regulatory revenue was $30.9 million, compared to $33.3 million, a decrease of 7.2%. * Operating expenses were $160.5 million, compared to $158.5 million. * Operating income was $17.7 million, compared to $14.9 million. * Net income attributable to Alaska Communications was $7.1 million, compared to $2.3 million. * Capital expenditures were $32.9 million, compared to $31.6 million, or excluding prefunded projects $26.3 million, compared to $31.4 million. * Adjusted EBITDA was $49.2 million, compared to $44.9 million. * Adjusted Free Cash Flow was $11.4 million, compared with $6.2 million, or excluding prefunded projects was $12.9 million, compared to $1.1 million.

Reconciliations of non-GAAP financial measures to GAAP financial measures can be found in tables at the end of this release and on the Company's website at http://www.alsk.com in the investment data section.

"We continue to grow total revenue, increasing 2.3% for the quarter, year over year. Business and Wholesale revenue grew 5.6%, compared to 2019, and we expanded our Adjusted EBITDA margin to 27.5% in third quarter 2020, up from 26.7% in third quarter 2019. As the new work environment has altered business requirements, customers are both modifying and accelerating their network plans. During the quarter, demand for equipment and managed IT services increased, which led to a net 27.4% increase in revenue, compared to the same period last year. Our results this quarter reflect our strategic plan for growth, and we expect to be at the high end of our guidance for 2020," said Laurie Butcher, Chief Financial Officer.

2020 Guidance

For full year 2020 guidance, management

* Reaffirms Total Revenue to be between $232 million and $237 million; * Reaffirms Adjusted EBITDA to be between $63 million and $65 million; * Adjusts Capital Expenditures excluding prefunded projects to be between $37 million and $39 million; and * Increases Adjusted Free Cash Flow excluding prefunded projects to be between $14 million and $16 million.

Subsequent Events

On November 3, 2020, Alaska Communications, together with Macquarie Capital and GCM announced a merger agreement through which a Macquarie Capital and GCM, through its Labor Impact Fund, will acquire all outstanding shares of Alaska Communications for $3.00 per share in a cash transaction valued at approximately $300 million, including debt, subject to shareholder and regulatory approval. Additional information can be found in documents filed with the SEC posted at www.sec.gov or alsk.com.

Conference Call

The Company will host a conference call and live webcast on Thursday, November 5, 2020 at 2:00 p.m. Eastern Time to discuss the results. Parties in the United States and Canada can access the call at 1-800-430-8332 and enter code 1313142. All other parties can access the call at 1-323-289-6581 using the same code.

The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's investor website (www.alsk.com). The webcast will be archived for 30 days. A replay of the conference call will also be available two hours after the call ends and will run until December 5, 2020 at 5 p.m. ET. To hear the replay, parties in the U.S. and Canada can call 1-888-203-1112 and enter code 1313142. All other parties can call 1-719-457-0820 and enter code 1313142.

About Alaska Communications

Alaska Communications (NASDAQ: ALSK) is the leading provider of advanced broadband and managed IT services for businesses and consumers in Alaska. The Company operates a highly reliable, advanced statewide data network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous U.S. For more information, visit www.alaskacommunications.com or www.alsk.com.

Revenue Category Definitions

Growth Revenues are defined as business broadband, managed IT services, equipment sales and installations, wholesale broadband and consumer broadband. Legacy Revenues are defined as business voice and other, Wholesale voice and other, consumer voice and other, and Access. CAF II Revenues are defined as high cost support.

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, we have provided 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 a non-GAAP liquidity measured used by Management and the Company's Board of Directors 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 Company's Board of Directors with a measure of the Company's current leverage position. The definition and computation of these non-GAAP measures are provided on Schedules 4, 6 and 9 to this press release. Adjusted EBITDA and Adjusted Free Cash Flow should not be considered a substitute for Net Income, Net Cash Provided 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 the tables in this release. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications. The Company does not provide reconciliations of guidance for Adjusted EBITDA to Net Income, and Adjusted Free Cash Flow to Net Cash from 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 Adjusted Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $12.4 million in the nine-month period of 2020).

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in connection with the proposed acquisition of the Company by Macquarie Capital and GCM Grosvenor, whereby the Company will become a wholly owned subsidiary of an affiliate of Macquarie Capital and GCM Grosvenor (the "proposed merger"). The proposed merger will be submitted to the Company's stockholders for their consideration at a special meeting of the stockholders. In connection therewith, the Company intends to file relevant materials with the United States Securities and Exchange Commission (SEC), including a proxy statement on Schedule 14A, which will be mailed or otherwise disseminated to the Company's stockholders. STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Stockholders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company or the proposed merger, once such documents are filed with the SEC, free of charge at the SEC's website at www.sec.gov, or from Alaska Communications at www.alsk.com or by directing a request to the Company's Investor Relations Department at investors@acsalaska.com.

Participants in the Solicitation

The Company and certain of its directors and executive officers and other members of management and employees may be deemed to be "participants" in the solicitation of proxies from the Company's stockholders in connection with the proposed merger. Information about the Company's directors and executive officers and their direct or indirect interests, by security holdings or otherwise, is set forth in the Company's proxy statement on Schedule 14A for its 2020 annual meeting of stockholders filed with the SEC on April 29, 2020. To the extent holdings of the Company's securities by such participants (or the identity of such participants) have changed, such information has been or will be reflected on Statements of Change in Ownership on Forms 3 and 4 subsequently filed with the SEC. Additional information regarding the participants in the proxy solicitation and a description of their direct or indirect interests, by security holdings or otherwise, will be included in the definitive proxy statement and may be included in relevant documents filed with the SEC regarding the proposed merger, if and when they become available. Free copies of these materials may be obtained as described in the preceding paragraph.

Forward-Looking Statements

This press release includes 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. Readers 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 uncertainties and other factors, many of which are outside the Company's control. Such factors include, without limitation changes in technology and related standards, the impacts of the COVID-19 pandemic on the economy of Alaska and on the Company, the impact of natural or man-made disasters and accidents, Federal and Alaska Universal Service Fund changes and our current and historical compliance with the obligations of those programs, structural declines for voice and other legacy services, maintenance or IT issues, third-party intellectual property claims, potential pension shortfalls, the success or failure of future strategic transactions, funding through the rural health care universal service support mechanism and our ability to comply and our history of compliance with the regulatory requirements to receive those support payments, our ability to service our debt and refinance as required, adverse economic conditions, our success in providing broadband services on the North Slope and Western Alaska, the effects of competition in our markets, our relatively small size compared with our competitors, the Company's ability to compete, manage, integrate, market, maintain, and attract sufficient customers for its products and services, adverse changes in labor matters, including workforce levels, labor negotiations, employee benefit costs, our ability to control other operating costs, disruption of our supplier's provisioning of critical products or services, the actions of activist shareholders, changes in Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, our internal control over financial reporting, and changes in accounting standards or policies, which could affect reported financial results. For further information regarding risks and uncertainties associated with the Company's business, please refer to the Company's SEC filings, including, but not limited to, the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q. Copies of the Company's SEC filings may be obtained by contacting its investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com.

Schedule 1

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.CONSOLIDATED SCHEDULE OF OPERATIONS(Unaudited, In Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Operating revenues $ 60,514 $ 59,128 $ 178,236 $ 173,432

Operating expenses:Cost of services and sales 27,879 26,785 82,127 78,768 (excluding depreciationand amortization)Selling, general & 16,544 16,832 48,163 52,206 administrativeDepreciation and 10,234 9,546 30,107 27,425 amortizationLoss on disposal of 23 198 123 101 assets, net Total operating expenses 54,680 53,361 160,520 158,500

Operating income 5,834 5,767 17,716 14,932

Other income and(expense):Interest expense (2,659 ) (2,997 ) (8,357 ) (9,149 )

Loss on extinguishment of - - - (2,830 )debtInterest income 13 121 156 291

Other income, net 33 192 447 192

Total other income and (2,613 ) (2,684 ) (7,754 ) (11,496 )(expense) Income before income tax 3,221 3,083 9,962 3,436 expense Income tax expense (941 ) (1,084 ) (2,897 ) (1,228 )

Net income 2,280 1,999 7,065 2,208

Less net loss attributable (22 ) (23 ) (64 ) (76 )to noncontrolling interest Net income attributable to $ 2,302 $ 2,022 $ 7,129 $ 2,284 Alaska Communications Net income per shareattributable to AlaskaCommunications:Net income applicable to $ 2,302 $ 2,022 $ 7,129 $ 2,284 common shares Basic and Diluted $ 0.04 $ 0.04 $ 0.13 $ 0.04

Weighted average sharesoutstanding:Basic 54,116 53,328 53,906 53,503

Diluted 54,572 53,991 54,393 54,405

Schedule 2

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.CONSOLIDATED BALANCE SHEETS(Unaudited, In Thousands Except Per Share Amounts)September 30,December 31,Assets2020

2019

Current assets:Cash and cash equivalents$

32,215

$

26,662

Restricted cash1,628

1,631

Short-term investments134

134

Accounts receivable, net of allowance of $3,415 and $4,62735,204

34,354

Materials and supplies8,090

8,900

Prepayments and other current assets11,932

9,617

Total current assets89,203

81,298

Property, plant and equipment1,448,502

1,424,904

Less: accumulated depreciation and amortization(1,062,736

)

(1,042,546

)

Property, plant and equipment, net385,766

382,358

Operating lease right of use assets89,517

80,991

Other assets11,531

12,598

Total assets$

576,017

$

557,245

Liabilities and Stockholders' EquityCurrent liabilities:Current portion of long-term obligations$

9,063

$

8,906

Accounts payable, accrued and other current liabilities45,029

39,108

Advance billings and customer deposits3,520

3,761

Operating lease liabilities - current3,189

2,795

Total current liabilities60,801

54,570

Long-term obligations, net of current portion161,620

167,476

Deferred income taxes6,495

4,403

Operating lease liabilities - noncurrent80,498

78,767

Other long-term liabilities, net of current portion91,991

78,520

Total liabilities401,405

383,736

Commitments and contingenciesAlaska Communications stockholders' equity:Common stock, $.01 par value; 145,000 authorized548

541

Treasury stock, 1,000 shares at cost(1,812

)

(1,812

)

Additional paid in capital162,740

161,844

Retained earnings17,644

15,367

Accumulated other comprehensive loss(5,290

)

(3,277

)

Total Alaska Communications stockholders' equity173,830

172,663

Noncontrolling interest782

846

Total stockholders' equity174,612

173,509

Total liabilities and stockholders' equity$

576,017

$

557,245

Schedule 2

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.CONSOLIDATED BALANCE SHEETS(Unaudited, In Thousands Except Per Share Amounts) September 30, December 31,Assets 2020 2019

Current assets:Cash and cash equivalents $ 32,215 $ 26,662

Restricted cash 1,628 1,631

Short-term investments 134 134

Accounts receivable, net of allowance of $3,415 35,204 34,354 and $4,627Materials and supplies 8,090 8,900

Prepayments and other current assets 11,932 9,617

Total current assets 89,203 81,298

Property, plant and equipment 1,448,502 1,424,904

Less: accumulated depreciation and amortization (1,062,736 ) (1,042,546 )

Property, plant and equipment, net 385,766 382,358

Operating lease right of use assets 89,517 80,991

Other assets 11,531 12,598

Total assets $ 576,017 $ 557,245

Liabilities and Stockholders' EquityCurrent liabilities:Current portion of long-term obligations $ 9,063 $ 8,906

Accounts payable, accrued and other current 45,029 39,108 liabilitiesAdvance billings and customer deposits 3,520 3,761

Operating lease liabilities - current 3,189 2,795

Total current liabilities 60,801 54,570

Long-term obligations, net of current portion 161,620 167,476

Deferred income taxes 6,495 4,403

Operating lease liabilities - noncurrent 80,498 78,767

Other long-term liabilities, net of current 91,991 78,520 portionTotal liabilities 401,405 383,736

Commitments and contingenciesAlaska Communications stockholders' equity:Common stock, $.01 par value; 145,000 authorized 548 541

Treasury stock, 1,000 shares at cost (1,812 ) (1,812 )

Additional paid in capital 162,740 161,844

Retained earnings 17,644 15,367

Accumulated other comprehensive loss (5,290 ) (3,277 )

Total Alaska Communications stockholders' equity 173,830 172,663

Noncontrolling interest 782 846

Total stockholders' equity 174,612 173,509

Total liabilities and stockholders' equity $ 576,017 $ 557,245

Schedule 3

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited, In Thousands)Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Cash Flows from Operating Activities:Net income$

2,280

$

1,999

$

7,065

$

2,208

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization10,234

9,546

30,107

27,425

Loss on disposal of assets, net23

198

123

101

Amortization of debt issuance costs and debt discount298

305

942

911

Loss on extinguishment of debt-

-

-

2,830

Amortization of deferred capacity revenue(1,810

)

(1,141

)

(4,881

)

(3,400

)

Stock-based compensation500

277

1,218

766

Deferred income tax expense940

1,396

2,890

1,534

Charge for uncollectible accounts(561

)

307

(955

)

275

Amortization of ROU assets815

568

2,072

1,716

Other non-cash (income) expense, net(33

)

(192

)

(99

)

52

Changes in operating assets and liabilities(8,772

)

1,024

12,404

8,202

Net cash provided by operating activities3,914

14,287

50,886

42,620

Cash Flows from Investing Activities:Capital expenditures(14,528

)

(11,124

)

(32,940

)

(31,556

)

Capitalized interest(375

)

(374

)

(1,006

)

(983

)

Change in unsettled capital expenditures1,104

1,134

402

583

Proceeds on sale of assets-

1

-

20

Net cash used by investing activities(13,799

)

(10,363

)

(33,544

)

(31,936

)

Cash Flows from Financing Activities:Repayments of long-term debt(2,263

)

(1,135

)

(6,641

)

(172,903

)

Proceeds from the issuance of long-term debt-

-

-

180,000

Debt issuance costs and discounts-

-

-

(2,683

)

Cash paid for debt extinguishment-

-

-

(1,252

)

Payment of cash dividend on common stock(16

)

-

(4,836

)

-

Payment of withholding taxes on stock-based compensation-

-

(439

)

(448

)

Purchases of treasury stock-

(1,663

)

-

(1,812

)

Proceeds from issuance of common stock-

-

124

106

Net cash (used) provided by financing activities(2,279

)

(2,798

)

(11,792

)

1,008

Change in cash, cash equivalents and restricted cash(12,164

)

1,126

5,550

11,692

Cash, cash equivalents and restricted cash, beginning of period46,007

25,551

28,293

14,985

Cash, cash equivalents and restricted cash, end of period$

33,843

$

26,677

$

33,843

$

26,677

Supplemental Cash Flow Data:Interest paid$

2,724

$

3,122

$

8,432

$

9,236

Dividends payable at September 30, 2020$

16

$

-

$

16

$

-

Income taxes paid, net$

4

$

-

$

4

$

10

Schedule 3

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited, In Thousands) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Cash Flows fromOperating Activities:Net income $ 2,280 $ 1,999 $ 7,065 $ 2,208

Adjustments toreconcile net income tonet cash provided byoperating activities:Depreciation and 10,234 9,546 30,107 27,425 amortizationLoss on disposal of 23 198 123 101 assets, netAmortization of debt 298 305 942 911 issuance costs and debtdiscountLoss on extinguishment - - - 2,830 of debtAmortization of (1,810 ) (1,141 ) (4,881 ) (3,400 )deferred capacityrevenueStock-based 500 277 1,218 766 compensationDeferred income tax 940 1,396 2,890 1,534 expenseCharge for (561 ) 307 (955 ) 275 uncollectible accountsAmortization of ROU 815 568 2,072 1,716 assetsOther non-cash (income) (33 ) (192 ) (99 ) 52 expense, netChanges in operating (8,772 ) 1,024 12,404 8,202 assets and liabilitiesNet cash provided by 3,914 14,287 50,886 42,620 operating activities Cash Flows fromInvesting Activities:Capital expenditures (14,528 ) (11,124 ) (32,940 ) (31,556 )

Capitalized interest (375 ) (374 ) (1,006 ) (983 )

Change in unsettled 1,104 1,134 402 583 capital expendituresProceeds on sale of - 1 - 20 assetsNet cash used by (13,799 ) (10,363 ) (33,544 ) (31,936 )investing activities Cash Flows fromFinancing Activities:Repayments of long-term (2,263 ) (1,135 ) (6,641 ) (172,903 )debtProceeds from the - - - 180,000 issuance of long-termdebtDebt issuance costs and - - - (2,683 )discountsCash paid for debt - - - (1,252 )extinguishmentPayment of cash (16 ) - (4,836 ) - dividend on commonstockPayment of withholding - - (439 ) (448 )taxes on stock-basedcompensationPurchases of treasury - (1,663 ) - (1,812 )stockProceeds from issuance - - 124 106 of common stockNet cash (used) (2,279 ) (2,798 ) (11,792 ) 1,008 provided by financingactivities Change in cash, cash (12,164 ) 1,126 5,550 11,692 equivalents andrestricted cash Cash, cash equivalents 46,007 25,551 28,293 14,985 and restricted cash,beginning of period Cash, cash equivalents $ 33,843 $ 26,677 $ 33,843 $ 26,677 and restricted cash,end of period Supplemental Cash FlowData:Interest paid $ 2,724 $ 3,122 $ 8,432 $ 9,236

Dividends payable at $ 16 $ - $ 16 $ - September 30, 2020Income taxes paid, net $ 4 $ - $ 4 $ 10

Schedule 4

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.ADJUSTED EBITDA(Unaudited, In Thousands)Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income$

2,280

$

1,999

$

7,065

$

2,208

Add (subtract):Interest expense2,659

2,997

8,357

9,149

Loss on extinguishment of debt-

-

-

2,830

Interest income(13

)

(121

)

(156

)

(291

)

Depreciation and amortization10,234

9,546

30,107

27,425

Other income, net(33

)

(192

)

(447

)

(192

)

Loss on disposal of assets, net23

198

123

101

Income tax expense941

1,084

2,897

1,228

Stock-based compensation500

277

1,218

766

Cash severance expense-

-

-

1,595

Net loss attributable to noncontrolling interest22

23

64

76

Adjusted EBITDA$

16,613

$

15,811

$

49,228

$

44,895

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 a non-GAAP liquidity measure used by Management 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.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 Adjusted Free Cash Flow, and changes in operating assets and liabilities (generally the most significant of these items, representing cash inflows of $12.4 million in the nine-month period ended September 30, 2020).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 above 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.Adjusted EBITDA is defined as net income 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, and net loss attributable to noncontrolling interest.Schedule 4

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.ADJUSTED EBITDA(Unaudited, In Thousands) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Net income $ 2,280 $ 1,999 $ 7,065 $ 2,208

Add (subtract):Interest expense 2,659 2,997 8,357 9,149

Loss on extinguishment of - - - 2,830 debtInterest income (13 ) (121 ) (156 ) (291 )

Depreciation and 10,234 9,546 30,107 27,425 amortizationOther income, net (33 ) (192 ) (447 ) (192 )

Loss on disposal of 23 198 123 101 assets, netIncome tax expense 941 1,084 2,897 1,228

Stock-based compensation 500 277 1,218 766

Cash severance expense - - - 1,595

Net loss attributable to 22 23 64 76 noncontrolling interest Adjusted EBITDA $ 16,613 $ 15,811 $ 49,228 $ 44,895

Non-GAAP Measures:The Company provides certain non-GAAP financial information, including AdjustedEBITDA, Adjusted Free Cash Flow and Net Debt. Adjusted EBITDA eliminates theeffects of period to period changes in costs that are not directly attributableto the underlying performance of the Company's business operations and is usedby Management and the Company's Board of Directors to evaluate currentoperating financial performance, analyze and evaluate strategic and operationaldecisions and better evaluate comparability between periods. Adjusted Free CashFlow is a non-GAAP liquidity measure used by Management to assess the Company'sability to generate cash and plan for future operating and capital actions.Adjusted EBITDA and Adjusted Free Cash Flow are common measures utilized by ourpeers (other telecommunications companies) and we believe they provide usefulinformation to investors and analysts about the Company's operating results,financial condition and cash flows. Net Debt provides Management and the Boardof Directors with a measure of the Company's current leverage position. The Company does not provide reconciliations of guidance for Adjusted EBITDA toNet Income, and Adjusted Free Cash Flow to Net Cash Provided by OperatingActivities, in reliance on the unreasonable efforts exception provided underItem 10(e)(1)(i)(B) of Regulation S-K. The Company does not forecast certainitems required to develop the comparable GAAP financial measures. These itemsare charges and benefits for uncollectible accounts, certain other non-cashexpenses, unusual items typically excluded from Adjusted EBITDA and AdjustedFree Cash Flow, and changes in operating assets and liabilities (generally themost significant of these items, representing cash inflows of $12.4 million inthe nine-month period ended September 30, 2020). Adjusted EBITDA and Adjusted Free Cash Flow are not GAAP measures and shouldnot be considered a substitute for net income, net cash provided by operatingactivities, or net cash provided or used. Adjusted EBITDA as computed above isnot consistent with the definition of Consolidated EBITDA referenced in our2019 Senior Credit Facility, and other companies may not calculate Non-GAAPmeasures in the same manner we do. Adjusted EBITDA is defined as net income before interest expense and income,loss on extinguishment of debt, depreciation and amortization, other income andexpense, gain or loss on asset purchases or disposals, provision for incometaxes, stock-based compensation, cash severance expense, and net lossattributable to noncontrolling interest.Schedule 5

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED FREE CASH FLOW(Unaudited, In Thousands)Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net cash provided by operating activities$

3,914

$

14,287

$

50,886

$

42,620

Adjustments to reconcile net cash provided by operating activities to adjusted free cash flow:Capital expenditures excluding prefunded projects(11,682

)

(10,942

)

(26,345

)

(31,374

)

Capital expenditures for prefunded projects(2,846

)

(182

)

(6,595

)

(182

)

Milestone payments received for prefunded projects2,500

5,285

14,280

5,285

Milestone payments made for prefunded projects(8,250

)

-

(8,250

)

-

Deferred cost of sales for prefunded projects175

-

350

-

Amortization of revenue for prefunded projects(521

)

-

(1,230

)

-

Amortization of deferred capacity revenue1,810

1,141

4,881

3,400

Amortization of GCI capacity revenue(522

)

(522

)

(1,554

)

(1,549

)

Amortization of debt issuance costs and debt discount(298

)

(305

)

(942

)

(911

)

Interest expense2,659

2,997

8,357

9,149

Interest paid(2,724

)

(3,122

)

(8,432

)

(9,236

)

Interest income(13

)

(121

)

(156

)

(291

)

Deferred income tax expense

(940

)

(1,396

)

(2,890

)

(1,534

)

Income tax expense

941

1,084

2,897

1,228

Income taxes paid, net

(4

)

-

(4

)

(10

)

Charge for uncollectible accounts

561

(307

)

955

(275

)

Amortization of ROU assets

(815

)

(568

)

(2,072

)

(1,716

)

Other income, net

(33

)

(192

)

(447

)

(192

)

Net loss attributable to noncontrolling interest

22

23

64

76

Other non-cash income (expense), net

33

192

99

(52

)

Changes in operating assets and liabilities

8,772

(1,024

)

(12,404

)

(8,202

)

Adjusted free cash flow$

(7,261

)

$

6,328

$

11,448

$

6,234

Schedule 5

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED FREECASH FLOW(Unaudited, In Thousands) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Net cash provided by $ 3,914 $ 14,287 $ 50,886 $ 42,620 operating activitiesAdjustments to reconcilenet cash provided byoperating activities toadjusted free cash flow:Capital expenditures (11,682 ) (10,942 ) (26,345 ) (31,374 )excluding prefundedprojectsCapital expenditures for (2,846 ) (182 ) (6,595 ) (182 )prefunded projectsMilestone payments 2,500 5,285 14,280 5,285 received for prefundedprojectsMilestone payments made (8,250 ) - (8,250 ) - for prefunded projectsDeferred cost of sales 175 - 350 - for prefunded projectsAmortization of revenue (521 ) - (1,230 ) - for prefunded projectsAmortization of deferred 1,810 1,141 4,881 3,400 capacity revenueAmortization of GCI (522 ) (522 ) (1,554 ) (1,549 )capacity revenueAmortization of debt (298 ) (305 ) (942 ) (911 )issuance costs and debtdiscountInterest expense 2,659 2,997 8,357 9,149

Interest paid (2,724 ) (3,122 ) (8,432 ) (9,236 )

Interest income (13 ) (121 ) (156 ) (291 )

Deferred income tax (940 ) (1,396 ) (2,890 ) (1,534 )expense

Income tax expense 941 1,084 2,897 1,228

Income taxes paid, net (4 ) - (4 ) (10 )

Charge for uncollectible 561 (307 ) 955 (275 )accounts

Amortization of ROU (815 ) (568 ) (2,072 ) (1,716 )assets

Other income, net (33 ) (192 ) (447 ) (192 )

Net loss attributable to 22 23 64 76 noncontrolling interest

Other non-cash income 33 192 99 (52 )(expense), net

Changes in operating 8,772 (1,024 ) (12,404 ) (8,202 )assets and liabilities

Adjusted free cash flow $ (7,261 ) $ 6,328 $ 11,448 $ 6,234

Schedule 6

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.ADJUSTED FREE CASH FLOW(Unaudited, In Thousands)Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Adjusted EBITDA$

16,613

$

15,811

$

49,228

$

44,895

Less:Capital expenditures excluding prefunded projects(11,682

)

(10,942

)

(26,345

)

(31,374

)

Amortization of GCI capacity revenue(522

)

(522

)

(1,554

)

(1,549

)

Cash severance expense-

-

-

(1,595

)

Income taxes paid, net(4

)

-

(4

)

(10

)

Interest paid(2,724

)

(3,122

)

(8,432

)

(9,236

)

1,681

1,225

12,893

1,131

Impact of prefunded projects:Capital expenditures for prefunded projects(2,846

)

(182

)

(6,595

)

(182

)

Milestone payments received for prefunded projects2,500

5,285

14,280

5,285

Milestone payments made for prefunded projects(8,250

)

-

(8,250

)

-

Deferred cost of sales for prefunded projects175

-

350

-

Amortization of revenue for prefunded projects(521

)

-

(1,230

)

-

(8,942

)

5,103

(1,445

)

5,103

Adjusted free cash flow*$

(7,261

)

$

6,328

$

11,448

$

6,234

* 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.Non-GAAP Measures: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, cash income taxes refunded or paid, cash interest paid, amortization of GCI capacity revenue, cash severance expense for the Company's former Chief Executive Officer, 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.See Schedule 3 for Net cash provided by operating activities, Net cash used by investing activities, and Net cash (used) provided by financing activities.See Schedule 5 for the reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow.Schedule 6

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.ADJUSTED FREE CASH FLOW(Unaudited, In Thousands) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Adjusted EBITDA $ 16,613 $ 15,811 $ 49,228 $ 44,895

Less:Capital expenditures (11,682 ) (10,942 ) (26,345 ) (31,374 )excluding prefundedprojectsAmortization of GCI (522 ) (522 ) (1,554 ) (1,549 )capacity revenueCash severance expense - - - (1,595 )

Income taxes paid, net (4 ) - (4 ) (10 )

Interest paid (2,724 ) (3,122 ) (8,432 ) (9,236 )

1,681 1,225 12,893 1,131

Impact of prefundedprojects:Capital expenditures for (2,846 ) (182 ) (6,595 ) (182 )prefunded projectsMilestone payments 2,500 5,285 14,280 5,285 received for prefundedprojectsMilestone payments made (8,250 ) - (8,250 ) - for prefunded projectsDeferred cost of sales 175 - 350 - for prefunded projectsAmortization of revenue (521 ) - (1,230 ) - for prefunded projects (8,942 ) 5,103 (1,445 ) 5,103

Adjusted free cash flow* $ (7,261 ) $ 6,328 $ 11,448 $ 6,234

* Quarterly Adjusted Free Cash Flow fluctuates and should not be viewed as anindicator of annual performance. Onetime events, seasonality of capital spendand the timing of interest payments may result in negative Adjusted Free CashFlow in one or more quarters. Non-GAAP Measures:Adjusted Free Cash Flow is a non-GAAP liquidity measure and is defined asAdjusted EBITDA, less recurring operating cash requirements which includecapital expenditures, cash income taxes refunded or paid, cash interest paid,amortization of GCI capacity revenue, cash severance expense for the Company'sformer Chief Executive Officer, and cash receipts and payments, deferred costsand amortized revenue and expense associated with certain prefunded specialprojects as defined in the 2019 Senior Credit Facility. Amortization ofdeferred revenue associated with our interconnection agreement with GCI isexcluded from Adjusted Free Cash Flow because no cash was received by theCompany in connection with this agreement. Amortization of all other deferredrevenue, including that associated with other IRU capacity arrangements, isincluded in Adjusted Free Cash Flow because cash was received by the Company,typically at contract inception, and is being recognized as revenue over theterm of the relevant agreement. See Schedule 3 for Net cash provided by operating activities, Net cash used byinvesting activities, and Net cash (used) provided by financing activities. See Schedule 5 for the reconciliation of net cash provided by operatingactivities to Adjusted Free Cash Flow.Schedule 7

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.REVENUE BY CUSTOMER GROUP(Unaudited, In Thousands)Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Business and wholesale revenueBusiness broadband$

16,053

$

15,654

$

47,950

$

46,358

Business voice and other7,331

7,200

21,747

21,442

Managed IT services1,377

1,789

3,904

4,965

Equipment sales and installations2,102

942

4,708

2,830

Wholesale broadband12,693

11,284

37,422

31,989

Wholesale voice and other1,342

1,870

3,974

4,688

Total business and wholesale revenue40,898

38,739

119,705

112,272

Growth in business and wholesale5.6

%

6.6

%

Consumer revenueBroadband6,986

6,718

20,474

19,880

Voice and other2,305

2,567

7,134

7,947

Total consumer revenue9,291

9,285

27,608

27,827

Total business, wholesale, and consumer revenue50,189

48,024

147,313

140,099

Growth in business, wholesale and consumer revenue4.5

%

5.1

%

Growth in broadband revenue6.2

%

7.8

%

Regulatory revenueAccess5,402

6,181

16,153

18,563

High cost support4,923

4,923

14,770

14,770

Total regulatory revenue10,325

11,104

30,923

33,333

Total revenue$

60,514

$

59,128

$

178,236

$

173,432

Growth in total revenue2.3

%

2.8

%

Growth Revenues: Business broadband, Managed IT services, Equipment sales and installations, Wholesale broadband, and Consumer broadbandLegacy Revenues: Business voice and other, Wholesale voice and other, Consumer voice and other, and AccessCAF II Revenues: High Cost SupportSchedule 7

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.REVENUE BY CUSTOMER GROUP(Unaudited, In Thousands) Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Business and wholesale revenueBusiness broadband $ 16,053 $ 15,654 $ 47,950 $ 46,358

Business voice and other 7,331 7,200 21,747 21,442

Managed IT services 1,377 1,789 3,904 4,965

Equipment sales and 2,102 942 4,708 2,830installationsWholesale broadband 12,693 11,284 37,422 31,989

Wholesale voice and other 1,342 1,870 3,974 4,688

Total business and wholesale 40,898 38,739 119,705 112,272revenueGrowth in business and 5.6 % 6.6 %wholesaleConsumer revenueBroadband 6,986 6,718 20,474 19,880

Voice and other 2,305 2,567 7,134 7,947

Total consumer revenue 9,291 9,285 27,608 27,827

Total business, wholesale, and 50,189 48,024 147,313 140,099consumer revenueGrowth in business, wholesale 4.5 % 5.1 %and consumer revenueGrowth in broadband revenue 6.2 % 7.8 %

Regulatory revenueAccess 5,402 6,181 16,153 18,563

High cost support 4,923 4,923 14,770 14,770

Total regulatory revenue 10,325 11,104 30,923 33,333

Total revenue $ 60,514 $ 59,128 $ 178,236 $ 173,432

Growth in total revenue 2.3 % 2.8 %

Growth Revenues: Business broadband, Managed IT services, Equipment sales andinstallations, Wholesale broadband, and Consumer broadband Legacy Revenues: Business voice and other, Wholesale voice and other, Consumervoice and other, and Access CAF II Revenues: High Cost SupportSchedule 8

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.KEY OPERATING STATISTICS(Unaudited)Three Months EndedSeptember 30,June 30,September 30,2020

2020

2019

Voice:Business access lines66,253

66,939

68,600

Consumer access lines21,229

21,769

23,530

Voice ARPU business$

27.98

$

27.68

$

26.71

Voice ARPU consumer$

34.13

$

34.35

$

34.03

Broadband:Business connections14,669

14,661

15,033

Consumer connections32,012

32,115

31,623

Broadband ARPU business$

364.09

$

369.14

$

344.88

Broadband ARPU consumer$

72.41

$

70.69

$

69.86

Monthly Average Churn:Business voice0.9

%

0.8

%

0.7

%

Consumer broadband3.0

%

2.6

%

3.0

%

Consumer voice1.1

%

1.0

%

1.4

%

Schedule 8

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.KEY OPERATING STATISTICS(Unaudited) Three Months Ended September 30, June 30, September 30, 2020 2020 2019

Voice:Business access lines 66,253 66,939 68,600

Consumer access lines 21,229 21,769 23,530

Voice ARPU business $ 27.98 $ 27.68 $ 26.71

Voice ARPU consumer $ 34.13 $ 34.35 $ 34.03

Broadband:Business connections 14,669 14,661 15,033

Consumer connections 32,012 32,115 31,623

Broadband ARPU business $ 364.09 $ 369.14 $ 344.88

Broadband ARPU consumer $ 72.41 $ 70.69 $ 69.86

Monthly Average Churn:Business voice 0.9 % 0.8 % 0.7 %

Consumer broadband 3.0 % 2.6 % 3.0 %

Consumer voice 1.1 % 1.0 % 1.4 %

Schedule 9

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.LONG TERM DEBT AND NET DEBT(Unaudited, In Thousands)September 30,

December 31,

2020

2019

2019 senior secured credit facility due 2024$

171,146

$

177,750

Debt discount - 2019 senior secured credit facilities due 2024(1,690

)

(2,234

)

Debt issuance costs - 2019 senior secured credit facilities due 2024(1,464

)

(1,863

)

Capital leases and other long-term obligations2,691

2,729

Total debt170,683

176,382

Less current portion(9,063

)

(8,906

)

Long-term obligations, net of current portion$

161,620

$

167,476

Total debt$

170,683

$

176,382

Plus debt discounts and debt issuance costs3,154

4,097

Gross debt173,837

180,479

Cash and cash equivalents(32,215

)

(26,662

)

Net debt$

141,622

$

153,817

View source version on businesswire.com: https://www.businesswire.com/news/home/20201104005593/en/

CONTACT: Media Contact Heather Cavanaugh, 907-564-7722 Director, External Affairs and Corporate Communications

CONTACT: Investor Contact Tiffany Smith, 907-564-7556 Manager, Board & Investor Relations investors@acsalaska.com