Q1 2021 ATN International Inc Earnings Call
Okay.
Good morning, My name is Sia and I will be the conference operator today at this time I would like to welcome everyone to the a T and international Q1, 2021 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If he would like to ask of.
The question during that time simply press star and the number one the on your telephone keypad to withdraw the question press the pound key. Thank you at this time I would like to turn the conference over to Justin Benincasa, Chief Financial Officer. Please go ahead Sir.
Great. Thank you everyone and good morning, and thanks for joining us on our call to review our first quarter 'twenty 'twenty. One results with me here is Michael prior Atms Chief Executive Officer.
And during the call I'll cover the relevant financial information and Michael will provide an update on the business and outlook before I turn the call over to Michael for his comments I'd like to point out that this call on our press release contain forward looking statements concerning our current expectations.
The objectives and underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause actual results to differ materially from those described.
Also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures for details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results.
We would refer you to our earnings release on our website at <unk> dot com or to the 8-K filing provided to the SEC and I'll turn it over to Michael for his comments.
Okay. Thank you Justin good morning Earle.
So this quarter was largely in line with the trends and expectations, we discuss just two months ago.
Our most important revenue drivers and international Telecom broadband and mobile subscriber levels continued to show strong strength, even as we await.
Economic activity recovery from pandemic restrictions.
For the quarter showed we have some more work to do on the cost side of the equation.
And as expected activity and related expense is picked up in several areas of our U S. Telecom operations, particularly the first net build in other infrastructure builds and private network development efforts.
Meanwhile, the Alaska Communications acquisition, which we announced at the start of the quarter continues to move promising lead towards close.
And the partial exit from our Indian renewable energy business was completed in January freeing up resources to focus on communication services businesses closer to home.
Now I'll turn to some more detail on the individual operating segments, starting with international Telecom.
Fixed data subscribers in the segment increased by about 9% year on year as we continue to see growth in the space every quarter, our past and ongoing investments in our network and service quality of enabled us to capture underlying demand.
Mobile subscribers also increased by 9% year on year. This was the third consecutive quarter of good growth in this metric and as you can see in the information in our press release, we saw year on year growth in posts in both postpaid and prepaid subscribers.
We credit better retail on marketing strategies for the share gains.
Video subscribers continue to decline, though with some recent signs of leveling off and voice subscribers remained steady.
<unk> expenses rose faster than revenue for this segment year on year, while some of that was new regulatory fees and some of it more onetime in nature. We are implementing cost reduction initiatives in several markets and we will be working hard to bring expense levels down over the next few quarters.
Conditions in these markets are still fairly difficult as the overall economic activity remains historically low due to the the pandemic roaming both inbound and outbound revenues from hospitality customers in other commercial customers all continue to feel some negative impacts.
So we would expect to see a pickup in revenue as travel restrictions ease and the vaccination rollout drives increased tourist travel.
In U S. Telecom, we started to see a more significant impact of the first net construction inflows and outflows we delivered a lot of sites in the first quarter and expect that pace to continue throughout the year and into the first half of 2022 in accordance with our obligations.
In addition to the important first net activity our engineering and operational teams are very busy with the middle mile of fiber builds and expansion of our broadband network and private network trials and deployments.
Much of the middle mile of fiber and broadband activity is related to public private partnership solutions with federal state and local subsidy programs, helping to make these investments for announced financially sound for us.
We have a lot of experience in that realm, and we are closely examining the recently passed and proposed.
Federal infrastructure programs to see where we might be part of the solution to identified areas of the digital divide.
Our private network capabilities also can be part of that solution.
As mentioned briefly on the February call.
<unk> partner with other providers to win a bid to build out to mid sized cities with the neutral host wireless network to support both local education and municipal services.
Financially results for U S Telecom were in line with the transition phase, we spoke about last quarter, which we expect the last throughout the year.
Operational and capital spending has increased as we ramp up our capabilities in several areas and pursue growth opportunities.
Of course, the segment will look very different following the close of the lack of communications deal.
To illustrate the impact.
You added Acs as most recently reported quarterly results, which for for the fourth quarter of last year revenue.
Reported for this segment would be over 100 million for the quarter with adjusted EBITDA of roughly $20 million.
And of course, we were hoping to do better than that.
On that front were very pleased that Alaska communications shareholders voted to approve our acquisition of the company on March 12.
And we look forward to gaining regulatory approvals in coming months.
In the meantime, we've been working with Alaska Communications management team to identify opportunities to gain revenue synergies and potentially accelerate execution of their business strategy.
While still early in the process, we have identified several stage, one priorities, including the opportunity to accelerate growth companies fiber based revenues.
The expansion of anchor tenant fiber builds and cross selling next generation managed services and private network solutions.
The teams are also hard at work on the blocking and tackling of integration planning, including opportunities for cost efficiencies.
So more to come on both fronts, but for now I'll turn it back over to you adjusted.
Great. Thanks, Michael for the quarter total consolidated revenues were $124 5 million up 12% from last year's reported total of $110 9 million.
The $12 3 million of of the revenue increase was associated with the first net construction project in the remainder of represented.
The modest uptick in revenue in the international segment.
Consolidated adjusted EBITDA for the quarter was $24 7 million versus $29 9 million in the first quarter of 2020, and I'll speak more about that decrease in a moment.
I wanted to note that we slightly restructured the presentation of our operating expenses on our consolidated P&L to better align with industry standard and in preparation for the consolidation of Alaska Communications when the acquisition closes.
We're now combining termination and access fees with engineering and operations into cost of services and putting together, our sales marketing customer service and general and administrative expenses in the form selling and general and administrative costs.
Looking at each of the segments and starting with international Telecom revenues were $83 8 million up from $82 3 million last year, and adjusted EBITDA was $26 9 million compared to $27 8 million.
As Michael mentioned segment revenues benefited from broadband and mobile subscribers growth in several markets, but we did incur higher operating expenses in the quarter, which led to a modest decline in adjusted EBITDA.
We also took advantage of the opportunity to purchase additional shares in our one.
Communications subsidiary, which is our Bermuda and Cayman Island company.
This quarter and now on approximately 77% of the outstanding equity.
Capital expenditures in the quarter were $10 5 million for the segment.
In the U S. Telecom segment revenues were $40 3 million for the quarter up from $27 3 million a year ago and as I noted earlier of this includes $12 3 million of construction revenue related to the first net project.
As a reminder, we anticipate completing an additional 50% of the 85 million dollar project this year, which will bring us to approximately 65% completion at year end.
The decline in adjusted EBITDA for the for the segment to $4 6 million from $8 1 million last year was due to the anticipated higher operating costs. We discussed last quarter, specifically, we had higher fixed costs associated with the completion of the cares. The cares act funded buildout of our rural broadband.
In advance of driving additional revenues and first net sites coming online as we shift from historically, providing predominantly wholesale roaming services to more lease income and maintenance services.
Additionally, we've increased spending on sales efforts in product development and our early stage private network business we.
We will experience lower lower year on year EBITDA comparisons in the segment until the completion of the Alaska Communications transaction.
Capital expenditures in the quarter were reported at $14 9 million, but I would note that $6 $2 million of debt is reimbursable to ATM through various government grants as we footnoted in the segment table within our press release.
Consolidated net income for the quarter was $2 7 million of 17 cents per share, which includes the $2 $5 million write up of one of our minority investments also included in operating expenses for the quarter was $1 3 million of noncash stock based compensation expense.
The effective tax rate for the quarter was approximately six 4%, reflecting our forecasted jurisdictional mix of income and tax rates on our markets.
Moving to the balance sheet on March 31, total cash was $91 million in total debt outstanding was $72 million I should point out debt as part of the first net contract we agreed to a structured repayment schedule for each of the completed sites. This is presented on our balance sheet. Starting this quarter is.
Customer receivable for $23 4 million in combination with the structured repayment schedule, we've entered into an arrangement with one of our banks to monetize that receivable through a separate financing agreement that is backed only by that customer receivable. This is presented on our balance sheet this quarter as customer receivable credit.
Facility for $10 8 million.
Theres a few months delay between the site acceptance in the drawing on the credit facility, but as we get closer to completing the build in 2022 the receivable balance in the credit facility balance should closely aligned.
And with that operator wed like to open the call up for questions.
So at this time I would like to remind everyone that if he would like to ask a question you May press star followed by the number one on your telephone keypad now again that star and the number one on your telephone keypad to ask a question on pause for just a moment to compile the Q&A roster.
And the first question will come from Ric Prentiss with Raymond James. Please go ahead.
Can you hear me okay.
We can now little faint Rick thanks, Okay alright.
Alright, I'll talk up a little bit.
First of thanks for giving the international EBIT per cent ownership that does helps I appreciate that number in the press release.
Talking about regulatory stuff, obviously, a lot going on.
Can you expand a little bit about where you see the infrastructure dual headed and what it might mean for you guys, but also the E b b the emergency broadband benefit.
There anything there that might be.
Applicable for you guys.
I think yes to the last I don't have more details to speak about what we're looking at that closely.
We're looking at all of the programs I mean, it's not 100% clear.
Where this infrastructure build lands, we do think there's bipartisan support for communications infrastructure builds but.
There as you probably know this well, but there is there there is some question about how does it relate to existing programs for.
For example of the second part of Art of does it get does that get rolled in.
But.
We look at and by the way, it's not just federal it can be federal direct it can be federal through the states and it can be some state funding, but we where we look at.
On the amounts that are being.
Talked about and the dwarf even the rural digital opportunity funds. So the <unk>.
Obviously significant and we have a history of participating in these programs and looking at them carefully we.
We are identifying areas, where we think we can help them.
For us of a lot of it is that the.
Bringing in the key infrastructure. So I mentioned you know the.
The middle mile fiber.
Builds we have just completed one than we have.
Couple of others ongoing in those.
Those are typically driven by things like.
Bringing fiber some considerable distance into light up a school district in the area and then and then we've obviously tried to routed.
And make it work for all users in the in the area. So I think there's I think there's a lot of infrastructure still needs to be built in.
We're hoping to participate on that.
Any thoughts on how long the timing it takes the kind of shake out for this oh. The D. C is always a tough on the peg that way, but any thoughts about how long it takes to.
This cake.
Again, the sort of.
More pure infrastructure side of things.
Obviously transportation infrastructure and things like that as well as.
Communications infrastructure seems to have a lot of <unk>.
Support from both sides of the aisle from all of the people we speak to you on the Hill.
And.
So I think you know.
So I can't predict whether theres something that stymied hit right because there is definitely a difference on the larger bill.
But there seems to be.
On a lot of folks who are pushing.
To solve.
The digital infrastructure, because the pandemic needed.
Really accentuated the.
Differences between Hasnt has not in terms of communities for distance learning for for all sorts of things so.
On some I'm pretty optimistic that it gets resolved in the next couple of months in terms of.
There is an agreement about the way forward now it'll take a little longer probably.
Undoubtedly the rollout the program and figure out how to route of install safeguards.
Okay.
As you think about Alaska coming on board hopefully.
How does your early view of that fit into the infrastructure Bill ABB opportunities there as well.
For sure I mean, there are significant opportunities there and one of the things we hope to do.
Is too.
Is to give the team there of the resources to pursue those things more proactively than in the past.
And and <unk>.
There is no doubt there is going to be on our mindset theres going to be builds there and there'll be opportunities that we think we can participate in that will make sense for us.
Okay and on.
Alaska, You mentioned now kind of middle of 'twenty, one couple of months hopefully we get through the process. As you think about the closing timeline I know T. Mobile historically the likes of always close something on the first of all of the month for the first or second month of the quarter. It doesn't like to do intra month doesn't want to do the third month of the quarter as you think about when Alaska might close.
Would you close in on any day of like let's get going on this or how should we think about timing.
Closing.
I mean, my general attitude is of the get are done.
Dude.
But.
We have <unk>.
And you wanted to add on the I'm, just saying that the Shin on deal is kind of for days from approval. So we kind of im not sure. We can steer it as much on that so, but I think our general approaches.
Yeah close we'll close when you can close yeah.
Yep Yep, Okay, and I think we're I think we're ready I mean, we've done this before.
And I think we're ready to do it and the teams have been.
This is not like a lot of the.
Sort of private deals and the nature and or overlapping.
The competitive situations, where you have.
Antitrust issues I mean, we have you know.
Ability to really work those details of ahead of time and be ready.
Great.
You've touched on private networks for a couple of times can you help us understand sizing timing winning of kind of.
The network transactions and what it might mean to the.
<unk> assumed <unk> fits into this as well.
I missed the first part Rick can you repeat the question.
Yes.
You mentioned private networks of a couple of times can you help us kind of size. What you think the addressable market is the timing of the portion of that market when it's going to take the wound on just to come.
Can you help think about what the magnitude of what we're looking at might mean for you guys.
Yes, I don't I don't want to I.
I don't want to cite the total of addressable market there, there's big numbers out there all over the place depending on how you how you measure it but.
I think.
Very the size that we're going after is.
More than material to us.
If we're successful so it could be significant area and we are.
What we've been doing on the private networks more and more of pursuing sort of of partner channel partner strategy, rather than what you would've seen in a lot of other areas, including das where it's kind of onesie twosies.
Builds instead, we are partnering with other providers of the <unk>.
Whole technology solution around private networks and edge compute.
And looking to.
Do that.
Across many different segments.
We are.
Obviously pursuing the municipal state and local education.
And there's other there's other verticals, where we've got partners in talks.
Two to go forward so we could.
I think.
Again, I can't really give you a total addressable market at this time.
It's.
It's substantial opportunity, if we're able to execute on it and position ourselves as one of the leaders in.
But it's still early.
It's still early in the sense that even other folks we've spoken to including.
Potential competitors that are backed by.
The private equity firms we know.
Everybody thought 2020 was pretty slow in the sector and is expecting it to pick up and we see.
Some signs of that but you know.
Definitely see some signs of that but there's still there's still more to go. So that's really the best I can do for you now.
Okay. Thanks, guys I'll come back for sand for more questions.
Sure.
The next question will come from Greg Burns with Sidoti <unk> Company. Please go ahead.
Good morning.
On the follow up on that last comment around seeing some positive signs on the private network.
Can you, maybe just give us a sense of.
Maybe a little bit more color on what those signs are or what the pipeline looks like.
Is it growing.
On the conversations getting more positive or constructive of customers. Just what are you. What are you seeing that gives you the confidence in that part of the business.
It's really the it's really mainly the channel partner side that I spoke.
Two before Greg So it's.
We are in discussions with some very big players who have ambitions around.
The solutions across a lot of a lot of real estate if you will.
And.
And I think the.
We're very encouraged by what people see and the value we bring to the to the solution with sort of the.
An overarching network platform.
To be to be used as part of that and.
So I think the.
What gives me the optimism is the types of partners, where we're speaking to our prospective partners are those who arent doing this in a small way and for them.
They are much bigger company for us looking for major solutions. So.
And nobody.
People don't devote those resources all of the other partners potential partners don't devote those resources and prospective customers unless they think this is coming so those those of the sort of tea leaves we're reading.
Okay.
What percent of.
Your international EBITDA does the one communications subsidiary contribute.
We don't break it out Greg.
But it's the.
They're all very substantial portion of it does not.
All they're all they're all important of that segment, but we don't really break that piece out.
Okay.
And then.
Has there been any change in the and I know.
So there was a change in the FCC's support you get.
In the U S. Virgin Islands is there any change in the status of that.
Now no still still on.
Ongoing discussions and.
And I'm waiting to see what's what's next.
Okay, but that hasnt.
We're still receiving the.
That change has been.
It wasn't reflected on this quarter's results okay no no okay.
Okay any timeline on when you know.
Some final decision or might be made where that will start to impact the the.
The P&L.
Hi.
There are several layers of decisions.
The need to be made and we're.
And discussions about that so I think some decisions will be made certainly of next few few months.
Maybe this quarter.
But there is there's I don't want to get into the details of the conversations but.
Sure.
I expect it to develop and.
An outcome and timelines to be clear.
You know in the next quarter or so.
Okay. Thank you.
Yes.
Your next question will come from Amit <unk> with VW as financial please go ahead.
Hey, Good morning first question on how good morning on the private network side of <unk>.
Are you actually generating the revenue at this point or bill on development.
How far along do you think it'll be before generating positive free cash flow from that business.
How many we are generating revenue, but it's the prospective revenue what we're chasing is it's much bigger than the current generated revenue and.
And when we're pursuing it worth it.
Our focus is on.
Overall contract.
The pipeline building multiyear contracts of of revenues and positioning so.
And in terms of free cash flow, we certainly don't expect it this year and in a way.
If this is if this is successful that that could prolong.
On.
In the near term the.
The negative free cash flow as we continue to work for that growth.
So certainly not expecting that.
This year for example.
Okay, and then on the cost cutting comments is that related to being in preparation for the Alaska communications purchase or is that purely separate because something has just fallen out of whack for the moment.
I was really speaking mainly to the international Telecom area. So we have some initiatives that already were in play that are.
Not moving as fast as we would like.
And we're looking to identify additional areas.
Okay. Thank you.
Okay.
And once again, ladies and gentlemen that star followed by the number one for any questions again star followed by the number one for any questions over the phone line well pause for just a moment to compile the Q&A roster.
We do have a follow up from Ric Prentiss with Raymond James. Please go ahead.
Yes, Thanks, guys a couple of follow ups, if I could just as you were talking about the capex in the U S and how the $14 9 million includes about $6 2 million Reimbursable, what's the timeframe of how that gets reimbursed and how will you report that we reported as of net capex or how should we think about that the comments.
That's why I brought it up for it because we can't reported as of net capex. So it kind of and what I would say is some of it's already been received and then now spent and some of it still to come.
So what we're trying to do is in our statement of cash flows the show what capex spending with that either we have received are going to receive but the the receipt of the money is kind of somewhere else within the statement of cash flow. So I wanted to try it on Adam but counts when let me so.
That's why I was saying, we do you will keep bringing it up on what the number is so I.
I appreciate that Shakespeare sort of a set of accounts instead of the lawyers.
Yeah.
On the first net I think I heard you say 55 zero percent incremental to get to the 85 million, but I thought I heard the red and the person.
And he said he was going from 30 to 65 by the end of the year.
Yes, so we did about 15% last year, we'll do another 50% this year so.
Yeah, and we had on the press release, we had a little bit more on the first quarter then.
The quarter of 50 call. It so but it's generally by the end of the year will be 65% done is the ballpark.
Got you that makes sense, yeah, because yes, okay and then still finished by end of <unk>.
'twenty two.
Yes, that's still the rough mid year of kind of thing.
Okay.
Sure.
Was not any explicit guidance in the in the press release previously you'd given some capex guidance, obviously, the Alaska used to give a lot of guidance how should we think about.
Guidance.
Based on the Alaska deal around the corner here on what you might do going forward.
I mean, we still we're always hesitant to give a lot of P&L guidance right, but I think we will help people with what Alaska means although they are public right. So that you can get a lot of that.
We will definitely guide on Capex and I Didnt refresh anything on Capex that we just kind of gave that guidance a couple of months ago. So we're still anticipating what we what we said at year end, so, but I think we you should expect at least some capex guidance.
Coming on in addition to the other segments of from Alaska, and I think Rick will also we're also expecting next.
The next quarter.
Should be good timing for it.
In more detail about the plans and expectations.
For Acs.
Okay that makes sense.
How should we think about the tax implications and you mentioned the effective tax rate in the quarter, what does the Alaska due to the cash taxes as well as book taxes.
Ashley.
On the cash tax basis of Alaska's helps us because.
There is some Nols there.
And I would say on a consolidated basis, we're kind of if you look at 2021, we'd be slightly above where we were on this quarter right at the 6%. So we're thinking we're still on that.
6% to 10% range on effective tax rate through the P&L.
But I think from a cash tax standpoint.
It's the it'll be beneficial to us.
Great.
Right.
Yeah, It makes sense.
One of the one I thought of do you report how much of the Capex was first net.
I've given the issue.
We've kind of said in the in the initial guidance right. We said that the U S was I think it was 40 to 50 of 45 to 50.
The bulk of that is the first net and it's the and what by first.
That's like call it $25 $30 million of it is first net and that is associated with infrastructure of towers backhaul that we will own at the end of the day, so because sometimes it gets confusing with the sites were actually building and turning over to AT&T not our capex. That's that's their capex, but we're building it that's capex.
Towers interest and backhaul that we keep.
Right and so you put the things for us the actuals and it's a big chunk of your <unk>.
Putting out kind of how much you spent for two last year. How much you spent in <unk>. This year that was quote person that that's kind of obviously of bubble versus what would be of more traditional yes.
Yes, that's a good point, we probably could do some of that.
Okay, that'd be great alright, thanks, guys.
Alright, thanks for.
And at this time there are no further questions I would like to turn the conference back over to management for any closing remarks.
No closing remarks, everybody. Thanks for joining and we will see in the quarter.
Ladies and gentlemen, thank you for participating on today's conference call you may all disconnect.
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