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Mar 16, 2018
Alaska Communications Reports Fourth Quarter and Year-End 2017 Results


-Posted 2017 Total Revenues of $226.9 Million-

-Reported 2017 Broadband Revenue Growth of 6.3%-

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. (NASDAQ: ALSK) today reported financial results for its fourth quarter and full year ended Dec. 31, 2017.

"The results for 2017 reflect year over year stability in our top-line performance. Revenue stability combined with tight management of operating and capital expenditures enabled us to generate $8.1 million in free cash flow, which was above our guidance for the year.

Our full year revenue performance was driven by growth in broadband, in particular by Wholesale broadband including wireless carrier backhaul and federal end-user demand, moderated by lower than expected growth from our health care vertical. While our full year revenue was flat year over year, our fourth quarter 2017 revenue declined due to the cumulative impact of price compression for the Rural Health Care 2017-2018 funding year for the period July 1 through December 31, 2017. 2017 Adjusted EBITDA, which includes a $2.6 million bad debt expense related to Rural Health Care customers, was $56.7 million, meeting annual guidance. Lastly, about 59% of our capital expenditures were directed toward success-based investments providing a foundation for future growth.

Entering 2018, we expect our Enterprise & Carrier business to continue to drive our top-line performance as we benefit from our increasing wireless backhaul business and additional opportunities from federal and energy sector investments in Alaska. Further the recent turn up of arctic fiber capacity by our partner, Quintillion Networks, opens several Arctic markets for us further driving our market opportunity. We are strengthening our mass market business serving residential and small businesses by investing in fiber-fed WiFi, Fixed Wireless technologies and an increasingly online customer interaction model, while positioning to meet our CAF II obligations in a cost-effective manner.

Looking ahead, we remain focused on operating a quality business that enables us to leverage the significant opportunities in the market. In parallel, we continue to evaluate our current long-term business plan against a broad range of strategic alternatives to enhance shareholder value. I look forward to reporting progress on all fronts over the upcoming months and quarters," said Anand Vadapalli, Alaska Communications president and CEO.

Revenue Highlights

  • Total revenue:
    • Revenue was $54.9 million for the fourth quarter of 2017, compared to $57.8 in the fourth quarter of 2016. Annual revenue was $226.9 million for both 2017 and 2016.
    • Total broadband revenue was $28.4 million for the fourth quarter of 2017, compared to $30.1 million for the fourth quarter of 2016, and was $123.1 million for 2017, compared to $115.8 million for 2016.
  • Business and wholesale:
    • Business and wholesale revenue was $33.1 million for the fourth quarter of 2017, compared to $35.4 million for the fourth quarter 2016. 2017 revenue was $139.1 million, comprising 61.3 percent of total revenue, compared to $136.9 million for 2016, comprising 60.3 percent of total revenue.
    • Business and wholesale broadband revenue was $22.1 million for the fourth quarter of 2017 compared to $23.7 million for the fourth quarter of 2016, and was $97.6 million for 2017, compared to $90.8 million for 2016.
  • Consumer:
    • Consumer revenue was $9.2 million for the fourth quarter of 2017, compared to $9.4 million for the fourth quarter of 2016. 2017 revenue was $37.1 million, comprising 16.4 percent of total revenue, compared to $37.7 million for 2016, comprising 16.7 percent of total revenue.
    • Consumer broadband revenue was $6.2 million for the fourth quarter of 2017, compared to $6.4 million for the fourth quarter of 2016, and was $25.4 million for 2017, compared to $25.0 million for 2016.
  • Regulatory:
    • Regulatory revenue was $12.6 million for the fourth quarter of 2017, compared to $13.0 million for the fourth quarter of 2016. 2017 revenue was $50.7 million for 2017, comprising 22.3 percent of total revenue, compared to $52.3 million for 2016, comprising 23.0 percent of total revenue.

Financial Metrics

  • Net loss for the fourth quarter of 2017 was $3.0 million, compared to net income of $1.6 million in the fourth quarter of 2016. 2017 net loss was $6.1 million, compared to net income of $2.4 million for 2016.
  • Net cash provided by operating activities for the fourth quarter of 2017 was $4.7 million, compared to $8.8 million in the fourth quarter of 2016. 2017 cash provided by operating activities was $30.4 million, compared to $37.2 million for 2016.
  • Capital expenditures for the fourth quarter of 2017 were $8.9 million, compared to $8.6 million fourth quarter of 2016. 2017 capital expenditures were $32.9 million, compared to $30.9 million in 2016.

Non-GAAP Metrics: Fourth Quarter 2017 compared to Fourth Quarter 2016 and Full Year 2017 to 2016

  • Adjusted EBITDA for the fourth quarter of 2017 was $14.9 million, compared to $16.4 million for the fourth quarter of 2016. 2017 Adjusted EBITDA was $56.7 million, compared to $58.2 million for 2016.
  • Adjusted free cash flow for the fourth quarter of 2017 was $2.2 million, compared to $3.1 million for the fourth quarter of 2016. 2017 Adjusted free cash flow was $8.1 million, compared to $9.6 million for 2016.

Information regarding non-GAAP financial measures, including reconciliations of non-GAAP financial measures to GAAP financial measures can be found below, in tables at the end of this release and on the company's website at http://www.alsk.com in the investment data section.

Balance Sheet Metrics

  • Cash was $16.2 million at December 31, 2017, compared to $23.1 million at December 31, 2016.
  • Net debt was $177.2 million at December 31, 2017, compared to $162.8 million at December 31, 2016.

2018 Outlook

Laurie Butcher, Alaska Communications senior vice-president of finance, said, "Going into 2018, we continue to focus our attention on optimizing capital allocation and cost management, while pursuing opportunities to grow target verticals in our Enterprise & Carrier business. While we continue to evaluate the impact of the Rural Health Care program funding status, we are targeting stable performance across all our key financial metrics and expect to provide 2018 guidance by the time we report our first quarter results."

Conference Call

The Company will host a conference call and live webcast on Monday, March 19, 2018 at 2:30 p.m. Eastern Time to discuss the results. Please submit questions for the management team in advance to investors@acsalaska.com. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-877-612-6725 and enter pass code 660348. All other parties can access the call at 1-323-794-2558.

The live webcast of the conference call will be accessible from the "Events Calendar" section of the Company's website (www.alsk.com). The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until April 18, 2018 at 5:30 p.m. Eastern Time. To hear the replay, parties in the United States and Canada can call 1-888-203-1112 and enter pass code 2301835. All other parties can call 1-719-457-0820 and enter pass code 2301835.

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.

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 of these non-GAAP measures is 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 and on our website in the investment data section. 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 outflows of $15.3 million for 2017).

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. 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, and the possible outcomes of such review and our current and projected financial and operating performance and all guidance related thereto. 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, Federal and Alaska Universal Service Fund changes including Rural Health Care Program funding limitations, adverse economic conditions, expectations regarding capital allocation and cost management, the effects of competition in our markets, unforeseen challenges when entering new 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, our ability to service our debt and refinance as required, labor negotiations, including renegotiating our collective bargaining agreement, employee benefit costs, our ability to control other operating costs, disruption of our supplier's provisioning of critical products or services, the impact of natural or man-made disasters, changes in Company's relationships with large customers, unforeseen changes in public policies, regulatory changes, changes in technology and standards, risks, disruption, costs and uncertainty caused by or related to the actions of activist shareholders, including that if individuals are elected to our Board with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and create value for our shareholders and perceived uncertainties as to our future direction as a result of potential changes to the composition of our Board may lead to the perception of a change in the direction of our business, instability or a lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, and may result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners, 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 Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
 
 
Operating revenues $ 54,935 $ 57,793 $ 226,905 $ 226,866
 
Operating expenses:
Cost of services and sales (excluding depreciation and amortization) 26,318 25,073 104,604 102,137
Selling, general & administrative 14,435 17,173 67,227 70,209
Depreciation and amortization 9,193 8,782 36,317 34,690
Loss on disposal of assets, net   (23 )   37     50     321  
 
Total operating expenses   49,923     51,065     208,198     207,357  
 
Operating income 5,012 6,728 18,707 19,509
 
Other income and (expense):
Interest expense (3,525 ) (3,857 ) (14,860 ) (15,447 )
Loss on extinguishment of debt - - (7,527 ) (336 )
Interest income   7     8     34     26  
Total other income and (expense)   (3,518 )   (3,849 )   (22,353 )   (15,757 )
 
Income (loss) before income tax expense 1,494 2,879 (3,646 ) 3,752
 
Income tax expense   (4,470 )   (1,282 )   (2,584 )   (1,499 )
 
Net (loss) income (2,976 ) 1,597 (6,230 ) 2,253
 
Less net loss attributable to noncontrolling interest   (29 )   (32 )   (129 )   (133 )
 
Net (loss) income attributable to Alaska Communications $ (2,947 ) $ 1,629   $ (6,101 ) $ 2,386  
 
Net (loss) income per share attributable to Alaska Communications:
Net (loss) income applicable to common shares $ (2,947 ) $ 1,629   $ (6,101 ) $ 2,386  
 
Basic and Diluted $ (0.06 ) $ 0.03   $ (0.12 ) $ 0.05  
 
Weighted average shares outstanding:
Basic   52,448     51,358     52,232     51,169  
Diluted   52,448     53,004     52,232     52,188  
 

Schedule 2
   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
December 31, December 31,
Assets 2017 2016
 
Current assets:
Cash and cash equivalents $ 4,354 $ 21,228
Restricted cash 11,814 1,917
Accounts receivable, net of allowance of $2,729 and $1,115 32,535 25,062
Materials and supplies 7,046 4,917
Prepayments and other current assets   6,115     5,995  
Total current assets 61,864 59,119
 
Property, plant and equipment 1,357,929 1,349,899
Less: accumulated depreciation and amortization   (991,816 )   (983,050 )
Property, plant and equipment, net 366,113 366,849
 
Deferred income taxes 3,394 14,718
Other assets   11,415     1,674  
Total assets $ 442,786   $ 442,360  
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term obligations $ 17,030 $ 1,973
Accounts payable, accrued and other current liabilities 36,148 38,180
Advance billings and customer deposits   4,213     4,167  
Total current liabilities 57,391 44,320
 
Long-term obligations, net of current portion 168,959 177,626
Deferred income taxes 596 -
Other long-term liabilities, net of current portion   61,330     61,538  
Total liabilities   288,276     283,484  
Commitments and contingencies
Alaska Communications stockholders' equity:
Common stock, $.01 par value; 145,000 authorized 525 515
Additional paid in capital 158,969 159,474
(Accumulated deficit) retained earnings (3,579 ) 752
Accumulated other comprehensive loss   (2,396 )   (2,910 )
Total Alaska Communications stockholders' equity 153,519 157,831
Noncontrolling interest   991     1,045  
Total stockholders' equity   154,510     158,876  
 
Total liabilities and stockholders' equity $ 442,786   $ 442,360  
 

Schedule 3
       
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
Cash Flows from Operating Activities:
Net (loss) income $ (2,976 ) $ 1,597 $ (6,230 ) $ 2,253

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 9,193 8,782 36,317 34,690
(Gain) loss on the disposal of assets, net (23 ) 37 50 321
Amortization of debt issuance costs and debt discount 412 1,011 2,363 4,046
Loss on extinguishment of debt - - 7,527 336
Amortization of deferred capacity revenue (911 ) (872 ) (3,512 ) (3,436 )
Stock-based compensation 667 683 1,509 2,830
Deferred income tax 13,422 1,312 11,582 1,855
Tax deficiencies from share-based payments - 4 - (47 )
Charge for uncollectible accounts 1,015 212 3,577 378
Other non-cash expense, net 145 155 575 621
Change in income tax payable or receivable (8,629 ) 338 (8,052 ) (514 )
Changes in operating assets and liabilities   (7,597 )   (4,417 )   (15,300 )   (6,127 )
Net cash provided by operating activities   4,718     8,842     30,406     37,206  
 
Cash Flows from Investing Activities:
Capital expenditures (8,891 ) (8,569 ) (32,945 ) (30,920 )
Capitalized interest (368 ) (266 ) (1,140 ) (1,077 )
Change in unsettled capital expenditures (507 ) 877 1,500 (8,304 )
Proceeds on sale of assets   34     -     40     2,664  
Net cash used by investing activities   (9,732 )   (7,958 )   (32,545 )   (37,637 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (2,088 ) (1,066 ) (176,466 ) (13,421 )
Proceeds from the issuance of long-term debt - - 183,000 -
Debt issuance costs and discounts - (500 ) (5,559 ) (544 )
Cash paid for debt extinguishment - - (5,522 ) (150 )
Cash proceeds from noncontrolling interest - - 75 75
Payment of withholding taxes on stock-based compensation (4 ) (4 ) (605 ) (476 )
Proceeds from issuance of common stock   123     137     239     267  
Net cash used by financing activities   (1,969 )   (1,433 )   (4,838 )   (14,249 )
 
Change in cash, cash equivalents and restricted cash (6,983 ) (549 ) (6,977 ) (14,680 )
 
Cash, cash equivalents and restricted cash, beginning of period   23,151     23,694     23,145     37,825  
 
Cash, cash equivalents and restricted cash, end of period $ 16,168   $ 23,145   $ 16,168   $ 23,145  
 
Supplemental Cash Flow Data:
Interest paid $ 3,630 $ 4,596 $ 14,504 $ 12,608
Income taxes (refunded) paid, net $ (322 ) $ (372 ) $ (946 ) $ 205
 

Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA
(Unaudited, In Thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
 
Net (loss) income $ (2,976 ) $ 1,597 $ (6,230 ) $ 2,253
Add (subtract):
Interest expense 3,525 3,857 14,860 15,447
Loss on extinguishment of debt - - 7,527 336
Interest income (7 ) (8 ) (34 ) (26 )
Depreciation and amortization 9,193 8,782 36,317 34,690
(Gain) loss on the disposal of assets, net (23 ) 37 50 321
Income tax expense 4,470 1,282 2,584 1,499
Stock-based compensation 667 683 1,509 2,830
Long-term cash incentives - 179 - 764
Net loss attributable to noncontrolling interest   29     32     129     133  
 
Adjusted EBITDA $ 14,878   $ 16,441   $ 56,712   $ 58,247  
 

NonGAAP 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 outflows of $15.3 million in the twelve-month period ended December 31, 2017).
 
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 2017 Senior Credit Agreement and 2015 Senior Credit Agreements, and other companies may not calculate Non-GAAP measures in the same manner we do.
 
Adjusted EBITDA is defined as net income (loss) before interest, loss on extinguishment of debt, depreciation and amortization, gain or loss on asset purchases or disposals, income taxes, stock-based compensation, net loss attributable to noncontrolling interest and expenses under the Company's long term cash incentive plan ("LTCI"). LTCI expenses are considered part of an interim compensation structure, which ended in 2016, to mitigate the dilutive impact of additional share issuances for executive compensation.
 

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 Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
 
Net cash provided by operating activities $ 4,718 $ 8,842 $ 30,406 $ 37,206

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

Capital expenditures (8,891 ) (8,569 ) (32,945 ) (30,920 )
Payment for North Slope fiber network - - - (5,500 )
Proceeds on sale of fiber to joint venture partner - - - 2,650
Amortization of deferred capacity revenue 911 872 3,512 3,436
Amortization of GCI capacity revenue (523 ) (535 ) (2,072 ) (2,082 )
Amortization of debt issuance costs and debt discount (412 ) (1,011 ) (2,363 ) (4,046 )
Interest expense 3,525 3,857 14,860 15,447
Interest paid (3,630 ) (4,596 ) (14,504 ) (12,608 )
Interest income (7 ) (8 ) (34 ) (26 )
Income tax expense 4,470 1,282 2,584 1,499
Income taxes (payable) receivable 8,629 (338 ) 8,052 514
Income taxes refunded (paid), net 322 372 946 (205 )
Deferred income tax (13,422 ) (1,312 ) (11,582 ) (1,855 )
Tax deficiencies from share-based payments - (4 ) - 47
Charge for uncollectible accounts (1,015 ) (212 ) (3,577 ) (378 )
Long-term cash incentives - 179 - 764
Net loss attributable to noncontrolling interest 29 32 129 133
Other non-cash expense, net (145 ) (155 ) (575 ) (621 )
Changes in operating assets and liabilities   7,597     4,417     15,300     6,127  
Adjusted free cash flow $ 2,156   $ 3,113   $ 8,137   $ 9,582  
 

Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED FREE CASH FLOW
(Unaudited, In Thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
 
Adjusted EBITDA $ 14,878 $ 16,441 $ 56,712 $ 58,247
 
Less:
Capital expenditures (8,891 ) (8,569 ) (32,945 ) (30,920 )
Payment for North Slope fiber network - - - (5,500 )
Proceeds on sale of fiber to joint venture partner - - - 2,650
Amortization of GCI capacity revenue (523 ) (535 ) (2,072 ) (2,082 )
Income taxes refunded (paid), net 322 372 946 (205 )
Interest paid   (3,630 )   (4,596 )   (14,504 )   (12,608 )
 
Adjusted free cash flow* $ 2,156   $ 3,113   $ 8,137   $ 9,582  
 
* 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.

NonGAAP 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, and cash receipts and payments associated with the purchase of the North Slope fiber network and establishment of our joint venture with QHL. 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 amortized to 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 by financing activities.
 
See Schedule 5 for the reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow.
 

Schedule 7
       
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE BY CUSTOMER GROUP
(Unaudited, In Thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
Business and wholesale revenue
Business broadband $ 12,298 $ 15,506 $ 61,559 $ 59,218
Business voice and other 6,590 6,678 26,508 27,903
Managed IT services 1,215 1,202 4,293 4,173
Equipment sales and installations 1,695 1,938 4,412 6,441
Wholesale broadband 9,829 8,222 36,081 31,581
Wholesale voice and other   1,464     1,861   6,267     7,539
 
Total business and wholesale revenue   33,091     35,407   139,120     136,855
Growth in business and wholesale -6.5 % 1.7 %
Consumer revenue
Broadband 6,241 6,360 25,441 24,981
Voice and other   2,978     2,998   11,676     12,763
 
Total consumer revenue   9,219     9,358   37,117     37,744
 
Total business, wholesale, and consumer revenue   42,310     44,765   176,237     174,599
Growth in business, wholesale and consumer revenue -5.5 % 0.9 %
Growth in broadband revenue -5.7 % 6.3 %
 
Regulatory revenue
Access 7,701 8,096 30,974 32,412
High cost support   4,924     4,932   19,694     19,855
 
Total regulatory revenue   12,625     13,028   50,668     52,267
 
Total revenue $ 54,935   $ 57,793 $ 226,905   $ 226,866
Growth in total revenue -4.9 % 0.0 %
 

Schedule 8
     
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
Three Months Ended
December 31, September 30, December 31,
2017 2017 2016
 
Voice:
Business access lines 71,699 72,068 73,977
Consumer access lines 29,262 30,361 33,418
 
Voice ARPU business $ 23.29 $ 23.51 $ 22.44
Voice ARPU consumer $ 31.65 $ 30.68 $ 27.83
 
Broadband:
Business connections 15,293 15,334 15,239
Consumer connections 33,904 34,295 34,603
 
Broadband ARPU business $ 267.44 $ 345.78 $ 337.98
Broadband ARPU consumer $ 60.72 $ 60.80 $ 61.26
 
Monthly Average Churn:
Business voice 0.9 % 1.2 % 1.1 %
Consumer broadband 2.7 % 3.1 % 2.2 %
Consumer voice 1.6 % 1.7 % 1.4 %
 

Schedule 9
   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
LONG TERM DEBT AND NET DEBT
(Unaudited, In Thousands)
 
December 31, December 31,
2017 2016
2017 senior secured credit facility due 2023 $ 178,350 $ -
Debt discount - 2017 senior secured credit facilities due 2023 (2,668 ) -
Debt issuance costs - 2017 senior secured credit facilities due 2023 (2,869 ) -
2015 senior secured credit facilities due 2018 - 86,750
Debt issuance costs - 2015 senior secured credit facilities due 2018 - (1,738 )
6.25% convertible notes due 2018 10,044 94,000
Debt discount - 6.25% convertible notes due 2018 (18 ) (2,271 )
Debt issuance costs - 6.25% convertible notes due 2018 (4 ) (467 )
Capital leases and other long-term obligations   3,154     3,325  
Total debt 185,989 179,599
Less current portion   (17,030 )   (1,973 )
Long-term obligations, net of current portion $ 168,959   $ 177,626  
 
Total debt $ 185,989 $ 179,599
Plus debt discounts and debt issuance costs   5,559     4,476  
Gross debt 191,548 184,075
Cash and cash equivalents (4,354 ) (21,228 )
Restricted cash held for 6.25% convertible notes due 2018   (10,044 )   -  
Net debt $ 177,150   $ 162,847  

Alaska Communications
Investor Contact:
Tiffany Smith, 907-564-7556
Manager, Board and Investor Relations
investors@acsalaska.com
or
Media Contact:
Hannah Blankenship, 907-564-1326
Manager, Corporate Communications
Hannah.Blankenship@acsalaska.com

Source: Alaska Communications Systems Group, Inc.

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Mar 14, 2018
Alaska Communications to Announce Q4 and Full Year 2017 Financial Results March 16 and Conduct Conference Call March 19


ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications (NASDAQ:ALSK) today announced it will release financial results for the fourth quarter and year end 2017 Friday, Mar. 16, 2018. The company will host a conference call and live webcast to discuss operating results Monday, Mar. 19, 2018 at 2:30 p.m. Eastern Time. The live webcast will include a slide presentation. On the call, the management team will answer questions submitted in advance. Please email questions to investors@acsalaska.com.

Parties in the U.S. and Canada can access the call at 1-877-612-6725 and enter code 660348. All other parties can access the call at 1-323-794-2558 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 90 days. A replay of the conference call will also be available two hours after the call and will run until April 18, 2018, at 5:30 p.m. ET. To hear the replay, parties in the U.S. and Canada can call 1-888-203-1112 and enter code 2301835. All other parties can call 1-719-457-0820 and enter code 2301835.

About Alaska Communications

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

Alaska Communications
Tiffany Smith, 907-564-7556
Manager, Investor Relations
investors@acsalaska.com

Source: Alaska Communications

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Mar 14, 2018
Rural Businesses Benefitting from Alaska Communications' Expanded Broadband Offerings


New internet connectivity allows businesses in underserved areas of the state to be more connected than ever.

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Doing business in Alaska's arctic region, off the road system, comes with a unique set of logistical and technological challenges. Alaska Communications (NASDAQ: ALSK) is working with rural businesses to provide solutions, allowing them to be more connected than ever.

"Many businesses in the Arctic regions have offices in Anchorage and other metropolitan communities. Having access to competitive, high-speed broadband will allow them to connect without limits," said Bill Bishop, senior vice president, Business Markets. "Businesses can become more efficient and effective because they won't be constrained by shared networks, slow connectivity and data caps."

Alaska Communications is proud to provide support solutions to Nome-based Kawerak, a regional non-profit corporation, by offering competitive, high-speed broadband. This move will address the extremely high prices and substantial bandwidth constraints previously faced by the Bering Strait Regional corporation.

"This contract will have a positive impact on business, connectivity and how Kawerak works with companies and customers outside of Nome," said Bishop.

In addition to its work in Nome, Alaska Communications is bringing new services to Utqiaġvik, Kotzebue, Point Hope and Wainwright. For the first time, Native corporations, government agencies, health care clinics, schools and businesses now can access competitive, high-speed, reliable broadband and managed IT services. Additionally, high-speed, reliable broadband is available through a fiber optic network where most new oil and gas development is occurring in Alaska's North Slope.

The fiber optic broadband network is now available following a multi-year effort by Quintillion to lay infrastructure and connect two undersea fiber optic cable networks. The connection increases capacity and builds redundancy on the subsea fiber optic system, which allows Alaska Communications to expand broadband and managed IT service offerings to Arctic region businesses. Previously, only high-cost microwave and satellite were available from a sole provider.

Alaska Communications is first making this new network available to business customers and select telecom carriers. It will work with local exchange carriers in each community to bring high-speed broadband opportunities to homes.

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.

About Quintillion

Headquartered in Anchorage, Quintillion is bringing lower-cost, high-speed broadband service options to rural Alaska and enabling new ground-based national defense infrastructure in the Arctic for the first time. Quintillion, together with its partners, is changing Alaska's middle mile capabilities with the construction of new fiber optic cable systems that went live December 2017, including subsea fiber from Prudhoe Bay to Nome with additional connections into Utqiaġvik (Barrow), Wainwright, Point Hope, and Kotzebue, and terrestrial cable from Fairbanks to the oil and gas industry at Deadhorse/Prudhoe Bay. Quintillion is exploring the business case to establish the continent's first North American Arctic Data Center on its network. The Alaska portion of the Quintillion Subsea Cable System is the first phase of a planned multiphase international subsea cable system designed to connect Europe to Asia along the Lower Northwest Passage, providing a diverse and shorter route between the two continents. For more information, please visit www.Qexpressnet.com.

About Kawerak

Kawerak's mission is to advance the capacity of our people and tribes for the benefit of the region. With programs ranging from education to transportation, and natural resource management to economic development, Kawerak seeks to improve the Bering Strait Region's social, economic, educational, cultural and political conditions to see our people and tribes thrive. Kawerak, Inc. is a regional non-profit corporation formed by the tribes following the passage of the Alaska Native Claims Settlement Act in 1971.

Alaska Communications
Investor Contact:
Tiffany Smith, 907-564-7556
Manager, Board and Investor Relations
investors@acsalaska.com
or
Media Contact:
Hannah Blankenship, 907-564-1326
Manager, Corporate Communications
Hannah.Blankenship@acsalaska.com

Source: Alaska Communications

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Feb 09, 2018
Alaska Communications Confirms Receipt of Nominations Notice


ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications (NASDAQ: ALSK), the state's leading broadband and managed IT services provider, today confirmed that it has received a purported notice of nomination from TAR Holdings LLC regarding its intention to nominate three director candidates to Alaska Communications' six-member board of directors at Alaska Communications' 2018 Annual Meeting of Stockholders.

TAR Holdings, an entity for which Karen Singer serves as the sole member, has indicated in its purported notice of nomination that it is seeking to nominate the following three candidates to Alaska Communications' Board of Directors: Steven G. Singer (brother-in-law of Karen Singer), Wayne Barr, Jr. and Patrick F. Doyle.

Alaska Communications, in consultation with its advisors, intends to review TAR Holdings' purported notice of nomination to assess whether it complies with Alaska Communications' Amended and Restated Bylaws and, accordingly, at this point, Alaska Communications is unable to confirm that such purported notice of nominations, as submitted, is in compliance with Alaska Communications' Amended and Restated Bylaws.

The Alaska Communications Board will present its formal recommendation regarding director nominations in Alaska Communications' definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2018 Annual Meeting of Stockholders. Alaska Communications stockholders are not required to take any action at this time.

Morgan, Lewis & Bockius LLP is serving as legal advisor to Alaska Communications.

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.

Important Additional Information And Where To Find It

Alaska Communications, its directors and certain of its executive officers are deemed to be participants in the solicitation of proxies from Alaska Communications' stockholders in connection with the matters to be considered at Alaska Communications' 2018 Annual Meeting of Stockholders. Information regarding the names of Alaska Communications' directors and executive officers and their respective interests in Alaska Communications by security holdings or otherwise can be found in Alaska Communications' proxy statement for its 2017 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission ("SEC") on April 27, 2017. To the extent holdings of Alaska Communications' securities have changed since the amounts set forth in Alaska Communications' proxy statement for its 2017 Annual Meeting of Stockholders, such changes have been reflected on Initial Statements of Beneficial Ownership on Form 3 or Statements of Change in Ownership on Form 4 filed with the SEC. These documents are available free of charge at the SEC's website at www.sec.gov. Alaska Communications intends to file a proxy statement and accompanying WHITE proxy card with the SEC in connection with the solicitation of proxies from Alaska Communications stockholders in connection with the matters to be considered at Alaska Communications' 2018 Annual Meeting of Stockholders. Additional information regarding the identity of participants, and their direct or indirect interests, by security holdings or otherwise, will be set forth in Alaska Communications' proxy statement for its 2018 Annual Meeting, including the schedules and appendices thereto. INVESTORS AND STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT AND THE ACCOMPANYING WHITE PROXY CARD AND OTHER DOCUMENTS FILED BY ALASKA COMMUNICATIONS WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able to obtain the Proxy Statement, any amendments or supplements to the Proxy Statement, the accompanying WHITE proxy card, and other documents filed by Alaska Communications with the SEC for no charge at the SEC's website at www.sec.gov. Copies will also be available at no charge at the Investor Relations section of Alaska Communications' corporate website at www.alsk.com, by writing to Alaska Communications' Corporate Secretary at Alaska Communications Systems Group, Inc., 600 Telephone Avenue, Anchorage AK 99503 or by contacting Alaska Communications' investor relations department at (907) 564-7556.

Alaska Communications
Media Contact:
Heather Cavanaugh, 907-564-7722
Director, External Affairs and Corporate Communications
Heather.Cavanaugh@acsalaska.com
or
Investor Contact:
Tiffany Smith, 907-564-7556
Manager, Board and Investor Relations
investors@acsalaska.com

Source: Alaska Communications

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Jan 09, 2018
Alaska Communications Adopts Tax Benefits Preservation Plan to Protect Tax Assets


Stockholders to Vote on Tax Benefits Preservation Plan at 2018 Annual Meeting

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications (NASDAQ: ALSK) today announced that its Board of Directors has approved the adoption of a tax benefits preservation plan (or "the plan") in the form of a Section 382 Rights Agreement designed to protect and preserve the long-term value of certain tax assets primarily associated with net operating loss carryforwards. Alaska Communications intends to submit the tax benefits preservation plan, which is similar to tax benefits preservation plans adopted by many other public companies with significant tax assets, for stockholder ratification at its 2018 Annual Meeting of Stockholders.

As of December 31, 2016, Alaska Communications had approximately $67.5 million of (pre-tax) federal net operating loss carryforwards or NOLs that could potentially be utilized in certain circumstances to offset Alaska Communications' future taxable income and reduce its federal income tax liability. Additional information with respect to Alaska Communications' NOLs is contained in Alaska Communications' Annual Report on Form 10-K for the fiscal year ended December 31, 2016 which Alaska Communications filed with the Securities and Exchange Commission on March 16, 2017.

Section 382 of the Internal Revenue Code imposes limitations on the future use of a company's NOLs if it undergoes an "ownership change." Alaska Communications' ability to benefit from its tax assets would be substantially limited by Section 382 if an "ownership change" occurred. A company experiences an "ownership change" for tax purposes if the percentage of stock owned by one or a group of its 5% stockholders (as defined for tax purposes) increases by more than 50 percentage points over a rolling three-year period over the lowest percentage of stock of such corporation owned by such stockholders at any time during that period. While Alaska Communications periodically monitors its NOLs and currently believes that an ownership change that would materially impair the value of its NOLs has not occurred, the complexity of Section 382's provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has in fact occurred.

To protect Alaska Communications' NOLs from being limited or permanently lost under Section 382, the tax benefits preservation plan is intended to deter any person or group from acquiring beneficial ownership of 4.99% or more of Alaska Communications' outstanding common stock without the approval of the Board and, thereby, reduce the likelihood of an unintended "ownership change." There is no assurance, however, that the tax benefits preservation plan will prevent Alaska Communications from experiencing an "ownership change."

Pursuant to the tax benefits preservation plan, one preferred stock purchase right will be issued for each share of Alaska Communications' common stock held by stockholders of record on January 19, 2018. Under the tax benefits preservation plan, the rights will become exercisable only if a person or group acquires beneficial ownership of 4.99% or more of Alaska Communications' common stock without the approval of the Board. A person or group who acquires, without the approval of the Board, beneficial ownership (as defined in the tax benefits preservation plan) of 4.99% or more of Alaska Communications' outstanding common stock (including any ownership interest held by that person's "affiliates" and "associates" as defined under the tax benefits preservation plan) could be subject to significant dilution. Stockholders who beneficially owned 4.99% or more of Alaska Communications' outstanding common stock prior to the first public announcement by Alaska Communications of the plan will not trigger any penalties under the tax benefits preservation plan so long as they do not acquire beneficial ownership of any additional shares of common stock (other than pursuant to a stock split, reverse stock split, stock dividend, reclassification or similar transaction effected by Alaska Communications) at a time when they still beneficially own 4.99% or more of such common stock. The Board also retains the sole discretion to exempt any person or group from the consequences imposed by the plan.

The preferred stock purchase rights and the tax benefits preservation plan will expire no later than January 8, 2021. The preferred stock purchase rights and the tax benefits preservation plan may also expire on an earlier date upon the occurrence of other events, including a determination by Alaska Communications' Board that (i) the tax benefits preservation plan is no longer necessary or desirable for the preservation of Alaska Communications' tax attributes, or (ii) no tax attributes may be carried forward (with such expiration occurring as of the beginning of the applicable taxable year).

The issuance of the preferred stock purchase rights pursuant to the tax benefits preservation plan will not affect Alaska Communications' reported earnings per share and such issuance should not be taxable to Alaska Communications or its stockholders.

Additional information with respect to the tax benefits preservation plan will be contained in the related Current Report on Form 8-K and Registration Statement on Form 8-A that Alaska Communications is filing with the Securities and Exchange Commission. Copies of these documents can be obtained, when available, at the SEC's internet website at www.sec.gov.

Morgan, Lewis & Bockius LLP is serving as Alaska Communications' legal advisor.

About Alaska Communications Systems

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.

Safe Harbor

This press release contains "forward-looking statements" as defined under the U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbors created by such laws. Forward-looking statements contained in this press release may relate to, but are not limited to, statements regarding our future taxable income, our ability to utilize and realize the value of our net operating loss carryforwards and how they could be substantially limited if we experienced an ownership change as defined in Section 382 of the Internal Revenue Code and whether the tax benefits preservation plan will reduce the likelihood of such an unintended ownership change from occurring. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. Information on factors that may impact these forward-looking statements can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections contained in Alaska Communications' periodic reports filed with the Securities and Exchange Commission, including, but not limited to, its latest Annual Report on Form 10-K and its latest Quarterly Report on Form 10-Q, copies of which may be obtained from www.sec.gov or by contacting Alaska Communications' investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com. The forward-looking statements in this press release are made as of the date hereof. Notwithstanding changes that may occur with respect to matters relating to any forward-looking statements, Alaska Communications assumes no obligation to publicly update, amend or clarify its forward-looking statements, whether as a result of new information, future events or otherwise, except as may otherwise be required by the federal securities laws. Alaska Communications, however, reserves the right to update such statements or any portion thereof at any time for any reason.

Alaska Communications
Media Contact:
Heather Cavanaugh, 907-564-7722
Director, External Affairs and Corporate Communications
or
Investor Contact:
Tiffany Smith, 907-564-7556
Manager, Board and Investor Relations
investors@acsalaska.com

Source: Alaska Communications

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