Q2 2021 ATN International Inc Earnings Call
[music].
Good day, and thank you for standing by welcome to the a T and international P. O 222, and you want and his call.
At this time, all participants and email list and only mode.
The speaker presentation, and they will be a question and answer session to ask a question. During the session you will need to best buy 1 on your telephone.
Please be advised that today's conference is being recorded I would now like to hand, the contents over J speaker today, Mr. Just did and Benincasa Chief Financial Officer. Please go ahead Sir.
Good morning, everyone that day.
And a call and reviewed.
The order of 21 and.
21 resolved and.
Recent.
Okay.
With me here Michael prior.
And as Chief Executive Officer. During this call all covered with all of international information and and Michael as usual bite and update on the business and outlook before and drink.
And for his comments and.
And this call and a press release and can take forward looking statements and Sir.
Occur and expectation objectives.
<unk> and underlying assumption regarding future operating Michael.
Subject to risk and uncertainty and they couldn't cause actual results and.
Mckinley from those fries.
Also in an effort to provide useful information and investors are comments today include GAAP.
Bankers.
Mhm and for detail and these measures and reconciliation to comparable GAAP measures.
For further information regarding the taxes and the effect.
Future operating result.
Please refer to earnings release on our website at 80, and I dot com or to the day K and provided to the SEC City.
And what the N P C S.
Filing for a lack of communication up to the first quarter of 2021 and can be found on the website.
K dot com and that we're still.
Businesses.
County, and expect to file or ate cake and that will be.
Include the pro forma financial.
And my actual results Romney and and some time and with that I'll turn the call over to Michael.
If you do have to.
Pleased to close depositions, Alaska Communications and lastly, horrible.
And what we expected and.
Discuss the previous calls were excited and the new here and long term opportunity here.
Excellent and fit for operating portfolio and distinct.
Thank you and our core business strategy, which is building and operating critical communications infrastructure and do a remote and challenge and markets, where we can maintain and a long term competitive advantage.
I will provide more thoughtful edition shortly.
And our existing businesses performed well overall for the quarter solid repeat and growth slipped back from us and additions.
We did of course experienced higher you and your expenses against and extraordinarily low a second quarter last year. When many expenses will immediately reduced or mitigated by government action.
Added to that works bench increases and settle categories, and Sweden regulatory and so let individual expenses, which lead and expect to continue it to the current border including political cool.
So I'll turn it back to Alaska for the for the past few years. This business has had good success growing its business and wholesale revenue, which now represents and 2 thirds of revenue and much that is under multiyear contracts.
We expect that strategy and success to continue as we leverage fibre facilities built onto that anchor tenants and return model and look for opportunities to generate incremental cash flow from those facilities and.
The same time as we continue to pursue additional strategic builds.
We're also exploring opportunities to refine and accelerate their business strategy.
These include taking advantage of recent Barbara Bilson.
West.
And and do you business and for.
Providing resource better proceed and public private partnerships managed services and private and this work opportunities.
And we will see more about that and coming orders.
And I want to officially welcome the Alaska and squeezed into the ATM Kelly.
Teams has been off to a fast and productive and start and I am grateful for very positive and forward looking attitudes of all concerned.
I also want to thank and Colonel teams, who got the deal with that and and are still working on the details of integration are financing partners freedom from the capital and the banks led by fifth third Bancorp as well as our financial advisors from all critical to get this done and it will.
Be just as critical moving forward.
Cool.
So we will include the Galactic and if U S political settlement, which going forward will account for half of a and consolidated revenues.
And the third quarter, a little over 2 months of results will be included in Arkansas and souls.
And just and will add some more details on the balance sheet and fax.
As well and a few minutes.
Sticking with the domestic businesses from that artist 8 U S. Telecom business has similar quarter for the first quarter. This year with EBITDA almost exactly the same level and.
And neither puts her simple as well the first bill and use and I'll schedule and cost.
Structured revenue for that build this total more than offset by construction expense as expected.
Spending on the developing profit networks and that's also let's continue to a total of a pace the previous quarter and just and will provide some numbers on that.
As we alluded to and the release after reviewing the direction, but prior to that.
Businesses and the segment.
We concluded that while there are some important calm and operational resources are rural business under the umbrella of comment or all networks and our private networks assist you averse would be better served with a more formal celebration similar to how we perceive different markets and or international telephone and segment.
Businesses are the state and our customers that are pursuing and services. They are offering have different attributes further and we see some interesting opportunities for both organic and strategic expansion and.
And then we may want and utilized strategic our financial partners to proceed and those 2.
And on the private networks.
That's 2 local networks.
The fiber strategy and if you were real community.
And it can be utilized a combination of carrier wholesale customers and enterprise customers and governments and sensitive to connect 8 community and then we look to serve the full scope of the markets and medications needs to roughly or through local partners.
As an example of that we expect to complete to the Middle Michael 500, bills, and northern Arizona and the current quarter.
And all of the construction cost is covered by government and payments spilled into educational site and provide high speed data services.
We can all have mentioned that and build and expect to provide back while the wireless Power's data services and enterprise customers and wholesale transport services to some local broadband providers.
The business is looking to execute on more of this sort of rich and to connect rural communities that west.
In addition, and hurdle broadband revenue and these markets is growing and 10% higher for the first 6 months of the year and we think the growth room and the growth electricity from here with the Earth improvements and expansion that our focus for installing the enterprise and wholesale side.
Moving to international Telecom.
And growth was more central to the store and international Telecom subscribers increased by 6% year on year.
Well some of the largest bills are behind us.
And you have to invest and expansion of the reach of a fiber face networks and and our overall capacity and quality.
And she and you have additional opportunities.
Subscribers and enterprise revenues, if they're fixed state and services, while maintaining low levels of sugar.
Relevant to that there are 2 developments worth, noting and and the market.
1 the government shows and innovative and forward looking approach and we're moving that and <unk>.
And services and.
We're focused on getting the convicted from learning from business activity, and then rolled quality of life.
Second and another side of it changed and we had landed contract to provide substantial fibre facilities and dance mobile services, including private LTE oil and gas customers and we.
That to continue to grow.
International telling some segment mobile subscriber levels also continued to grow continuing to Trinidad and a year ago. As a result of and number of the measures are and is under total improve our competitive positioning and select markets.
Europeans about 15% increase and overall.
And the rates and increase on the prepaid and posting site.
But even subscribers over there and then continues behind it.
Which is part of it from names.
Expenses from high for this segment and the second quarter.
And and explained and are really some of that within the level of 1 time costs and something with some crazy regulatory.
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Outside the 1 time.
Milk and fixes, but we will continue to improve operating efficiencies to manage expenses down and where we can.
And many areas revenue opportunities related to the network expansions and the reference or a higher priority.
We've been asked on previous call about the impact and timing of the pandemic recovery.
As an update and note that most of our international markets are still feeling and economic pain from very limited travel a into and out of the market.
We are encouraged split and pick up and leisure travel and are hopeful that the next 12 months will look better and the past 12 months from that standpoint.
To recap and to provide a little bit of a higher level perspective. Following this page your transaction.
3 quarters of our revenues mostly recovery.
Drive through the operation of a collection of domestic and international Communications services companies.
Grading and smaller and typical more robust markets and that and each case have substantial network infrastructure strong and expense track record and market.
Either the first or second week provider of the relevant services and.
And the infrastructure and good momentum around the core service offerings.
We believe we can continue to expand and these markets and like markets the remainder of our business day.
Which is domestic is good price with a small but growing rural fiber and broadband business that is similar atrophies to those will geographically and distinct market Ah.
Ah wholesale and wireless business engaged and multi multi year restructuring and and emerging private networks business. We are working to create digital value and a clear story around and this latter assets.
For now if we simply annualize the first half performance for both ATM and Alaska, ATM and would have annual revenues and about $740 million with the vast majority derived from recurring and contracted resources and adjusted EBITDA of about $160 million we.
Believe that is a great platform on which to create value and the.
That I will turn it over digestive, but I'll just note that we are hearing feedback that says the call quality has been a little rough.
We're going to continue but.
So we hope we hope you and we hope you can hear us well enough to understand and we need to repeat we will flow and thank.
Thank you Michael from the second quarter total consolidated revenue from $123 and $9 million up 14% from the from last year and consolidated adjusted EBITDA was $25 and 2 million versus $29 and $1 million and the second quarter of 2000.2020.
The specifics of these comparisons as a cover the segment details.
And.
Starting with the International Telecom segment revenues were up 8% from $81 million last year to $86 and $2 million this quarter and adjusted EBITDA with $28 and 4 million slightly down from 28.7 million.
Oh.
Over a year ago, and as Michael mentioned and his comments segment revenue benefited from broadband and multiple subscriber growth and several markets, but we've seen and higher expenses compared to last year, and which led to modest to a modest decline and adjusted EBITDA and reduced margin.
Expenses and the prior year benefited from several temporary savings related to reduced operations and believes maintenance during the height of the pandemic.
In addition to those costs during during this year and in addition to those cough return and this year, we had increased costs related to expansion of our managed service business higher regulatory and license fees and certain markets and we also encouraged to 1.1 million and 1 time legal expense and the corner.
As in past floor and as we continued to Austin opted opportunistically purchase minority all nerve shares in 1 communications are from.
And came and Ireland subsidiary and now on approximately 78% of the outstanding equity of this well performing business and that compares to 59% a year ago.
Capital expenditures and the quarter were $11.3 million for this segment and 21.8 million year to date for the full year and this segment, we expect to be at the higher end of our guidance of $45 million to $55 million.
And the U S. Telecom segment revenues were $37.6 million with a quarter up from $28 and $2 million a year ago. This includes $9.3 million of construction revenue related to the first net project.
We still anticipate completing 50% of the $85 million project this year, which will bring us to approximately 65% completion that year and.
The decline and adjusted EBITDA for this segment $245 million from $7.5 million last year was due to higher operating costs, we discussed last quarter, which includes the operating costs associated with the completion of the gears Act funded build out of our rural broadband sites and and that and advance would be anticipated.
Additional revenues and the first net sites coming online.
In addition, we spend $3.1 million on our developing prior to network business and the quarter, which is $1.3 million over the last year.
As noted and the release.
From the July 22nd closed through the end of this year, we expect the Alaska Alaska acquisition.
To contribute between 1 O 5 and 1 of them.
$9 million and revenue and 2 are you of telecom segment and between $2007 and $29 million of adjusted EBITDA.
With regard to cost synergies, we expect to achieve approximately $2 million and cost savings and the next 12 to 18 months.
Similar to past 18, and transactions and new markets will work to gain cost efficiencies and margin improvement over time with it makes sense and don't and Pete our ability to continue growing the business.
Capital expenditures and you have Covid Telecom segment, this quarter were $3.9 million and $18 and $8 million and ear to date, we also expect capital expenditures and viewer segment and to be at the higher end of our guidance of $40 million to $50 million, excluding Alaska, and Alaska and to continue with similar levels.
And the first half as they continued with several customer specific fiber bills and network expansion.
Consolidated net income for the quarter was $2 million.13 per share and was hope and tax benefit of 1.5 million included in the operating expenses and decor was $2.2 million a non cash stock based compensation expense.
Moving to the balance sheet on June 30, total cash and short term cash investments were $96 million and total debt outstanding was $71 million. Excluding the first net customer receivable credit facility put in place to monetize the structured payment receivable under the contract.
This facility secured buzzers customer receivable and have no recourse to ACN.
Subsequent to the end of the second quarter in conjunction with completion of the last and communications acquisition, ATM bar and $73 million to fund its equity portion of the transaction and subsequently repaid $10 million of that bar and.
We also facilitated a new credit agreements and Alaska communications entered into the clothes that is nonrecourse APN.
Alaska borrowed $210 million under that term loan facility and $110 million under the $35 million revolving facility.
For the consolidated company, Alas, including Alaska, or Leverages slightly over 2 times and approximately 1.6 times on a net cash basis.
Still getting a substantial resources to fund additional growth initiatives.
And with that operator, and you'd like to open the call up for questions.
Next day, how much my question comes from the line I'll sneak Brenda from mainland Jean and your line is now.
Only this morning, you guys good.
Morning, Rick.
And it was a little garble, and you'll get like underwater, but things got better towards the and there.
A couple of questions and hopefully you can you hear me okay.
Yes, please and can the.
The information and Alaska, and showing the first quarter, sorry, the second quarter and year to date and there how should we think about what Alaska means and how you guys report your segment reporting and they're gonna be some more changes should we expect.
And the Alaska salad reporting yourself reported how should we think about what receive is moving.
It's going to be it's gonna be a little bit of hybrid breath I think we're weak report more by line of business day reported by kind of customer business. So we're going to we're going to we're going to basically provided.
Kind of a little bit of both and the <unk>.
Segment, so we're going to be it'll be mostly by our predominant report and will be by type of service and then we're going to do further breakout by customer type.
Okay.
Okay and I appreciate the color on the Alaska Capex looks like they spent about 22 million and the first half so respecting maybe 22 million and and the second half and.
Mentioned finished some customer orders how should we think longer term about what the the capital intensity you guys will be spending at Alaska, but and and total really.
I think.
Start and Justin and I mean I.
I think.
Now we see.
Fairly significant opportunities for new fiber builds many of which will have the anchor tenant construct I talked about so.
There's a top line.
Gross Capex number if you will and then there's there there'll be a fair amount of that we expect to continue to be reimbursed.
But but more but more broadly we just think there are opportunities to continue to work on the network expansion they've been doing that and that should pay off well so I think.
Expect expect significant cap the capital expenditures and the near term.
And it makes sense and and nice getting the reimbursements you guys report that or would you report that is a net capex and I know, having just gotten off a tower company call. The accountants and make them report reimburse capex through revenues and EBITDA amortization of prepaid runs for you guys. How does that reimbursement come in and is it really a net cafe.
X.
Are you referring to the Reimbursable Capex, we we speak to an area.
Yeah, and also I think Michael talked about how sometimes you'll get government incentives back also.
Yeah, I mean, I just mentioned it too we have we have a couple of different kinds. We have we have.
Capital expenditures, where there is.
Repayment from customers anchor tenants and a form of non recurring charge, so that will come through revenue and the full capital expense will be.
Deployed and then most of the government programs also.
Also.
Have you recorded the growth Capex and revenue, but there are just and I don't know you can speak and we had in the past had some contra cut backs and it could be with future.
Programs that could occur yeah. It does depend on the flavor of and I would say we have we have both reporting both away from the most part and we have some net actually just simply a condo capex and others that day comments revenue.
But I will tell you that.
The 2 that Michael referred to conquer Capex.
Okay, and when you do receive it is or when you book and as revenue does it come in and a lump sum does it come in monthly quarterly annually, just trying to match up revenues and cash flows type thing.
Yeah.
And.
I mean, there's things like high cost support right that that was come through revenue and I think the and.
Quite sure on the tower company, referring to but I would say that the the grants things that we've got that Michael prior to those are mostly just come and throws contra capex for us.
Okay. Okay. So does that help you.
Yeah, let's just make I just want to clarify that.
Yeah, Okay, and then obviously you guys are seeing some interest and your.
Celery and your growth with possibly some pools of funds that might be out there can you talk a little bit about and we're taking pension funds infrastructure funds.
Obviously, a lot of money chasing opportunities, but how should we think about what kind of magnitude or or potential partners. They might've ball.
Could you repeat that Rick.
Yeah, you mentioned and the press release about potential strategic partners and funding how should we think about the available pools is that pension fund infrastructure funds private equity funds and what kind of magnitude might this these partnerships kind of entail.
I don't want to speculate on that and I think the magnitude will depend in part on you.
Use of proceeds are we doing to step kind of deals where we're we're combining or extending.
The business with strategic transactions and the magnitude will be higher.
Obviously.
We don't.
From the rural business is more likely to have infrastructure oriented problem partners and.
The private networks business is more likely to have.
More private equity or strategic partners, but there we've seen signs that there could be.
Infrastructure interest in there as well.
Okay, a lot of money out there for sure final 1 from me is obviously headlines coming out of Washington, with light and apparently getting bipartisan support for and infrastructure Bill Rural Broadband mentioned is what are the categories. How should we think about where you guys might be able to play in that space and I know it's early the legislation is just coming together, but.
Give us and updated thought on and D C infrastructure and what it might mean for Ya.
Yeah, I mean look I mean, if you think about that and that the hard off program, which some of those awards have now been peeled back but.
That first programme was up to $9 billion and some something less than that.
Awarded bears.
And your and right now from what I've read $65 billion is earmarked for broadband type infrastructure and did this.
Build it is being pursued.
Okay.
Or.
Like a lot of people were waiting for more information and more details or do we think there's opportunity for us and that we do.
And we also think there's opportunity and funds that have already been near marked.
And we're pursuing and some of that we continue to build out some things even today related to day cares Act funding and.
And.
R. R belief at this point is that.
It feels to us more likely is that that will come through state and local.
Distributions as a poll from federal to state and local 2.2 projects as opposed to.
As opposed to.
Federal nationwide program option could be wrong about that but that's that's how we're looking at it is more probable and and.
And we think that will play well for us because we have good ties and the areas, we are operating and and a good reputation and we have a good team.
For pursuing and analyzing those opportunities so it's absolutely on our radar screen.
Great stay well guys appreciate the color.
Chairman.
And can I remind you have to ask a question you know whoopi cash Taiwan on your account is fine and would you. All your question question County.
Questions comes from the line of handmade questions from DW electrical lunch.
And your line as normal.
Good morning, so far and our staff.
I wanted to ask you about geo versus what are you seeing and that business from you know demand side and opportunities that now you're thinking that to accelerate the growth of that business by seeking outside capital.
I think that the last year was slow for a lot of us, including others and pursuing private networks. The pandemic did not did not help that and we're seeing what we're seeing the saying we're seeing the interest from multiple levels and private network solutions and private Cellula solutions theirs.
It just solve the number of problems and with the continued.
With the continued.
Distribution of 5 G technologies, and interest and <unk> technologies, and what it does as well as even <unk> technologies tears.
And use cases are growing so what.
What we see that could make it more significant and require more funding. It's we really are looking at what we've been doing and we've been developing a platform and it's really a platform or that sort of units based infrastructure build and which makes it a bigger opportunity, but it makes it also need.
More net funding and the short term and then there are some.
A lot of people were talking to customers partners are thinking about this and sort of.
Big ways Multisite ways, multi use case waves and so some of those applications. If we're successful will require.
Could require a fair amount of capital I don't want to speculate on exactly how much and.
But I think that.
And hopefully that gives you a flavor for how we're looking at it.
Okay and then.
And before you.
Channel, it's been mostly wireless sentrix and now it sounds like this com press releases.
Focusing more on fiber.
Could you disclose how many miles of fiber you have now and what your expectations and adding how many miles per year and.
How costly is it and some of the Geography's day.
And you're looking to add those models.
Yeah.
Wanted to do that now I'm not sure I have the combined numbers and my head anyway, So I'm not prepared to do that now but.
I would just say 2 things to that harm and first of all.
We have had a fairly fiber forward approach for awhile and a number of markets, we did and a few.
Few transactions and 2016, and our national Telecom that brought and substantial wireline assets as you know and we went and did multi year.
Fiber expansion and those markets and additional market and so we.
We are seeing great take up more.
We're seeing very low chair right.
And we continue to see multiple values for delivering for delivering fiber solution. If they are different for different flavors of it and different market as we've talked about Alaska. For example is very much business and wholesale driven.
Some with some retail as well but.
Our offshore markets, it's probably split the other way a lot of most it's more and and say.
And everything residential broadband is is the biggest unit there so.
There is a similar approach of being 1 of the top and the leading R.
Second provider of core infrastructure, and these markets and and fiber is the core infrastructure now, but mobile still important and a number of our markets and we're doing well there. So it's just a different delivery mechanism. If you will for and some ways and it's a little bit different product with.
Full mobility, but it still requires all that fiber backbone. These days because it's all about data services, whether it's connected connected or whether it's fixed and mobile.
So that's the way I look at it and we could we could look at providing more data and that in the future Hamad 2 on some of the fiber extension I'd be careful because.
Some of the fiber mile information out there is kind of silly because.
Route miles is obviously more useful than.
Fiber miles but.
But that also is it's a little hard to do apples to apples comparisons because it depends on the.
These cases and the density.
Got it Okay, and and my last question and laws regarding Alaska.
And what is it that you think that you could improve upon and Alaska and how fast do you think you could generate those revenue synergies that you mentioned and the press release.
Well first of all they've been doing a lot of things well. So we like your core strategy, but they put day. There. It was pretty I think it was day would tell you is pretty and distracting last few years, they've been considering strategic alternatives. They of course had an activist shareholder get involved and.
And.
And they were going through a process and then.
And then.
Speaking closing approval and so I think it just generally it's ability to.
Bye Bye effectively go and private it's just really focus on business and business first.
And no other distractions. So we we kind of given that we.
We also have despite there pretty good size, we have some operational capabilities and know how that.
They're excited about they think we can help them execute on their plan and so that's part of where our optimism comes from.
Yeah, and then how fast it comes and it's hard to say you know and Ah.
That's interesting with bills right. There's some things you just some parts of Alaska Canfield as much and the winter of course and.
So some of it will take time, but.
But we're we see opportunity and I think our focus is is keep growing it and grow very stable strong long tail recurring cash flow.
Dreams and that incrementally will should really start to drive value.
And.
Okay. Thank you yes.
Yeah.
Oh and last question comes from the line, if any Sammy cranky from England jeans and lines now.
Hey, guys appreciate it a couple of follow ups.
And Ah just and you called out of 1.1 million and 1 time legal costs and second quarter was that and the international segment and.
And what we what was that.
It wasn't the international yes.
And anything specific we should be looking to Arizona.
<unk>.
And now and I want to get into too much detail.
Hopefully, it's once and done it doesn't have it doesn't have anything to do with any ongoing business yet are personnel issues or anything like that okay and so that's good to know and then international business. Also had continued couple of quarters now a nice mobile subscriber growth.
Talk a little bit about the trends are seeing their why do you think you are winning shares is something you can continue to do.
Yeah, I think it's mainly that and.
And in a couple of market we felt that.
And we talked a little bit about this a year or so ago that we felt that.
We needed to we needed to do a better job with our competitive positioning or retail strategy.
And so we undertook a number of steps to improve that and.
It's been bearing fruit since basically for court and in a row.
I think enough to call it.
A real trend and really and really positive. So it really was just about improving our competitive positioning shifting our strategy a little bit from a retail and marketing standpoint.
Okay that was it.
Okay, and and say if there's still room to continue.
When success and the mortgage.
Yes, I do and I and I think there is and I think there's also sort of macroeconomic lift and.
And Guyana and.
In particular, but not not entirely I think there's other there are other opportunities there.
Okay and last 1 for me non similar questions on this question, when you're putting and new fiber what kind of strand accounts are you, putting and just you know not to the nearest strength, but just ballpark wise, how much which fiber you're putting and when you do new construction.
It depends on the it depends on the location wreck right. So if we're doing it and.
Denser areas and our international markets.
I only want to Coca strand accounts like very strand rich.
Many more strength and you think you're probably going and ever need alright, and that just makes US you know it makes the and.
It's not just.
Allows you to be opportunistic and the future, but and lowers your cost and allows you to.
Reduce late and see have dedicated fiber pair for many uses and.
And so that's that's the way the industry has been going and.
It's strands of class. So it's the incremental cost of doing strange deployments does not much then if you go really well.
Call.
You don't put his reaction certain things, particularly it's like subsea without.
Far far fewer strand, count and those situations, but even middle longer miles stuff and the U S. We would traffic tended to pretty great.
Strand and rich deployment just because.
Gives you a future opportunity.
Right and incremental costs and as you point out is not that much and a lot of labor costs. So we're taking and the hundreds maybe thousands.
Now I've read some of those things are incongruent Facebook day, it might've been Facebook I could be wrong about that and something like 5000 and to their data and then.
Nothing like that behind the grill.
Hundreds makes sense, okay, great. Thanks to the extra color guys sure.
There are no questions at this time please continue.
That's all we have operator, so we can and the call. It that we look forward to speaking with everybody and the and the next quarter and sorry again about the technical difficulties starting up.
And this can glitch today's conference call. Thank you you may now just getting.
[music].
Yeah.
[music].
[music].
Good day, and thank you for standing by welcome to the a T and.
And as you know Q2, 2021earnings call.
This time, all participants are in a listen only mode. After the speaker back and patients there will be a question and answer session.
As a question during the session you will need to press star 1 on your telephone.
And we advised.
Today's conference is being recorded I would now like to hand, the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer. Please go ahead Sir.
Good day, Thank you operator, and good morning, everyone and thanks for joining us.
And our call to review, our second quarter and 26.1.
And then.
And second 1 okay.
And that reset last and communications acquisition.
And here, it's Michael price.
And as Chief Executive Officer during this call and I'll cover the relevant financial information and Michael as usual will provide an update on the business and outlook before I turn the call over to Michael for his.
Good morning, guys.
And this call and our press release and contain forward looking statements.
Patient and cash.
And underlying assumptions regarding future operating results.
And the risks and uncertainties that could cause actual results to.
Differed materially from those described.
<unk> Com 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.
Further information regarding the factors that may affect our future operating results.
Please refer to our earnings release on our.
P&I and dot com or the 8-K filing and provided to the SEC city.
And the FCC.
SEC filings for Alaska Communications as to the first quarter 2020.1 can be found on the website.
Got it.
And we're still finalizing that.
Businesses right.
A web service accounting and.
And file our 8-K that will include the pro forma financial results from the efforts of talent and with that I'll turn the call over to Michael.
Thank you Jeff.
We were pleased to close and depositions and Alaska Communications last week and portable.
And what we expected.
And as we have discussed in previous calls we are excited about both the near and long term opportunities there.
And this is an excellent fit from our operating portfolio.
And our core business strategy.
Which is building and operating critical communications infrastructure and deliver remote and challenging markets where.
And to maintain a long term competitive advantage.
I'll provide more thoughts edition shortly.
And while our existing businesses performed well overall for the quarter and solid repeat and growth led by from Us and <unk>.
<unk>.
We did of course experienced higher year on year expenses against and extraordinary.
Where we can a low over second quarter last year, when many expenses will immediately reduced from mitigated by government action.
Added to that were expense increases and settle categories, including regulatory and somewhat and digital expenses, which we don't expect to continue into the current quarter, including political accrual.
So I'll turn it back to Alaska for the for the past few years. This business has had good success growing its business and wholesale revenue, which now represents 2 thirds of revenue and much of that is under multiyear contracts.
We expect that strategy and success to continue as.
And we leverage fiber facilities built out and an anchor tenant and return model and look for opportunities to generate incremental cash flows on those facilities.
At the same time as we continue to pursue additional strategic builds.
We're also exploring opportunities to refine and accelerate their business strategy.
These include taking.
Advantage of recent and fiber builds and Pacific.
West and.
And MCU business, and providing resources better preceded with public private partnerships managed services and private and network opportunities.
And we will see more about that and coming quarters.
And you made a comment on to officially welcome to.
<unk> completed until the ATM Stanley.
And our teams has been off to a fast and productive start and I and grateful for the very positive and forward looking attitudes of all concerned.
I also want to thank and apparel teams you've got the deal done and are still working on and details of integration and our financing partners freedom through capital.
And the bank led by fifth third Bancorp as well as our financial and legal advisors from all critical to getting this done.
And it will be just as critical moving forward. Thank you all.
So we will conclude the galactic and the U S Telecom segment, which going forward will account for half of <unk> and consolidated revenues.
And the third quarter, a little over 2 months and results will be included in our consolidated results and just and we'll have some more details on the balance sheet and impacts as well and a few minutes.
So sticking with the domestic businesses from Dow our existing U S. Telecom business has similar quarter for the first quarter this year with EBITDA and <unk>.
Exactly the same level.
And neither puts are simple as will the first net build continues on schedule and construction revenue for that build is still more than offset by construction expense as expected.
Spending on the developing product and networks business also has continued at a similar pace as the previous quarter and Jeff will provide some numbers on.
Yeah.
As we alluded to and the release after reviewing the direction, regardless of the underlying businesses and the segment.
We concluded that while there are some important common operational resources, our rural business under the umbrella of comment referral networks, and our private and networks this year versus.
We'd be better served with a more formal separation similar to how we price to different markets and our international Telecom segment.
The businesses are distinct customers. They are pursuing and services. They are offering have different attributes and further can we see some interesting opportunities for both organic and strategic expansion.
And then I think we may want to utilize strategic or financial partners to pursue those particularly on the private network side.
That's 2 rural networks, we are pursuing the fiber our strategy has been and if the world communities and we are looking to utilize a combination of carrier wholesale customers and enterprise customers.
And governments and sensitive to connect each community and then we look to serve the full scope of the market communications needs directly or through partners.
As an example of that we expect to complete 2 middle mile fiber builds and northern Arizona and the current quarter.
If all of and construction cost is covered.
And government and entertainments building.
And the educational site and provide high speed data services.
We are augmenting that and build and expect to provide backhaul wireless towers data services and enterprise customers and wholesale transport services and some local broadband providers.
The business is looking to execute on.
And more of this sort of range and to connect rural communities that will last.
In addition, our rural broadband revenue and these markets is growing roughly 10% higher from the first 6 months of the year and we think theres room to grow selectively from.
From here with the network improvements and expansion that our focus for now and so on.
Enterprise and the wholesale side.
Moving to international Telecom.
Net growth was more central to the store and international Telecom subscribers increased by 6% year on year.
Some of the largest sales are behind US we are continuing to invest and expansion of the reach of our fiber.
And networks, and then our overall capacity and quality.
And we see plenty of additional opportunity and residential subscribers and enterprise revenue with our fixed fees and services, while maintaining low levels and sugar.
Relative to that there were 2 developments worth, noting and the banana market.
And 1.
And based government showed and innovative and forward looking approach and we're moving that coverages from abroad.
And services.
And we're focused on getting people connected from learning from business activity and general quality of life.
Second and another sign of change and go ahead, and we've landed a contract to provide substantial fibrosis.
And the Goodies and enhanced mobile services, including private LTE to oil and gas customers and.
We expect that to continue to grow.
International Telecom segment and mobile subscriber levels also continued to growth continuing a trend and a year ago and as a result of a number of measures our teams undertook and approved.
Competitive positioning and select markets.
Year on year, with a 16% increase and overall subscriber levels from a rate increase on the prepaid and postpaid.
We need to subscribers over time and.
Continued behind it which is part of it remains.
Expenses for either of the segments.
The second quarter.
And as explained in our release some of that was and the level of 1 time costs and some of the recent regulatory and other expense.
Outside of the 1 time items and our nook.
Fixes, but we will continue to improve operating efficiencies to manage expenses down and where we can.
And then he.
And it is revenue opportunities related to the network expansions and are referenced are a higher priority.
We've been asked on previous calls about the impact and timing of the pandemic recovery.
And then okay I know that most of our international markets are still feeling the economic pain from very limited travel of income.
Segment and out of the market.
We are encouraged by the pickup and leisure travel and are hopeful that the next 12 months will look better than the past 12 months from that standpoint.
To recap and to provide a little bit of a higher level perspective. Following this pace of transaction more.
More than 3 quarters of our revenue.
New monthly recurring.
Drive through to the operation of a collection of domestic and international Communications services companies operating and smaller and ethical and more of our bulk markets and then in each case have substantial dollars and infrastructure strong and extensive track.
Track record and market.
These are the first and secondly.
Leap and provider of the relevant services.
And infrastructure and good momentum around their core service offerings.
We believe we can continue to expand and these markets and like markets and the remainder of our business.
And which is domestic is comprised of our small but growing group of fiber and broadband business.
Similar attributes to those growth geographically distinct markets.
Our wholesale wireless business engaged and multiple multiyear restructuring and then leveraging private networks business. We are working to create additional value and a clearer story around and flatter assets.
For now if we simply annualize.
And the first half performance for both ATM and Alaska.
And would have annual revenues of about $740 million with the vast majority.
Rai from recurring and contracted resources and adjusted EBITDA of about $160 million.
We believe that as a great platform.
<unk> and which to create value.
And with that I'll turn it over digest and but I'll. Just note that we are hearing feedback that says the call quality has been a little rough.
We're going to continue but.
So we hope we hope we hope you can hear us well enough to understand and we need to repeat we will flow.
Thank you Michael for the second quarter total consolidated revenues were $123.9 million up 14% from the from last year and consolidated adjusted EBITDA was $25.2 million versus $29.1 million and the second quarter and 22020 I'll speak to the specifics of these comparisons.
And as I cover the segment details.
Yeah.
Starting with the International Telecom segment revenues were up 8% from $80.1 million last year to $86.2 million and this quarter and adjusted EBITDA was $28.4 million slightly down from $28.7 million.
A year ago and as Michael mentioned in his comments segment revenue benefited from broadband and mobile subscriber growth in several markets, but we've seen higher expenses compared to last year, which led to modest to a modest decline and adjusted EBITDA and reduced margin.
Expenses and the prior year.
And from several temporary savings related to reduced operations and delayed maintenance during the height and the pandemic.
In addition to those costs during the during this year and.
In addition to those cost return and this year, we had increased costs related to expansion of our managed service business.
Regulatory and license fees and.
<unk> markets and we also incurred a $1.1 million onetime legal expense and the corner.
As in past quarters, we continue to operate Opportunistically.
Opportunistically purchase minority owner share as in 1 communications, our Bermuda and Cayman Islands subsidiary.
And now own approximately 78% of the outstanding equity of this well performing business and that compares to 59% a year ago.
Capital expenditures and the quarter were $11.3 million for this segment and $21.8 million year to date for the full year and this segment.
We expect to be at the higher end of our guidance of $45 million to $55 million.
And the U S. Telecom segment revenues were $37.6 million for the quarter up from $28.2 million a year ago. This includes $9.3 million of construction revenue related to the first net project.
We still anticipate completing 50% of the $85 million project this year, which will bring us to approximately 65% completion at year end.
The decline in adjusted EBITDA for this segment to $4.5 million from $7.5 million last year was due to higher operating costs, we discussed last quarter.
Which includes the operating costs associated with the completion of the cares Act funding build out of our rural broadband and sites and is and that's in advance of the anticipated additional revenues and the first net sites coming online.
In addition, we spent $3.1 million on our developing and private network business.
Quarter over quarter, which was $1.3 million over last year.
As noted in the release.
From the July 22nd closed through the end of this year, we expense the Alaska Alaska acquisition.
And to contribute between 105, and 1 and 190 million and.
And revenue to our U S telecom segment and between 27% and $29 million of adjusted EBITDA.
With regard to cost synergies, we expect to achieve approximately $2 million of cost savings and the next 12 months to 18 months.
Similar to past ATM transactions and new markets will work.
And gain cost efficiencies and margin improvement over time, whether it makes sense and don't impede our ability to continue growing the business.
Capital expenditures and a U S. Telecom segment this quarter were $3.9 million and $18.8 and year to date, we also expect capital expenditures.
And the U S segment to be at the higher end of our guidance of $40 million to $50 million, excluding Alaska and Alaska to continue at similar levels to the first half continuing with several customer specific fiber builds and network expansion.
Consolidated net income for the quarter was $2 million or <unk> 13 per share.
Working and was helped by a tax benefit of $1.5 million included and the operating expense for the quarter was $2.2 million of non cash stock based compensation expense.
Moving to the balance sheet on June 30, total cash and short term cash investments were 96 million and total.
Debt outstanding was $71 million, excluding the first net customer receivable credit facility put in place to monetize the structured payment receivable under the contract.
This facility is secured by those customer receivable and has no recourse to ATM.
Subsequent to the end of the second quarter.
<unk> in conjunction with completion of the Alaska Communications acquisition, ATM borrowed $73 million funded the equity portion of the transaction and subsequently repaid $10 million of that volume.
We also facilitated a new credit agreement and Alaska Communications entered into at the close that is non recourse to.
The ATM.
Alaska borrowed $210 million under that term loan facility and $110 million under the $35 million revolving facility.
For the consolidated company, Alaska, including Alaska, our leverage is slightly over 2 times and approximately 1.6 times on a net cash.
Basis.
Giving us substantial resources to fund additional growth initiatives and we're.
With that operator, we'd like to open the call up for questions.
Yes, Sir our first question comes from the line of Rick Prentiss from Raymond James Your line is now open.
Good morning, guys.
Good morning.
It was a little garbled, a little bit like underwater, but and I think he's got better towards the end there.
Got a couple of questions hopefully you can hear me okay.
Yes.
Recently, our information and Alaska, and showing the first quarter, sorry, the second quarter and year to date and there how should we think about what Alaska means to how are you.
Report their segment reporting or theyre going to be some more changes should we expect.
Alaska and sell reporting yourselves and how should we think about what <unk> Inc.
It is gone and it's gonna be a little bit of a hybrid Brent I think where we report more by line of business, they reported by kind of customer or a business.
So we're going to we're going to we're going to basically provided kind of a little bit above and the segment. So we're going to it'll be mostly by our predominant reporting will be by type of service and then we're going to do further breakout by customer type.
Okay.
Okay and I appreciate the.
Guys from the Alaska Capex looks like they spent about 22 million and the first half. So we're expecting maybe 22 million and the second half mentioned finished and customer orders how should we think longer term about what the capital intensity you guys will be spending at Alaska, but and in total really.
The color I think.
Start and Justin can and I mean.
I think.
Right now we see.
Fairly significant opportunities for new fiber builds and many of which will have that.
<unk> tenant construct I talked about so.
There's a top line.
And as a growth capex.
Opex number if you will and then there is there will be a fair amount of that we expect will continue to be reimbursed.
But but but more broadly we just think there are opportunities to continue to work on the network expansion and they've been doing that should pay off well.
And so I think.
Expect expected significant cash capital expenditures and the near term.
Makes sense and and nice getting the reimbursements.
You guys report that or would you report that as a net capex and I know, having just gotten off a tower company call the accountants and make them report reimburse capex.
6 through revenues and EBITDA amortization of prepaid rent for you guys. How does that reimbursement come in and is it really a net capex.
Are you referring to the Reimbursable Capex, we we speak to and Eric.
Yeah, and also I think Michael talked about how sometimes you'll get government incentives back also.
Capex.
Yes.
<unk> mentioned it so we have we have a couple of different kinds.
Since we have we have.
We have capital expenditures, where there is.
Repayment from customers anchor tenants and a form of nonrecurring charge, so that will come through revenue and the.
Capital expense will be.
Deployed and then most of the government programs also.
So.
Have you record the growth Capex and revenue, but there are just and Arnaud you can speak and we had and the path had some contract cutbacks and it could be with future.
Programs.
And that could occur yes, I mean, it does depend on the flavor of it and I'd say, we have we have flow reporting both ways for the most part we have some.
And actually just simply a contra capex and.
Others that income is revenue.
But I will tell you that.
The 2 that Michael referred to Concho.
Full capex.
Okay, and when you do receive it as and when you book and as revenue does it come in and a lump sum does it come in monthly and quarterly annually just trying to match up.
Revenues and cash flow as type thing.
Yes.
And <unk>.
I mean, there's things like high cost.
And for cap rates that will come through revenue and I think the and.
And quite sure on the tower company, and referring to but I would say that the the grants and things that we've got that Michael was referring to those are mostly just coming through as contra capex for us.
Okay. Okay that helps you.
Yes, let's just make.
Support and clarify that.
Yeah, Okay, and then obviously you guys are seeing some interest and your.
Accelerating your growth with possibly some pools of funds that might be out there can you talk a little bit about and were thinking pension funds infrastructure funds.
Obviously, a lot of money chasing opportunities.
How should we think about what kind of magnitude or potential partners they might involve.
Can you repeat that Rick.
You mentioned.
And the press release about potential strategic partners and funding how should we think about.
But the available pools is that pension fund infrastructure funds private equity funds and what kind of magnitude might this these partnerships kind of entail.
And I don't want to speculate on that I think the magnitude will depend in part on use of proceeds are weak.
And.
2 step kind of deals, where we're combining or extending the business with strategic transactions and the magnitude will be higher obviously.
We don't.
From the rural business is more likely to have infrastructure oriented problem.
And our partners and.
The private networks business is more likely to have.
More private equity or strategic partners, but there we've seen signs that there could be.
Infrastructure interest and there as well.
Okay, a lot of money out there for sure.
I don't know 1 from me is obviously headlines coming out of Washington, with Biden, and apparently getting bipartisan support for an infrastructure Bill.
Broadband mentioned as 1 of the categories. How should we think about where you guys might be able to play in that space. I know it's early the legislation is just coming together, but it was and updated thought on D. C.
For sure what it might mean for you.
Yes, I mean look I mean, if you think about that and that the <unk>.
Argos program, which some of those awards have now been peeled back but.
That first program was up to $9 billion and something.
Something less than that.
Awarded.
It bears.
And you and right now from what I've read.
<unk> 5 billion is earmarked for broadband type infrastructure under this.
Bill that is being pursued.
And all.
Our.
Like a lot of people were waiting for more information and more detail.
Infrastructure or do we think theres opportunity for us and that we do.
And we also think theres opportunity and funds that have already been earmarked.
And we're pursuing some of that we continue to build out some things even today related to the cares Act funding.
And.
Our our belief at this point is that.
It feels to us more likely that that will come through state and local.
Distributions as appose from federal to state and local to 2 projects as opposed.
<unk> 2.
As opposed to.
Federal nationwide program auction could be wrong about that but that's how we're looking at it is more probable and and we think that will play well for us because we have good ties and the areas, we are operate and and a good reputation and we.
We have a good team.
For pursuing and analyzing those opportunities and so it's absolutely R&R radar screen.
Stay well guys I appreciate the color.
Chairman.
As a reminder to ask a question you will look to satisfy 1 on your telephone.
And you all your questions massive county, our next question comes from the line of handmade questions from Dws financial Your line is now open.
Good morning.
Florida staff.
I wanted to ask you about geo versus what are you seeing and that business.
This from.
Demand side and opportunities that now you're thinking that to accelerate the growth of that business by seeking outside capital.
I think that the last year was slow for a lot of us, including others and pursuing private networks. The pandemic did.
And not does not help that and we're seeing but we're seeing the thing we're seeing the interest from multiple levels and private network solutions and private cellular solutions.
But you saw the number of problems and with the continued.
And with the continued.
Distribution of <unk>.
Apologies and interest and <unk> technologies, and what it does as well as even and <unk> technologies.
Use cases are growing so.
And what we see that could make it more significant and require more funding is it's we really are looking at what we've been doing is we've been developing a platform it's really a platform.
Take or that sort of a unit based infrastructure build and which.
It makes it a bigger opportunity, but it makes it also need.
More net funding and the short term and then there are some.
A lot of the people, we're talking to customers partners are thinking.
About this and sort of.
Big ways multi site ways multi use case waves and so some of those applications. If we're successful will require.
Could require a fair amount of capital I don't want to speculate on exactly how much and.
But I think that's hopefully that gives.
Are you a flavor for how we're looking at it.
Okay and then.
Before you.
Jan has been mostly.
Wireless centric so now it sounds like <unk> com.
<unk> press release.
Focusing more on fiber.
Can you discuss.
It was how many miles of fiber you have now and what your expectations and adding how many miles per year and how costly is and some of the geographies day.
And youre looking to add those miles.
Yes.
And I don't want to do that now and not sure I have the combined number.
Members and my head anyway, so I'm not prepared to do that now but.
I would just say 2 things to that and first of all.
Have had a fairly fiber forward approach for a while and a number of markets we did.
Few transactions from 2016, and international Telecom that brought and substantial.
Wireline assets as you know and we went and did multi year.
Fiber expansion and those markets and additional market and so we.
We're seeing great take up.
And we're seeing very low churn rate.
And we continue to see multiple.
Sales for delivering for delivering fiber solutions, they are different and different flavors of it and different markets as we've talked about Alaska. For example is very much business and wholesale driven.
And with some with some retail as well but.
In our offshore markets, it's probably flipped the other way and a lot.
That is more.
And every residential broadband is the biggest unit there so.
It's a similar approach of being 1 of the top leading our <unk>.
Second provider of core infrastructure, and these markets and and.
Fiber is the court.
Core infrastructure now.
Mobile is still important and a number of our markets and we're doing well there. So it's just a different delivery mechanism. If you will for and some ways and it's a little bit different product with full mobility, but it still requires all of that fiber backbones and these days because it's all about data.
Data services, whether it's connect connected or whether its fixed or mobile so.
That's the way I look at it we could we could look at providing more data on that and the future.
2 on some of the fiber extension I would be careful because some of the fiber mile information out there.
Finally, because.
Yes.
Route miles is obviously more useful than <unk>.
Fiber miles but.
But that also is it's a little hard to do apples to apples comparisons because it depends on the use.
Use cases and.
And the density.
Got it Okay and then my last question was regarding Alaska.
And.
What is it that you think that you could improve upon and Alaska and how fast do you think you could generate those revenue synergies that you mentioned and the press release.
Well first of all they've been doing a lot of things well and we like your core strategy, but they put day there.
It.
It was pretty I think they would tell you, it's pretty and distracting last few years they've been considering.
Strategic alternatives and of course had an activist shareholder get involved and.
And they were going through a process and then.
And since then.
Seeking closing approval and.
And so I think it's just generally its ability to.
And by effectively going private is to just really focus on business and business first and no. Other distractions. So we.
<unk> kind of given that.
We also have despite they're pretty good size, we have some operational capability.
And <unk> and Knowhow that.
They're excited about they think we can help them execute on their plan and so that's part of where our optimism comes from.
And then.
And how fast it comes it's hard to say and Alaska interesting with builds right there.
Some things you just said.
And some parts of Alaska can't build as much and the winter of course and.
So some of it will take time.
But where we see opportunity and I think look our focus is is keep growing it and grow very stable strong long tail recurring cash flow.
Streams and that incrementally.
Should really start to drive value.
Okay. Thank you.
Yeah.
Our last question comes from the line of material frankly from Raymond James Your line is now open.
Hey, guys I appreciate it a couple of follow ups.
Adjusted and you called out a $1.1 million onetime legal costs and second quarter was that and the international segment.
And roughly what was that.
And there wasn't any international yes.
And anything specific we should be looking there as far as and when it was involved.
Ah.
And I don't want to get into too much detail.
Hopefully, it's once and done it doesn't have it doesn't have anything to do with any ongoing business yeah.
Our personnel issues or anything like that okay.
That's good to know and then international business also had continued a couple of quarters.
And mobile subscriber growth and.
Talk a little bit about the trends Youre seeing there why do you think you're winning share and so it's something you can continue to do.
Yes, I think it's mainly that.
And in a couple of markets, we felt that and.
And we talked a little bit about this a year or so ago that we felt that.
And I'll admit it too we needed to do a better job with our competitive positioning our retail strategy.
And so we undertook a number of steps to improve that and.
It's been bearing fruit since basically 4 quarters in a row.
So I think enough to call it.
And.
We need real trend and really and really positive. So it really was just about improving our competitive positioning shifting our strategy a little bit from our retail and marketing standpoint.
Okay that was it.
Okay, and then I think there is still room to continue.
And when success and the mortgage.
Yes, I do and I and I think there is some and I think there's also sort of macroeconomic lift and Guyana and.
And in particular, but not non entirely I think there's other there are other opportunities there.
And last 1 from me 1 similar question Tom and his question.
And we're putting in new fiber what kind of strand counts are you, putting and just not to the nearest strength, but just ballpark wise, how much which fiber you're putting in and when you do new construction.
It depends on the it depends on the location right. So if we're doing it again.
Denser.
Whereas in our international markets.
I don't even want to conquer strand, count, but very strand rich.
And many more strength and you think you're probably going to ever need alright, and that just makes US you know it makes the it.
Not just.
Allows you to be opportunistic and the future, but and lowers.
As your cost and it allows you to.
Reduce latency have dedicated fiber pair for many uses.
And so that's that's the way the industry has been going and.
Its transit class so it's.
The incremental cost of doing <unk> deployments is not much then if you go.
<unk>.
Paul.
And you don't put as rich and certain things, particularly and it's like subsea.
They are far far fewer strand counts and those situations, but even middle longer miles stuff and the U S traffic.
Tended to be pretty pretty.
Strand and rich deployment, just because it gives you future opportunity.
Right and the incremental cost and what your plan is not that much for us and a lot of labor costs. So we're thinking and the hundreds to maybe.
Now I know I've read some of those things and targeted Facebook it might've been Facebook I could be wrong about that.
Right.
And to their day to day, nothing like that per 100 Gram.
Hundreds makes sense, okay, great. Thank you for the extra color guys sure.
Okay.
There are no questions at this time please continue.
That's all we have.
Operator, so we can and the call. It that we look forward to speaking with everybody and the and the.
And next quarter and sorry, again about the technical difficulties starting out.
This concludes today's conference call. Thank you you may now disconnect.