Q1 2022 ATN International Inc Earnings Call

Good day and thank you for standing by welcome to the 18th International first quarter 2022 earnings conference call. At this time, all participants are in listen only mode.

The speaker's presentation, there will be a question and answer session.

During the session you will need to press star one on your telephone.

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This conference over to your speaker today.

NASA please.

Thank you operator, and good morning, everyone. Today, we'll be reviewing our first quarter 2022, earning results with me here is Michael prior <unk> Chief Executive Officer.

Michael will provide an update on our business and strategy as well as high level overview of our quarterly results.

I'll cover the relevant financial information.

Can you provide additional color where necessary.

As a reminder, we released our first 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 concerning our 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 detail 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> dot com or to the 8-K filing provided to the SEC I'll turn the call now over to Michel.

Thank you, Jason and welcome everyone to our first quarter 2022 earnings call.

ATM has entered a new growth phase a phase marked by fiber and other advanced data network infrastructure for more homes businesses schools communities and even other communications providers. The networks. We are building around the world today will have lasting impacts both for the communities we serve.

As well as for our business.

And as an example of the importance and the opportunity in this work I'd like to start off by sharing some comments from our customer the northeast Arctic School Board and Alaska, explaining their situation.

Quote we are located in the remote Yukon Delta region of Alaska.

There is no infrastructure our region lacks even basic internet access the region is high poverty and the only reliable internet connections are to the school and the health clinic. If there is a clinic in the village.

In some places you cannot buy a home use internet connection at all access to the Internet is always a main concern for parents. It is very hard to conduct remote learning when none of the students have an internet connection.

And.

At ATM, we delivered connectivity and for many is in this example that means access to life changing services, such as telehealth online education remote employment and more through these services. The lives of previously isolated people can be transformed.

Okay.

As mentioned on our last quarterly call our new growth strategy is characterized by two key components to drive progress and serve our mission of digitally empowering people and communities. So that they can connect with the world and prosper.

The first component of this strategy is what we call glass and steel.

At its core glass and steel means building core digital infrastructure, such as fiber towers in fixed and mobile data network capacity.

The second component is being first to fiber this means being first to bring fiber to a community and neighborhood of business a tower or a home.

Yes.

Historically, if you look at how fiber and other telecommunications networks have developed you will see the commercial success is often achieved by those at the tip of the sphere.

By leveraging our ability to operate and rugged market environments. We can establish several competitive advantages early on and better position ourselves to obtain and retained leadership in a given market over the long term.

This has worked well for us before another bill cycles, and indeed earlier in this cycle for places like Bermuda and Cayman.

We believe our experience and approach places us in an excellent position to fully benefit from our industry's transformation.

Best serve our customers and capture value for our shareholders.

Taken as a whole our growth strategy has significant benefit we are enhancing our prospects across our footprint with technology is well suited for longevity and growth.

We are tailoring, our technical solutions for the attributes of each market, we will use any means necessary to provide customers with the high speed reliable data connection.

And the majority of cases this involves fiber to the premise, but it also includes advanced fixed wireless and hybrid fiber coax solutions and even lower latency satellite solutions.

Today, we have more than half a million homes passed by our broadband services up from about 260000, a year ago.

And of our more than 204000 total broadband customers we.

About 50% who are served by networks with speeds of 100 megabytes.

Later.

This number has increased by roughly 50% compared to a year ago.

We expect these metrics to continue to improve going forward driven by our differentiated approach.

ATM is not just leaning into the future. We are also leaning into what's best for the needs of the communities we serve.

As those who are familiar with ATM understand our motivation expand extends beyond just the bottom line.

Over the years, our ability to positively impact traditionally overlooked communities has transformed into a motivator and purpose for our teams around the globe.

We are proud of the differences were making in People's lives and expect that to remain a positive driver of our momentum going forward.

And as an update we recently announced our intention to bring affordable and modern cloud services to rural areas, including tribal lands across the southwestern U S through a strategic partnership with Amazon Web services.

To this day, many tribal governments and other organizations in rural and remote areas do not have access to the cloud and its related benefits, including improved cost lower latency better security and more.

By working with AWS, we are able to provide this modern capability and helped to deliver the same types of solutions offered in urban centers to businesses schools hospitals, and others and rural communities.

Now I'll turn now to our quarterly results with Justin going into more detail shortly.

In the first quarter of 2022, we grew our top line by 38% year over year, and adjusted EBITDA by 64% year over year.

This was mainly due to our market expansion in the U S.

And to network upgrades and additions across our international and domestic operating footprint.

Our international segment is showing resilience and stability in particular, our market leadership in the more mature Caribbean Island markets has continued to deliver steady cash flows for reinvestments reinvestment in markets with higher growth potential, including Alaska Guyana.

In the southwestern U S as.

As well as for upgrades to our existing network infrastructure and our other markets.

For this quarter investors will note continued revenue growth, but at the same time rising expenses.

Most of the expense increase is a conscious investment and growth in areas such as marketing sales and product enhancements. We are proud of the teams we have put in place in these markets as they continue to excel and outperform the competition.

Core to our work internationally as well as in the U S is helping to bridge the digital divide and.

In Guyana for example, we have been collaborating with voices <unk> since 2020, providing GTT Sim cards, and discounted mobile data services to refugees and migrants across the country. So that they can access online learning.

At the same time and also in Guyana, we are actively working to help catalyze the growth of local entrepreneurship and innovation. So that the Guyanese can benefit directly and more rapidly on the growth in demand for local content and services to support the expanding foreign direct investment activity.

In the energy sector and elsewhere.

Decided a couple of examples along those lines GTT partnered with the office of the Prime Minister on an innovation challenge Hackathon, where teams competed for prizes by creating environmental sustainability software solutions.

We also partnered with the Guyana Economic development Trust in Guyana stem that runs programs to identify <unk> Innovation award prizes and provide mentorship to bring the innovation to life.

Turning back to the U S. Our successful acquisition of Alaska Communications continue to fuel our domestic momentum in the quarter.

In addition to contributing meaningfully to our top line. This new market also further powered our subscriber reach and network expansion.

We did experience some typical seasonality in the quarter, but expect to show growth from this region, particularly in the latter half of the year as we connect more business and residential customers.

We are excited to continue working closely with our colleagues on the last frontier to execute and deliver connectivity to more rural and remote locations.

Taking a step back our glass and steel and first fiber strategy is positioning us well to meet our three year growth objectives, including three years of projected annual EBITDA growth, which we initially laid out for investors with last quarter's earnings release.

We have continued to make solid progress towards our key strategic objectives, both in the U S and in international markets.

And as a result, we are now in the process of further expanding our presence in markets like Alaska, The lower 48, and Guyana, while also serving our customers well building on strong relationships and communicating our advantages in our more mature markets such as Bermuda.

Looking ahead, we intend to continue looking out for opportunities to enter and expand in those markets that fit into our core strategy and have high potential for cash flow durability.

We are confident in our ability to excel in those regions that other operators typically shy away from and.

And believe this will allow us to unlock more shareholder value going forward.

So with that color on the realities of the need for what we do and how it aligns to our strategy and execution I'll hand, the call back over to Justin to provide more detail on our quarterly financial results.

Great. Thank you Michael I'll now provide a closer look at our financial results for the first quarter of 2022.

In the first quarter total consolidated revenues were $172 million up 38% year over year, largely due to the Alaska Communications contribution.

Operating income was slightly above breakeven, while adjusted EBIT increased to $40 6 million from $24 7 million a year ago.

The year over year decline in operating income for the company was mainly due to the $3 4 million of onetime losses on the disposal of assets in both our domestic and international segments.

Turning to our segment breakdown in international we increased revenue by 4% year over year to $86 8 million.

This was mainly driven by mobile subscriber growth and increased roaming our carrier service revenue is travel and tourism is returning to the U S Virgin Islands in Bermuda.

These gains were offset by the decline in federal high cost support subsidies that started in the third quarter of last year.

Adjusted EBITDA was $27 1 million in the quarter up slightly from $26 9 million a year ago.

Offsetting the revenue growth, we saw expenses returned to pre pandemic levels, along with investment and brand positioning and subscriber growth in conjunction with our fiber and mobile network investments.

In the U S segment, our top line revenues were $85 2 million in the quarter more than doubling once again on a year over year basis.

This strong performance continues to be driven by our consolidation of Alaska's results.

Approximately 70%, 75% of the segment revenues, excluding construction were derived from businesses and carrier services.

First net construction also contributed $2 million to segment revenues.

Timing of say completion in any quarter can be hard to predict particularly in the winter months, but the lower number of sites completed this quarter move. This is just over 60% and we continue to expect to reach 90% complete by the end of 2022.

Adjusted EBIT in the segment was $19 6 million for the quarter versus $4 6 million a year ago led by the higher fixed and carrier Rep carrier revenues from Alaska.

Consolidated net loss for the first quarter was zero point $9 million 13 per share compared with net income of $2 7 million and 17 cents per diluted share in the same period a year ago.

We reported $34 5 million in Capex for the quarter the breakdown between the U S segment and the international segment was $15 2 million and $19 $3 million respectively.

Now turning to our balance sheet and cash flows we ended the quarter with total cash and cash equivalents of $76 8 million and total debt outstanding of $352 2 million.

This includes the Alaska nonrecourse debt, but it excludes the first net customer receivable financing facility.

With a consolidated net debt to EBITDA ratio of under two times, including both nonrecourse and parent level debt, we continue to benefit from our balance sheet strength and the resulting flexibility.

We remain confident in our full year guidance for 2022 as well as our three year growth plan.

To reiterate we aim to achieve a revenue CAGR, excluding construction revenue of between 4% and 6% over the next three years ending in 2024.

We believe we can improve our operating margins alongside that revenue growth, resulting in targeted adjusted EBIT CAGR in the range of 8% to 10% over the three year period.

Following 2024, we expect Capex to return to more normalized levels of 10% to 15% of revenue and we expect to do this all without increasing leverage targeting a net debt leverage ratio of less than one five times by the end of 2024.

And with that I'll turn the call back over to Michael for his closing comments. Thanks gentlemen.

We are currently in a new growth stage here at ATM and very excited about the future by targeting those markets early on that are well suited to our unique skill set we are setting ourselves up for lasting growth.

The outsized performance.

At the same time, we are upgrading our tools networks and services to deliver best in class digital infrastructure and communication services.

Through this process, we are unlocking value for our shareholders as well as the communities we serve.

And now operator, we'd like to open it up for questions.

Is there a question you will need to press on your telephone.

To withdraw your question press the pound key.

Please standby.

Thank you Sir.

Our first question will come from the line of Rick Prentiss from Raymond James Your line is open.

Hey, Thanks, good morning, everybody.

Eric.

Hey.

A couple of questions.

First Michael you called out some seasonality with Alaska.

New acquisition for Us at least with you guys owning it can you help us understand kind of how much seasonality there is or what we should expect.

It kind of ebb and flow to be $1 or percent kind of business.

Yeah, it's not it's not really that sort of.

First of all it's not a huge factor, but typically the main point is the fourth quarter tends to be a strong quarter.

So it's not as much up and down throughout the year, but the fourth quarter tends to be a strong quarter.

Gotcha.

So as I look at the results.

Fourth quarter.

Managed services line item, which was pretty strong and almost $8 million and then it drops down to $2 million in <unk>.

Is that mostly driven by seasonality in Alaska, and how should we think about that playing out throughout the year, particularly managed services.

The new loans really for you guys.

Yes, Rick I can take that managed services.

Some of that is equipment sales that happened in the fourth quarter and there does tend to be I don't know if its seasonality, but there does tend to be more of that type of stuff in that market in the fourth quarter.

The difference in the quarter was mostly equipment sales that also come with a higher cogs to REIT costs offset.

Right yes.

Revenues were lower than we were looking for but the EBIT.

EBITDA wasn't as bad so obviously that would play into that.

I think.

I think some of that's driven by just like.

Buyers tend to do a lot in the fourth quarter before the year end.

Yeah and budget spend it or lose it you got it you got it.

Okay, and then as we as we look at the carrier services line.

It also had a big fourth quarter.

Then dropped off in one queue is <unk>.

<unk> more of a normal level that we should be thinking about it.

Rose off of that and just trying to think through.

Then with Alaska, just being in there and you had a big fourth quarter.

Models going forward.

Yes, I think that I think thats directionally right, Greg So the last part so that the first quarter you should think of that more of that as the normal growth off of that.

Got you okay.

Couple of other quick ones for me you did mentioned some divestitures, both domestic and internationally can you share with us any extra details and I think we did see some industry items about geo versus maybe.

Heading down.

I can take the first part.

<unk>.

The biggest components of that was.

Decommission of a billing system in the U S and a N a fibre contract.

Basically redo in the international markets.

Okay.

I'll take the second part on <unk>. It's just it was not material to the quarter, but we really reduced funding. It is not shut down we were still operating.

For customers, but it's really become.

Material to the current or outlook numbers.

Okay.

And last one for me then.

Thoughts on infrastructure spending infrastructure bills federal state and county to local kind of how that plays out on the regulatory front or the legislative front.

Yes.

The main thing is we continue to be active in that sphere. So we're continuing to look in multiple markets in the U S.

Our areas, our operating areas principally at expansion possibilities with the assistance of federal or state program. So we have applications in for a number of things.

And we continue to monitor.

There is still money flowing from some of the earlier sort of pandemic relief.

And some of the other funding bills have passed but the bead program. The 40 something billion has not started to flow.

And we expect that to go through the states through state and local programs.

But we're very active and we do see it as a way for us to connect more communities to augment services and a lot of these areas.

And so so it's definitely a focus point.

Okay. Thanks.

And our next question comes from the line of Greg Burns from Sidoti You may begin.

Good morning, I, just wanted to follow up on the Geo versus.

Line of questioning.

<unk>.

Maybe a year ago or at some point you had said guidance and you talked about the incremental spending on for Geo versus it being like 10.

I think the number was like 10 or so million, so what cigna like meaningful.

Incremental spend that was impacting EBITDA in that segment. So I'm just trying to understand why what.

We're kind of winding it down to some degree here why theres not Mike.

Commensurate upside to profitability, if we're reducing spending on that.

Business, yes.

Sure Greg It's a good question. It is built in to our outlook that reduce spending so.

There are other puts and takes.

In the U S Telecom segment.

Some of the decline in the legacy wholesale revenues of course impacting that so that's really what's going on.

Okay, and then in the international segment.

It looks like churn has been going up on the wireless side. So how are you balancing.

Yes.

No.

Cost of acquisition versus lifetime value of the subscribers is there anything specific that's driving that increased churn.

Yes, we're not particularly I mean, we watch churn carefully it is very important we're not particularly concerned about that that really relates and this quarter really relates to a lot of seasonal promotions from late last year, which net net we still think.

Always good to do so in the.

And some of our markets, particularly the sort of the prepaid segment. Those those promotions you can have.

Yeah.

The sort of.

Correction back a little bit.

Following quarters, but the net of the activities we've done we like the economics around it.

Okay. Thank you.

Sure.

Once again as a reminder, star one for a question Star one.

Next question comes from the line of Amit.

Horsemen Gws financial your line is open hi.

So just wanted to ask you about.

The fiber space and how youre going about with the grants and so forth that are pending how competitive is it for you in that environment since everyone's chasing that these grants.

How can you solidified.

You're not really going to be facing competition in the markets that you're targeting.

Yes.

And a lot of the operators, you're asking right because there's a lot of people talking about it theres a lot of money going into these areas. So the first thing.

I would say is the areas, where we have expertise and know how and really can cost out and credibly execute on builds there is limited.

There is limited other players that can do the same.

Having said that we have to be very disciplined about it we have to really understand our costs.

And and not do something that's not going to be economically viable.

So there is there is more to come right as I mentioned before there's a lot more money coming in so that could get more competitive.

But we really do a project by project and the things we've done today.

Are pretty complex right, so they're not sort of commodity like auction situations. There they are pretty complex they involve working with.

Local partners School systems.

And.

Often things like state departments of transportation.

Because permitting is always a key ingredient to these things timing and costing so I think.

I think I think it's manageable, but we'll keep our eye on it and we will be disciplined.

Okay and on the international side.

Are you seeing increased competition on Guyana, right now or have you been able to manage that with the increased marketing spend.

There's definitely increased competition over say three years or five years ago.

As we talked about a year or two ago.

Liberalization quote unquote sort of.

<unk> some of the market licensing introduced.

Existing player.

Local players expanding but I think we're doing very well competitively there. So we feel good about it most of.

We think most of the competitive impacts we've had on a net basis.

Last year year before.

But but it's going to continue to be competitive and we'll continue to.

Fight for share throughout but but but again on a sort of overall assessment.

We like our chances for continuing to grow there.

Okay, great. Thank you.

Yes.

And we have a follow up from the line of Ric Prentiss from Raymond James Your line is open.

Hey, guys, a busy earnings season, but we'd be remiss, if we didn't ask the inflation interest rate questions.

How are you seeing inflation affect you in your different markets.

Both on the revenue and the cost side.

Then how about on the interest rate side houses.

Affecting you.

I'll take the cost side and Justin can talk more about it.

So I guess, we know it's not transitory that's the first thing.

We're definitely seeing it we're seeing it in a number of areas. We're seeing particular areas to call out our sort of specialized contracted services a lot of operators are seeing that in the U S. In particular.

Certain materials and so on so.

The impacts are there why don't you see our results.

So they're reflecting the results for the most part I think.

We've been able to handle it and.

And we also but we also have to look at and are looking at.

Passing more of those costs along to our customers.

There can be born.

We need to do that we'd start to that in some places, but I think we'll probably do it in more.

And the good the good news is.

We operate and deliver essential services. So you have some ability to continue to.

Be reasonable and having and your customer share and the inflationary.

FX.

And we are seeing Rick we are seeing interest rate increases, obviously alongside everybody else and when we do have some hedges in place but.

But for the most part we were seeing that impact as well.

Okay.

On the competitive front.

Following up on <unk> question on.

Competitive environment out there.

Any as you look at your fiber under glass and steel side, the fiber side, what kind of competitive responses is cable in the neighborhood, where you guys are doing and what kind of competitive responses are you see or are you expecting.

Well I think I think if you think about it on the domestic side we.

What we've largely been doing to date has been.

Enterprise wholesale community connection so when we bring fiber to a new community or an area. There is.

Theres nothing really there on the high speed data things. So it's not it's not a we're not very typically in an overbuilt.

Situation of an existing high speed provider there'll be some of that in Alaska.

But.

I think.

You can see from many many markets.

There is a way to do that from.

And at a viable way in an economic way.

And then outside the outside the U S. It's typically us and one other player.

Battling it out.

And most of our markets and.

But in most of the markets. We were the first to fiber if you think of that other component in terms of.

Look at that as the first to provide.

Higher speed service and so we see quite low churn and we see very good.

Customer take up when we bring.

Fiber to new areas for example, in Guyana West as we bring fiber into new communities. We are seeing very quick.

Take up.

So all in all I think we're managing it quite well.

Okay and on the satellite side you referenced sometimes satellite you guys had the relationship with with one web up just a little bit on what youre seeing in the Sally space and how it might help you.

Well I think Alaska is a unique situation because it's because of one way or at least they had that polar orbit. So they have more capacity, there and that sort of a launch initial area. So we partnered with them early on as a way to provide solutions and we also see some some mix of Av.

Leo low Earth orbit low latency solutions layered in with.

Some geocentric solutions for other types less time sensitive.

Aspects of the capacity so we're looking at those.

We haven't really gotten that far in.

As you go down in the latitudes, but where we're constantly looking at that.

Looking at ways to provide solutions for other communities.

We're happy to partner with any provider there.

It's pretty straightforward to partner on the satellite thing, it's really a it's a <unk>.

Most margin equation and.

So it's easy to analyze easy to price out and and in some areas. Its really is going to be the solution for a little while.

Okay. Thanks for the follow up.

Yes, Thanks, Greg.

Thank you I'm not showing any further questions in the queue I will turn the call back over to Michael for any closing remarks.

I don't have any closing remarks, Justin no. We're all set thank you everybody and we look forward to speaking to you at.

At the end of the second quarter have a great spring.

And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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