Q4 2021 ATN International Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to a T. N International Q4, 2021 earnings conference call and webcast.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press Star then zero I would now like to turn the conference over to your speaker for today, Justin Benincasa, Chief Financial Officer, you may begin.
Great. Thank you operator, and good afternoon, everyone. Today, we will be reviewing our fourth quarter 2021 earnings results with me here is Michael prior Atms, Chief Executive Officer, Michael will provide an update on the business strategy and recently announced three year growth plan and outlook.
Now I'll cover relevant financial information and provide additional color where necessary.
As the mine as a reminder, we released our fourth quarter earnings press release last night after market close and investors can find the release and summary slides on our Investor Relations website before I turn the call over to Michael I'd like to point out that this call our press release and slides contain forward looking statements concerning our current.
Current expectations objectives, and underlying assumptions regarding our future operating results.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described.
Also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures for details on these measures and reconciliations to comparable GAAP measures.
Further information regarding the factors that may affect our future operating results. We refer you refer you to our earnings release on our website at <unk> dot com or to the 8-K filing provided to the SEC and I'll now turn the call over to Michael.
Thank you Justin and welcome everyone to our fourth quarter and full year 2021 earnings call.
Especially I appreciate you joining us in what seems to be a very busy new cycle.
So as many of you know <unk> is focused on building a strong communications network and subscriber base in traditionally under built or underserved market segments.
This delivers high recurring revenues durable cash flows and long term shareholder value.
2022, actually marks our 35th year as a company and.
And we took this milestone is an opportunity to reflect on the organization, we have become what our purposes, and where we aspire to be in the future.
It became clear to us during the process than what we actually do is much more than providing digital infrastructure and communication services.
We provide access to opportunity in the global marketplace, our marketplace for both ideas and commerce.
And where we can go includes greater reach profitability and growth as well as greater positive impact for the people and communities we serve.
Alaska for example, we recently provided high speed data services to schools and students and some of the region's most remote and rural communities.
We did this through a partnership with <unk> lower orbit satellite network Leo network.
As a result of our efforts more Alaskan students now have access to the world's top online learning solutions.
Setting up these students in their communities for a more prosperous future.
And we are not stopping there.
Alaska and in the lower 48.
And we are working on numerous proposed projects many of which are partially funded by government grants to bring fiber into poorly served communities. This includes tribal lands in other rural area.
And we're doing the same international rapidly deploying fiber and other high speed solutions to connect homes businesses schools, and towers and places like Guyana, and the Cayman Islands.
We are confident these are good investments because we've done this before for example, when we embarked upon our fiber deep project five years ago in Bermuda and Cayman following a strategic transaction.
We were able to significantly upgrade and expand our network reach and capabilities.
These investments enabled us to deliver a stronger product suite to customers secured our market leadership by growing subscribers and reducing churn and ultimately enhanced operating cash flows and generated strong returns.
This is what gets us going in ATM and why so many of US love what we do.
Whether it be in the Caribbean or the United States, we bring the possibilities that come from connection.
Those possibilities are things people take for granted and well connected places competitive access to alert them to health care to economic opportunity.
The more than 2300 employees in the ATM group of companies are making these opportunities and resources available to a broad economic and demographic strata, they're doing this and demographically diverse and geographically remote places worldwide.
So to share our mission with you it is to digitally empower people and communities. So that they can connect with the world and prosper.
And more powerfully, what we can make possible with our vision is to bring social and economic prosperity by providing people and communities with the best digital connectivity the world has to offer.
The ripples from our work can have game changing impacts for generations to come it takes incredible operational and technical expertise and determination to deliver leading connectivity to these regions.
It also requires the ability to cultivate respectful and rewarding relationships with the people who live there.
The people of ATM excel in those scales and our uniquely equipped to bring this vision to life.
So today, we are in the process of advancing several initiatives to secure our vision and long term growth.
On the domestic side, we are pivoting to a glass and steel fiber first build and operate platform strategy, while phasing out our legacy wholesale wireless services.
Internationally, we are investing in expanding our market leadership in the Caribbean.
As well as in higher growth markets, such as Guyana. These.
These actions will provide us with several new growth levers and cash flow generators.
But before I expand on these let's talk a little bit about the fourth quarter.
During the quarter, we achieved significant topline and EBITDA growth. These.
These results were in line with our expectations and driven by one the integration of Alaska communications and to incremental growth in our international segment.
And both domestic and international we are investing for the future.
In both segments, we see an opportunity to be first to fiber and multiple communities, bringing fiber fed high speed data services to consumers and businesses.
We're underserved.
We have embarked on a multiyear program to seize this opportunity is highlighted in our earnings release.
And I'll say more in a bit about where that can lead us for.
For now let's go back to the results from the fourth quarter.
So in addition to achieving double digit revenue and EBITDA growth. Some other highlights from this quarter included completing the integration of Alaska Communications.
Bringing digital connectivity to more remote areas and making important advances in our domestic fiber one platform strategy.
Today, we have close to half a million homes passed by our broadband networks with ni about even split between domestic and international.
Going forward, we expect our broadband metric of homes passed with higher speed data services to increase steadily as we continue to execute against plan and provide a wider menu of services to our increasingly diversified customer base.
Turning to international during the quarter, our international operations remained highly reliable and delivered incremental sales expansion.
This was largely due to our success in increasing our mobility subscriber account as well as a rebound in tourism in the U S Virgin Islands.
Bermuda and the Cayman Islands have also continued to perform well for us and we're proud of the teams we have built in these markets.
And zooming in on Guyana for a moment, we see great potential in this market to grow high speed fixed and mobile data services as well as overall revenue.
We can accomplish this while maintaining our position as the leading provider of services for our growing business community with demands for ever more advanced services.
As such we are prioritizing the long term over the short term and investing to facilitate this growth.
So we find Guyana to be an especially exciting region right now as some of you may be aware. This market has undergone significant changes over the past several years, particularly with the rapid development of oil reserves off to Atlantic Coast.
Today, Guyana has a rising GDP improving economic climate.
Growing public and private investments and expanding critical infrastructure and a population that puts a high priority on education.
We believe that these drivers have set the stage to make Guyana, a compelling growth engine for US we plan to continue investing cultivating relationships and building up our regional expertise in this market to further compound our first mover advantages and to bring world class connectivity to the Guyana.
These people.
And moving back to domestic operations, our strategic acquisition of Alaska Communications led to an increase in our overall domestic fiber network and fuels our business momentum in the quarter.
This acquisition has provided us with a stronger foothold in the U S and a more even split between domestic and international sales contribution.
The acquisition also has accelerated our domestic pivot.
We are well on our way to phasing out our legacy wholesale wireless business and transitioning into a glass and steel fiber one platform strategy.
This involves the synergistic and rapid expansion of our fiber connections to communications towers.
Adding to and upgrading our tower portfolio.
And working with local communities to connect more businesses schools and households to high speed data networks.
This transformative pivot, which we expect to gather significant momentum in 'twenty, two and be substantially completed by the end of 2023 will provide us with improved operating leverage stronger and more predictable long term cash flow generation and better risk management and our domestic.
Ladies and gentlemen, please standby.
Conference.
Controlling momentarily please standby your conference will resume momentarily.
Yes.
Yeah, I think we're better connected in alright. Thank.
Thank you operator and government not sure what happened there everybody, but I believe I know, where we left off so I'm just going to jump right back in.
So the Alaska acquisition has also greatly expanded our reach we now have more than 250000 domestic homes passed by broadband networks, representing about half of our company's total broadband homes passed. We also have approximately 5900 fiber route miles 200 fiber connected towers.
And 275 owned tower sites in our domestic segment alone.
We expect all of those metrics to grow as we execute on our plan.
Beyond these key coverage expansions. We are also investing in increasing our base of higher speed services through fiber and other solutions. This includes fiber and other infrastructure builds for our carrier services customers.
It is less in line with our pivot to a more sustainable revenue mix in the U S.
And looking beyond 2021, we have recently set a three year growth plan for our business.
As we often do but our latest growth plan and we've shared some of our targets with investors in this release.
These targets are significantly based on and in line with our commitment to advancing our fiber one platform strategy.
For example, we aim to achieve a revenue CAGR, excluding construction revenue, 4% to 6% over the next three years, which should lead to between annual revenue between 770 and $810 million in 2024.
And we think we can improve our operating margins alongside that revenue growth, resulting in a target adjusted EBITDA CAGR of between 8% to 10%.
Over the same three year period.
The following 2024, we expect Capex to return to more normalized levels, let's say, 10% to 15% of revenue and we expect to do all of this without increasing leverage targeting a net debt ratio of less than one five times by the end of 2024.
So given our balance sheet strength human capital quality risk management controls and long term vision. We believe that we have adequate resources to accomplish these goals inclusive of both organic and inorganic growth opportunities.
And now Justin will cover Q4, and 2021 financial results just a great. Thank you Michael.
As Michael provided a high level view of the company's mission and vision I'll now share how we look at our financial model and strategy over the past three decades <unk> has developed a compelling.
Focused market strategy to excel in overlook markets by answering these markets in early early in their growth cycles, we build strong footholds lasting customer relationships and cutting edge network infrastructure.
Our success has always been driven by our people and operating platform investments by centralizing and developing a best practice approach to.
Accounting customer care and other productivity and risk reduction processes, we can support our portfolio companies in ways that others cannot in the markets of our target size.
This enables us to win business and set up teams for success our operations in the international markets provide strong examples of how we execute this play playbook and we remain excited about our progress to date in Alaska.
Yes.
With these operating platform capabilities, we can enter markets that are often overlooked by others and find long term enduring success.
While risks can never be completely eliminated it can be successfully mitigated and this approach has served us well throughout our operating history.
With that I'll move on to our financials.
In the fourth quarter of 2021 total consolidated revenues were $187 6 million of 52% year over year operating loss was $20 3 million and adjusted EBITDA increased to $42 3 million from $30 5 million a year ago.
Alaska with its expansive fiber network was the key driver of our topline growth in domestic sales contributions.
The year over year increase in operating loss for the company is mainly due to the Alaska transaction costs lower profitability in our legacy domestic business and the reduction in federal high cost support subsidies for the U S Virgin Islands.
Yeah.
Now turning to our segment breakdown in international we increased revenues by 4% year over year to $87 5 million and this was driven by higher mobility subscriber counts and <unk> as well as increased carrier service revenues by year end, we had approximately 335000 mobile.
Fibers.
The rebound of travel and tourism also serves as a nice tailwind in the U S. Virgin Islands, improving our carrier service revenue.
Adjusted EBITDA was $27 9 million in the quarter compared to $29 million a year ago. This decrease was driven by our decision to continue investing in network expansions and upgrades as well as in <unk> sales and marketing programs to drive revenue growth from the same from those same network.
All of which led to slightly up slight uptick in opex.
The one time impairment charge of $20 6 million was due to in part.
Two an update market view and network valuation for the U S. Virgin Island operations in light of the loss of high margin fell.
Federal support payments and pass network investments.
Overall, our international segment continued to perform well in the quarter.
Displaying the reliability and consistency we've come to appreciate from these markets.
Going forward, we plan to continue leveraging our cash flow durability in more mature markets and reinvesting in other markets, where high growth profile with high growth profiles, such as Guyana.
In the U S segment.
Our acquisition of Alaska continued to perform well and in line with our expectations as a result, our topline.
<unk> more than doubled on a year over year basis to $100 1 million.
Beyond the significant revenue contribution. This acquisition is also providing us with several new competitive offerings in the U S, including a large fiber network healthier revenue mix and more business expansion opportunities.
In the first quarter first net construction contributed $7 8 million to segment revenues.
This revenue is offset by construction costs, and therefore has minimal impact on our overall operating income.
Nevertheless, we believe this is a true win win deal for both parties and we expect that long term service contract would be a net positive contribution for the company once the construction phase phase is complete.
We currently have completed about 60% of the total site built slightly behind where we expected to end the year due to supply chain issues, we expect to complete an additional 30% by the year.
End of the year of 2022.
Adjusted EBITDA for the quarter was $22 3 million versus $7 8 million a year ago led by higher segment sales from the successful consolidation of Alaska.
Net loss for the quarter was $24 2 million or $1 60 per share compared with $20 5 million or $1 29 per share in the same period a year ago.
Looking forward, we expect our margin profile to improve over time was we realize the benefits of our long term investments in the U S and abroad.
And leverage our expanding infrastructure and customer relationships to grow our revenue base achieve better economics of scale and utilize the strength of our operating platform to streamline operations.
We reported $35 2 million in Capex in the quarter within it.
With $11 million contribution from Alaska.
Breakdown of U S and international was $17 1 million and $17 5 million respectively.
Now turning to our balance sheet and cash flows we ended the quarter with total cash and cash equivalents of $79 6 million and total debt outstanding of 3300, $31 8 million.
This includes the Alaska nonrecourse debt, but excludes the first net customer receivable financing facility.
With a consolidated net debt to EBITDA ratio of under two times, including both non recourse and parent level debt. We continue to benefit from our strong balance sheet strength from our balance sheet strength and resulting flexibility.
Turning to our 2022 guidance for.
For the full year, we expect significant revenue and adjusted EBITDA growth as compared to 2000 22021 and with the addition of Alaska Communications full year results.
We expect adjusted EBIT to be in the range of $165 million to $70 million for the year.
To help everyone better understand our expectations around quarterly progress, we anticipate adjusted EBITDA for the first quarter of 2022 coming in slightly below the $42 3 million number in Q4 of 2021.
Additionally, capex for the year should be in the range of $150 million to $160 million net of reimbursed amounts with a large amounts projected to be used for network expansion and upgrades.
We expect to substantially advance our fiber one platform strategy in the U S with carrier service revenues, increasing increasingly driven by backhaul tower rental field maintenance and technical services.
We also anticipate additional contributions from growing enterprise and customer.
Fixed data services revenues in 2022.
This transition will help to improve our operating leverage customer mix visibility into forward operating results cash flow generation and risk management in the U S.
In summary, we see revenue strength across the business and accelerating acceleration of adjusted EBIT. This year.
Longer term, we plan to exit 2024, with a net debt ratio of less than one five times and substantially higher levels of revenue and adjusted EBITDA.
These projections reflect not only where we are today, but also where we believe we can ultimately get to based on our established playbook sustainable approach and operating expertise and with that I'll turn the call back to Michael for his closing comments.
Alright, Thanks, Justin just to reiterate we're currently in an exciting build out phase and positioned well for future growth and profitability, which should in turn improve our ability to deliver shareholder value.
And there are multiple forms that could take.
As mentioned previously we expect these changes to really start picking up steam in the second half of this year as our long term investments and refreshed approach in the U S come to fruition.
Our work in Alaska is off to a good start from several different angles, and we believe the business and market boat show, great long term development potential.
On the international side.
<unk> is poised to be our next serious growth generator as highlighted in our newly updated mission and vision.
We're proud of the work we're doing to help raise people's living standards, and we look forward to executing this value creation playbook and more markets going forward.
And now operator, we will turn it back to you to open up for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
That's all I wanted to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ric Prentiss with Raymond James Your line is open.
Hey, this is Brent on for Rick Good afternoon.
Afternoon event.
A few questions first what are you assuming on 2022 capex reimbursement.
Since you said 150 to 160 is net of reimbursements is that all first net.
Or is there any assumption on broadband stimulus or some other item and along those lines.
You mentioned government grant.
Is the timing and sizing of what kind of grants you might be able to get to bring fiber in broadband into rural areas.
Justin you want to answer yes, I would say on the on the Reimbursable, It's a relatively small number and it's mostly around grants we've already received.
And I can let Michael speak to the opportunities around future grants.
Yeah, and just wasn't sure to Brent on that first part.
I think you were asking reimbursable amounts, but I think you also understand that the.
The range includes a lot more than just first that includes a lot of the other five.
<unk> fiber builds and other bills were undertaking.
So in terms of the.
Yeah, Okay. So in terms of it in terms of the opportunity I mean look there are.
Tens of millions of households in the U S without.
High speed connectivity or adequate high speed connectivity I think by the government numbers and.
There's billions of dollars that have been assigned under the infrastructure plan I think it's about 65 billion there has been money.
Allocated from previous.
Bills, including cares Act so.
There is a serious government drive to close that gap and for US. If we look at the places we're used to operating we operate in today, particularly in the both Alaska and in the.
Western and southwestern United States, we see a lot of opportunity for us to utilize that.
Sort of public private partnership and get more communities and people connected so.
Adjusted said, we're doing that now or.
Okay.
Sure.
<unk>.
Ladies and gentlemen, please standby.
Please go ahead.
Yeah, Carl but rezoned moment.
Ladies and gentlemen, please standby.
Brian .
You're all connected.
Okay as brands still a question.
If you can hear me.
Right.
Sorry about that I'll, just say for everybody we are not providing the telecommunications to our headquarter. Unfortunately.
So I don't know whats going on or what and I apologize to everybody I think I've just may be repeating myself, a little bit, but I, because I'm not sure where we dropped but the second part of your question was.
What where do we see opportunity in the.
In these federal.
And state plans.
Right. There there are millions tens of millions of households that need to be connected with high speed connectivity is that it's an absolute.
Bipartisan pushed to do so there's been billions of dollars allocated to help carriers and communities to accomplish that.
And I think we've had a great history of using those public private partnerships.
To accomplish our mission and we see plenty of opportunity for us to do that.
Both really in all our operating areas in the U S.
So both up in Alaska and down in the southwest and Western United States.
Great and then I.
Great you guys, giving guidance.
Glad to see that for 2022 as well.
Three year guidance and get some clarity about what you guys are expecting.
Can you help with circle kind of a range on the adjusted EBIT the lie in 'twenty or in other words, what's the starting point on that.
Assumption for the 8% to 10%.
Growth rate, considering 21 has happened year of Alaska.
Yes.
That has got a that is that is.
Adjusted for Alaska full year Alaska.
Okay great.
Okay. So we can just add.
What Alaska did in 'twenty one too.
What.
<unk> Standalone did.
Another way to think about it is if you took our annual rate now.
Adjusted EBITDA this CAG or.
Soon.
To that where we grow from the CAGR assumes a full year contribution from Alaska. So it's not just the partial year than compared to a full year.
Got it got it Okay and then last question the corporate costs on the adjusted EBITDA line.
Came in a little higher obviously full quarter of Alaska on the books now is this 8 million a quarter range a good run rate going forward.
I would say our fourth quarter, probably was a little bit higher than we anticipated. Some of that was because we have costs that are you know like audit costs around bringing in Alaska that we ought to take the whole year in a quarter, but.
So, it's maybe a little high but probably not now not a bad indication.
Okay got it thanks, guys stay well.
Sure you too.
Thank you.
Our next question comes from the line of Greg Burns with Sidoti Your line is open.
Good morning.
Right.
How does the private networks business fit in with the new fiber for our strategy in the domestic markets.
It's not at Hanger and Greg it's not directly related.
It is related to.
Rolling out additional digital infrastructure and connectivity, but it's really not.
Point of that broader strategy right, it's relatively small piece.
Okay. So I mean.
But you are still continuing to invest in that opportunity.
Yes, we're as we said before we're looking at.
You know alternatives in terms of that funding.
And I would just say it's not.
Not really it doesn't really have a material impact from our income statement standpoint.
Das standpoint, this this year or in our three year forecast.
Okay.
And.
In terms of your legacy wholesale wireless business, you talked about phasing it out so how much.
Revenue is still tied to those kind of legacy wholesale wireless contracts, what's your plans.
For continuing with those contracts when they come up for renewal and I guess.
What does it mean for the amount of investment you need to put in there into that business. So you can repurpose that towards fiber.
Yes, so Greg.
First thing I wanted to say just to just to give some.
Overall context, I mean, one of the reasons, we provided the guidance both for the year and for the full year as we're trying to we've realized that our stories coming across overly complex and so we're trying to sort of to help simplify it for everybody and to talk about fundamentally the whole business, so I'm not going to.
Get into all the puts and takes but the.
The transformation of the core the move the transition. That's happening is is basically like we did with AT&T and first net expanded right, which is we are moving from a roaming model over our networks to one where we are providing.
Critical elements for their own network in the areas. We traditionally operate so that's what we mean by glass and steel, we're really pivoting to more backhaul towers field services technical services. So we think that that's really more of what the carriers want.
And that works for us, it's it's it really actually reduces risk and it makes it much more much more sort of predictable over the long term and we like the ability to leverage those investments for additional opportunities.
Okay. So still have the other half the other carriers outside of AT&T signed up for that model have you have you signed contract.
So again I'm not needs to happen yeah.
Obviously, we need to transition all the all our customers there, but I'm not going to sort of.
Talk about the interim steps I've, just just that's the goal and that's where we're expecting to get.
Okay.
Okay, and then in terms of the.
The Capex guidance. So is it are you expecting it to stay at this level for the next three years or are you or your 2022 guidance level for the next three years or is it stepped down as we head towards 24 like how should we think about capex over that.
A year time frame.
I think I think you should think of it over the three year timeframe that we're going to be definitely leaning into some of these markets and expanding where we see opportunity right now as we sit here today, we see opportunity to invest so.
So we will.
How that plays out in any given year, you know it could be somewhat lumpy, but I think you would expect them to be on the higher side and then over the next three years.
Okay. Thank you.
Thank you.
Our next question comes from the lineup.
Of course that with BWXT financial your line is open.
Hi, I just wanted to start off with why are you required to take an impairment on the U S. Virgin Islands, if youre, saying that.
The revenue is starting to increase because travel is going up so the way it is.
The way you do that Amit as you kind of look at the overall market you know kind of what do you think the valuation is in the market, we carry a significantly higher level of fixed assets in that market. After post hurricane as we pulled out resiliency.
And repair the network so our carrying costs on the fixed assets is higher than any other market by far.
When you just kind of sit back and you do the model you have to kind of look at it and say Okay. Then if you have high fixed asset cost.
You can lead to an impairment on those things like goodwill and that's what that was.
Okay and then.
But yes go ahead.
Oh I was just going to ask you about the.
The fiber build that you're planning this year, what would the timing be as far as.
The Capex is concerned the spend and the timing as to when do you think you could actually generate revenue off the new investments.
I think it's an ongoing thing Amit so we had some as we mentioned before just this is a small piece of it but.
In the U S. We have some fiber builds to towers that are turning up with under contracts.
In the year, we had some we have.
Some fiber to new communities that.
Under that Reimbursable program, that's turning up this year.
And places like Guyana or came in we've built two households last year continuing to build this year and so the revenue as soon as we as soon as you know we have the active network up there were pretty rapidly adding revenue signing up revenue. So.
Ill give you an example, we build fiber into a.
Mining town in the interior of Guyana.
And we added.
Fiber customers broadband customers at an incredibly quick rate as soon as we built to this community.
It was rapid.
So generally speaking the places we're building there.
<unk> has been identified and when we complete the build we're adding revenue rather quickly.
Now ill keep going throughout this three year period, and I would add to that that some some of our fiber build is success based on all of those we already have a signed contract on it.
So that obviously that one's immediately.
Okay.
Lastly.
The increase in marketing and network resource.
Increased this past quarter is that going to be a continuing process in 'twenty two.
I would say probably us more than now.
We will continue we saw success on that and we were going to.
Keep leaning into it.
Okay and could you just share what what success means and what time, what kind of timeframe youre looking at generating.
I would say I mean.
The way I would look at that is if you look at we were at.
The subscriber growth in markets you know in our international markets that we provide right you can see the impact of that so there is some you know some upfront investment to get the customer and to be clear it related to both mobile.
Mobile and broadband right in those markets.
Okay. Thank you.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Michael for closing remarks.
I think I'm, just going to hang up before it hangs up on us. Thank you everybody and I appreciate it thanks, everyone take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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