Q3 2021 ATN International Inc Earnings Call
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Good day and thank you for standing by welcome to the a T M International third quarter 2021 earnings conference call and webcast at this time all are in.
In a listen only mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Yesterday Benincasa Chief Financial Officer. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us on our call to review our third quarter 'twenty, One 2021 results with me here is Michael prior <unk>, Chief Executive Officer, and during the call I'll cover the relevant financial information and Michael will provide an update on the business.
The outlook before I turn the call over to Michael for his comments I'd like to point out that this call and our press release contain forward looking statements concerning our current expectations objectives and underlying assumptions regarding our future operating results and are subject to the 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. Please refer to our earnings release on our website at <unk> com.
Or to the 8-K filing provided to the SEC.
At this time turn the call back over to Michael.
Thank you Justin and good morning, all this quarter, we took some major steps forward in our strategy and ambition of connecting more communities and people to all the benefits of true high speed data access.
With the close of the Alaska acquisition early in the quarter. The completion of some fiber builds in the lower 48 and continued expansion of our broadband networks and subscriber base in our Caribbean markets. We have made great progress and we are having a very positive impact on communities long on the other side of the digital divide.
The other significant through the integration of Acs is the growth of our platform.
Our teams are working on ways to utilize the added scale to expand the breadth of our service offerings raise the quality of the customer experience and improve operating efficiency.
While revenues grew nicely for the period, we did see another quarter of higher expenses in our international Telecom segment, and we expect that to continue to negatively impact the segment's EBITDA comparisons for the next quarter or so before revenue growth and more normalized historical expense levels bring us back to more favor.
Verbal year on year comparisons.
Of course from a consolidated standpoint, we expect to see strong year on year comparisons due to the addition of Alaska as well as some growth we expect to deliver there.
So turning to some more details starting with the international segment.
The core value of this collection of businesses is the broadband and mobile subscribers served by our network infrastructure trends are good in both categories. As we see low churn are adding market share and we are expanding and upgrading our networks to cover more households, with high speed data services.
We added nearly 38000 mobile subscribers in this segment over the past year, representing a roughly 13% annual increase.
As investors May recall, we had set out more than a year ago to improve our mobile competitive positioning in certain markets and we are pleased with the results of our efforts.
Our broadband subscriber base also continues to grow we ended the quarter with about 144000 broadband subscribers in the segment, 5% higher than a year ago.
We expect to continue to grow this base in large part because of expansion of our network reach into new communities, including new residential residential developments in Guyana, and some less densely settled areas of the Cayman Islands.
In addition to coverage expansion our broadband strategy includes a multiyear program to increase the data speeds, we are capable of offering on our networks.
At the lower to middle tiers of connected speeds, we typically pass along a speed increase to our customers without the change in the monthly service fee, but.
But we're also seeing customers migrate to higher priced plans to get additional speed boost.
Expenses were high again for this segment compared to the prior year as noted earlier.
Many of the same factors are involved the regulatory fee increase in Guyana late last year and difficult comparisons with the unusually low expenses during the height of the initial outbreak of the pandemic, which is really the second and third quarters of last year.
Well there are a few areas, where we expect to lower costs as we move into 2022.
We see revenue growth as the main driver to increase EBITDA for this segment.
And to do so we need to maintain and continue to increase our core subscriber bases with similar or lower rates of churn and to pursue growth in the business and enterprise sector, particularly.
Particularly in Guyana, where we expect macroeconomic growth to increase commercial demand over both the near and medium term.
A rebound in tourism in places like the Cayman Islands would also be favorable to growth.
Yes.
Turning to the U S Telecom segment the year on year impacts here are mainly driven by the addition of 10 weeks of Alaska Communications systems, So I'll start with adding some color there.
As you may recall more than two thirds of the revenue generated from that business comes from wholesale government and business customers.
And this is somewhat shorten quarter, we saw some slight shortfalls and some expected larger contract growth and some higher expenses in certain categories, but we're optimistic on both counts, we expect to see renewed growth from the government and carrier segment in coming quarters, and we believe cost savings from the completed integration.
And some other initiatives will start to be reflected in our results in early 2022.
In the meantime, we are pleased to learn that we are part of several awards of significant funding under the emergency connectivity fund.
Together with our partners, we will connect student homes in a number of villages in to remote areas of Alaska.
We are using a Leo satellite solution for much of this and expect to begin offering service within the next month.
This is a nice win for the company and for these communities and it is the result of a combined effort.
Long ATM parent company personnel and Acs employees.
We also continue to connect homes and businesses in the lower 48 under previously secured subsidy programs, particularly in Arizona as we complete new fiber builds and connect more homes to the high speed fixed wireless solutions, we built out late last year.
Thanks to these efforts and including Alaska, We now have about 58000 broadband subscribers in our U S Telecom segment, which gives us over 200000 for the company as a whole.
As noted in our release domestically, we are continuing to pursue subsidy programs and other strategies as we look to connect more and more communities homes and businesses.
With additional government funding, becoming available and our successful track record we expect to achieve continued progress in this regard in coming quarters.
In addition to the very positive and growing social impacts generated by that connectivity. This strategy has the potential to create lasting value for our company.
Yes.
Additionally, by the end of the third quarter, we had completed and activate at about half. The total site of our network build as part of the first net agreement and we should have about 65% done by the end of this year as noted in the release.
And we are pursuing other carrier revenue as well to service our area as well and enhanced returns.
Our approach is to pursue carrier services revenue.
Its tower backhaul tower rental middle mile Transport field maintenance alongside our work to meet the data connectivity needs of local residents and businesses.
The result, we believe is a robust connectivity environment for the communities we serve.
And.
Covering that a little bit more in looking at it from a higher level perspective, we estimate that we pass more than 500000 homes with our fixed data networks with more than half of those in the U S.
Many of those homes passed by fiber or other services with the ability to deliver speeds from 100 megabits to one gigabit.
In the first nine months of 2021 alone we upgraded over 100000 homes passed into that category and virtually all of our geographic expansions are completed with this capability.
Our plan is to continue to add homes and communities past and connected with an emphasis on higher speed services.
We will also be connecting more schools more commercial buildings and more towers and we expect to report more detail around all those connections and our progress in future quarters.
So to sum it all up we see a considerable runway ahead to drive revenue growth in both our international and U S Telecom segment, and ultimately to leverage that growth into improved margin performance.
And Thats it for me I'll turn it back over to you Justin.
Great. Thanks, Michael.
For the third quarter total consolidated revenues were $166 8 million up 49% from last year and consolidated adjusted EBITDA was $36 8 million compared to $31 2 million.
This growth primarily reflects our acquisition of Alaska Communications that closed on July 22nd this year, providing an approximate 10 week contribution to our results I'll speak more to specific the specifics of these comparisons as I cover the segment detail.
Starting with the international segment revenues were up.
$85 3 million in the quarter compared to $82 5 million last year and adjusted EBITDA was $26 9 million down from $29 7 million a year ago.
On the revenue side subscriber and <unk> growth in several markets were offset partially by the anticipated reduction of FTE of FCC high cost support in the U S Virgin Islands.
In addition to the loss of the FCC support revenue EBITDA was also reduced by higher regulatory fees increased costs related to expansion of our managed service business and more normalized prepaying.
Pre pandemic cost structure across all markets as Michael noted.
Capital expenditures for the segment in the quarter were $10 6 million and $32 $5 million year to date.
In the U S. Telecom segment revenues were $81 5 million for the quarter up 53, 4 million year on year of which $46 8 million of the increase was from the addition of Alaska and $6 million represented additional construction revenue related to the first net project.
As we noted in the press release, we are on track to complete about two thirds of the $85 million construction project by year end.
Adjusted EBIT for the segment was $16 4 million up $8 5 million from last year again, mostly due to the addition of Alaska, which contributed $10 6 million.
Partially offsetting this was $2 million or an increase of increased expenses supporting our private network operations.
As I've noted in the past as we bring more first net sites online and the mix of revenue move from higher margin legacy wholesale roaming revenue to service and rental revenue, we will see a contraction.
Contraction in EBIT margins, but along with that change in revenue will come a significant reduction in capital expenditures that previously was needed to support that legacy wholesale revenue.
As we noted in the release the Alaska results were consistent with expectations and we expect the full year results to be in line with the guidance from last quarter of revenue between $105 million to $109 million and adjusted EBIT of between 27% and $29 million.
Capital expenditures in the U S. Telecom segment this quarter were $17 4 million and $36 2 million year to date.
The Alaska operations added approximately $8 million in Capex in the third quarter.
A significant portion of the year to date spending outside of Alaska is related to building the backhaul and towers as part of the first debt agreement, but as I. Just mentioned once this build is complete in 2022, we expect very little capital spending over the term of that agreement.
Consolidated the consolidated net loss for the quarter was $2 6 million and 22 cents per share and includes $1 6 million of noncash stock based compensation expense as.
As presented in our statement of operations, we had $3 5 million of amortization of intangibles from the Alaska acquisition and we expect this expense to be approximately $13 million annually for the next few years.
Looking at the balance sheet on September 30, we had total cash and cash equivalents of $101 3 million year to date, we've returned $13 million to shareholders in the form of dividends and share buybacks and we also purchased $13 million in additional equity in our Bermuda and Cayman operations at an accretive value.
Total debt outstanding was $30 $348 8 million, including the Alaska nonrecourse debt, but excludes the first net customer receivable credit facility.
With a consolidated net ratio of under two times ATM retains its strong balance sheet and financial flexibility that goes with it.
And with that operator, I'll turn the call back for questions.
Awesome and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby.
While the Q&A roster.
Your first question comes from the line of Ric Prentiss of Raymond James Your line is open.
Great. Thanks, good morning.
Okay.
Couple of questions, Michael you touched on international markets.
On the broadband side.
A little surprised that <unk> net adds in the data followed with a mobile phone with a little loaded in.
Traditionally there.
<unk>.
Those mobile subscribers and the international segments and related note it.
It looks like you can.
<unk> as far as fixed revenue divided by total subs it looks like it was down.
Ill get back in the half quarter to quarter from Q2 to three doing anything to call out there.
No I think I think the mix is shifting so to answer the first part.
We do we.
We do build out when we build out new areas.
So a new fiber areas in place like Cayman Islands, Guyana, we will we will have a more rapid adoption rate and then as you know.
As those areas get too.
A better penetration rate the net adds will slow down churn stays very attractive, but the net adds will slow down.
And there is.
But also what we're doing in some areas, we're converting lower speed subs to higher speeds hubs, which we think is quite valuable.
Evaluable, but you'll you won't necessarily see an <unk> lift in the short term because of how we do it either promotional or otherwise, but I think I think in the long run you will continue to see sub growth and we will continue to see <unk> growth as well.
Okay.
On the oil side, obviously brought in Alaska.
Think about what metrics you will be able to report on how we can kind of monitor the global model with mobile.
Last month, he did mention there was a big jump in also.
Got it.
What kind of metrics longwall.
Well, yes, I think that is tricky because of the reason you're talking about because I'll say on government I think I think some of the metrics that will matter are.
Just the reach of the fiber network, which captures a largest government and larger enterprise.
Revenue and then connect fiber connected towers are also I think a significant metric and then lastly connected communities and then.
And then.
And then connected businesses and connected homes will matter there too as well, even though they are a smaller and smaller part of the particularly on the residential side is a smaller part of the revenue.
It's not.
I don't think the metrics or are much different than you would see with other sort of U S. Wireline.
The trick is the significance of.
The fact that wholesale and government is such a big chunk of revenue.
Yeah.
So we'll be working we'll be working further on that in terms of what we rollout.
When we do it.
We're kicking back in and also from Standalone mobile as well.
It sounds like margins will stay somewhat muted.
With revenue growth.
Mobile margins into feasible.
<unk>.
Absolutely.
Like I said, we haven't pulled into the low 30 or below 40% wounds in the near term and then we get back to.
Mrs.
Profile do you think the international margins.
I don't I don't know so I want to give a target certainly for the near term, but I think.
I think a healthy integrated telecom in those areas. Once you once you have.
Got into maturities certainly in the higher end of that range Youre talking about I think is where I would expect to be.
Okay.
Last one for me.
You talked a little bit the opportunities in the mall.
Connectivity.
Do you think about that.
Absolutely.
As far as putting capital to work.
So maybe private network quality small G systems like we talked about with some of the burn rate as we think about that.
Operational capex spending and matures you might achieve.
Yes, I think I think when we look at it.
We want to when we putting capital work in these new areas, we want to be sort of minimum mid teens returns.
As targets.
What we found with a lot of the build out projects is the the initial especially let's say a new fiber builds with anchor tenants.
There are some you do on the lower end of returns.
On that initial contract because of the value of having to build that asset and future revenue.
As we can we can.
Put on it.
So I think it depends on the situation and then a lot of the things we are talking about recently, we actually have.
Either committed.
Then buy wholesale or enterprise customers covering most of the capital expenditure in many cases, all upfront or we have.
Government subsidy is doing that or we have a combination so it.
It depends but in a lot of the cases, we have we have commitments are clear line of sight that cover the original Capex right away and then it's.
And then it.
Really about growing revenues on top of that.
When we kind of goalpost as far as how much money you might be thinking.
<unk> spending and the Capex side as we look out over the next one to five years.
Network.
I mean, I think Rick I think will be better on that one.
In the fourth quarter to talk more about usually when we kind of lay out the rest of the year right 2022, but I think directionally, but directionally, Rick I think we see a fair amount of opportunity. We look at every opportunity based on risk and return.
But I would expect that we will have opportunity to make some nice investments going forward to secure growth in gist.
Our view is once once you sort of the first to fiber or one of two large.
Infrastructure providers for.
Our community of the larger community you are.
That's a very valuable asset with a lot of long term earnings potential and cash flow potential as well as sort of optionality to provide additional services.
No.
We're going to tend to lean forward into those opportunities.
But we're still going to put them through the discipline of our.
Conservative return analysis.
Okay very good thanks, guys say well yes.
Your next question comes from the line of Greg Burns of Sidoti and company. Your line is open.
Good morning.
I mean, how much.
FCC.
Port revenue are you still getting in the U S.
Virgin Islands.
Thanks, So much look at this quarter.
Yes.
We're getting about 10 $10 $9 million annually right now.
Okay and that.
One just remind me.
Over what period.
It was about it was about $16 million and it dropped by a third 30 year and it started in July.
Okay.
Okay.
And then in terms of.
Your broadband.
And I guess the initiative to kind of increase speeds, there and drive <unk> higher like how how much can you do you think you could add to <unk> over time.
By increasing the speeds to the networks.
The communities you serve.
How much do we think I can't quantify did you say sorry, Greg did you say I guess like what's your what's your what's the average op, who now and what's the incremental kind of.
You could draw.
Due to higher speeds.
We don't publish it.
Average or blended <unk>.
It really depends on the communities ready to there there.
It really depends on communities I expect I expect that when you look at where we are in the connections we have in some of the.
Economic growth in places like Guyana on top of that.
We certainly expect.
<unk> have upside to them they are in there.
Then there are more mature markets where.
We don't we don't see a lot of <unk> growth on core connectivity.
It's really depends on the market and we don't have a.
We don't publish right now as stated blend of that.
Okay.
And then any update on private networks and your strategy there.
Yes, we continue we continue to make good progress with the product development, we've been working with.
Lot of key partners have finished testing with.
Key partners that are that we think are critical to two.
Future opportunity and we also have been building some exciting pipeline, but at the same time, it's been pretty early innings in terms of revenue and connections and.
And as you can see from the reports the cost.
Sure.
Funding the platform exceed exceed that at this point. So that's why as we stated last quarter, we're continuing to explore funding partners and other strategic alternatives to take the business to the next level.
Okay. Thank you.
Sure.
Again to ask a question you will need to press star one on your telephone.
Again that is star one on your telephone keypad.
Your next question comes from the line of Mohammed <unk>.
<unk> Your line is open.
Hi, good morning.
First question I had was regarding your commentary about the.
Homes passed on the wireless the fixed side.
Is that going to be a new strategy for you or are you going after that retail market.
And what what kind of investment you're going to do.
<unk> put forth as far as being able to capture that customer.
Yes.
<unk> been part of our strategy, but we're but we're see expansion of it we've had seen expansion of it recently so it depends on that.
<unk>, but for example, a lot of the cares act filled we talked about in previous quarter.
We're adding customers to know that was that was bringing fiber to towers.
And broadcasting fixed wireless solutions over these rural communities.
In that case, a lot of that was on the Navajo Nation, and then and then connecting people.
And building the customer base and we have other situations like that where.
Even in the Cayman Islands, where we are primarily fiber to the home. There are communities that are kind of sparsely settled where we bring fiber to the community and then deliver a wireless solution for that.
Speed connectivity. So we just see it as one of the tools in the toolbox toolbox, we just.
Yes.
We want to connect as many people as we can with high speed connections and in some cases, the best way economically and technically to do that is with a wireless solution.
Okay, and then on the international side specifically.
Are you seeing growth in that economy, just through their expansion or is it purely because youre expanding your footprint there.
I think we are seeing growth in the economy, although that's not as pronounced and we definitely see all of the signs of economic activity growth in terms of.
Builds and things like that and hotels being permitted and so on but.
Partly because of I think of the pandemic. It's been it's been somewhat muted from where we would've expected to see it and just in terms of speed Theres, just a lot of non communications infrastructure that needs to be built out and the government has plans around that.
And I think that will help and it will happen.
But it's taking some time so.
To some extent, it's been building on new areas, but the government also has a major housing.
Program, where they are.
Planning and putting in many tens of thousands of new homes, and we are building into both existing communities and newly built communities and so to that extent there is benefit from direct benefit from the economic growth.
Okay, and then last question on the international side, both Guyana and the rest of the properties you have.
Service.
Are you seeing any increase in competition now that these travel restrictions have rolled back.
No.
Not really other than things, we spoke about specifically definitely in Guyana with the with the very high predicted economic growth and activity.
And the change in the licensing rules a year ago.
We do expect.
We are seeing increased competition.
We've always planned for that and expect it to see it and we're seeing it.
In other markets.
No I mean normal competitive environment, it's not that there's not competition, but I wouldn't say any.
Let's see change to it.
And then of course, you know in the U S. Virgin Islands, Theres, a little bit different with the change out of the program in the new.
Funding going so there'll be probably increased competition over a longer period of time there.
And while I'm on that I, just want to clarify something we said earlier, just because I'm not sure it.
Came across right, which is that on the <unk>.
USF funding for the Virgin Islands.
Went down by a third.
In the middle of this year and that under that program. It goes to zero in the middle of next year.
So.
So it's.
Alright goes to it drops in sorry drop in half next year and goes to zero or the year. After so I almost misstated, it but but that's not the only program and we're not sure. That's the end of the inquiry and we're certainly continuing discussions with.
With respect to the Virgin Islands.
Sure.
Thank you.
Yes, Tom.
Your next question comes from the line of Ric Prentiss of Raymond James Your line is open.
I have a follow up.
We were more completed in telecom and supply chain are you seeing any supply chain issues with labor or materials.
From a personnel projects, but also just with fiber in general we have been hearing some fiber connected drawdowns won't be pumped out there okay.
And what Youre seeing in the supply chain and we're managing it.
Well I think we're definitely seeing that.
It's not been material to us overall, but.
It's significant and some projects in particular.
Kelly firsthand.
On the first net we've got a lot of it under contract but on site. So we don't we.
Further out in the pipeline if you will.
There's some there's some exposure there on <unk>.
Supply chain, so and I think the other thing Rick and you May know this is it.
There's really there's a couple of different components, one there is cost of materials.
And all of the sector has been reporting that in from the electronics side too.
Two fiber to steel.
But it's also it's delays.
In procuring.
<unk>.
You hear things both ways in terms of how what the outlook is but right now it is.
Definitely part of the operating environment and something we have to manage in and then the last area that some of the specialty sort of contracted labor.
That we would use that would typically flow in through our capital expenditures.
Rather than operating expense that that stuff has gotten.
Harder to secure and more expensive.
Okay, and then second follow up was on.
When you add in the Leo that Youre using.
Licensing within the law school.
Do you think about and obviously, we'll come out of bankruptcy. They have a global b to b process may be willing to go to the fee side. When you guys are bringing to the consumer.
On the margin does that business kind of bring to you given.
We will provide you with the Lille model.
Yes, I don't want to give the exact pricing Rick but I can give you a sort of sense on how we think about it I think we think it's a great as I mentioned before sort of tool in the toolkit, it's a great way to rapidly connect and economically connect some of the more challenged communities to handle for geographic <unk>.
<unk>.
And in Alaska, Our partnership with them is we think is very valuable because that is where they have quite a quite a good coverage and capacity.
And.
We've done a lot of testing and we're very happy with the solution.
And.
And the.
So definitely our sort of gross margin on <unk>.
Leo connection is going to be.
Quite a bit lower than if we connected them with our owned.
Fiber or fixed wireless, but the flip side is the capital cost is much smaller so from a free cash flow margin standpoint, it's still quite an attractive solution to us.
And sometimes the antenna possibly can be.
Thank you.
No.
Community settings.
Formal room with schools.
This is also the thing about.
Morgan Kinder Morgan.
Yes, I think the addressable market is is both of those I think in some cases.
It's a good solution for homes, and but a lot of what they are targeting and what we're looking is also effectively backhaul you couldn't use it as backhaul for smaller communities and be able to provide a high quality and good capacity. So it's a mix.
But we like our approach right I mean, there as you noted they stated they want to do business with the local carriers and and and I think.
There's a lot of potential in that partnership.
And could there be a cycle.
<unk> fixed wireless access tunnel component.
Eight you were a little garbled, but.
Are you, saying that we have a fixed wireless assets as part of this.
Yes.
Yes in some cases, we will.
And what I talked about recently most of it is deployed direct with satellite but in some cases, yes, we will.
Okay.
Thanks for the follow up guys sure. Thanks, Mike.
There are no further questions at this time I will now turn the call over to management for closing remarks.
Thank you everybody and we look forward to speaking with you at year end take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
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