Q3 2022 ATN International Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the a C and international third quarter 2022 earnings conference call and webcast at.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session I would now like to hand, the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer of the company. Please go ahead, Sir great.
Great. Thank you operator, and good morning, everyone. Today, we will be reviewing our third quarter 2022 result earnings results with me here is Michael prior <unk> Chief Executive Officer.
Michael will be providing an update on our business strategy as well at a high level overview of our quarterly results.
I'll cover the relevant financial information and provide additional color where necessary.
As a reminder, we released our third quarter earnings press release last night after market close investors can find the release and summary slides for the call 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 expectations.
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.
In an effort to provide useful information to investors investors. Our comments today include non-GAAP financial measure.
For details on these measures and reconciliations to comparable GAAP measures and for further information regarding these factors that may affect our future operating results. Please refer to our earnings.
<unk> on our website at <unk> com or to the 8-K filing provided to the SEC.
And I'll now turn the call over to Michael for his remarks.
Alright, Thank you Jasmine and welcome everyone.
The third quarter of 2022 was another good quarter for ATM, and one where we served our customers well advanced our strategic broadband buildup.
And made excellent progress toward our three year growth objectives.
For example, we grew the homes passed by our broadband networks to about 614000 at the end of the quarter.
Is 9% higher than a year.
Of this amount we added about 29000, new homes passed by fiber or other higher speed solutions.
Our ongoing network investments are also reflected in our subscriber levels.
As of September 30, 42, 54% of our 205000 broadband subscribers are connected to our higher speed networks that represent an increase of nearly 13% year over year.
Other metrics, we track as part of our three year plan are also showing good progress for.
For example, we ended the quarter with 376000 mobile subscribers in our international segment.
Up about nine 5% from a year ago as a result of our sales and marketing efforts and investment.
Both in the Caribbean and in the U S. Most of our expansion markets and markets that we believe will continue to benefit from growing demand and positive secular tailwind.
Putting us in an excellent position to benefit from this growth and to help enable us as.
As we provide these communities.
<unk> capability that will help them drive.
Towards that end our efforts in the U S to reach many traditionally underserved communities were bolstered by some great wins.
Securing critical federal funding.
Since July we have been named recipients their sub recipients for roughly $144 million and awarded grants.
As part of our Alaska fiber optic project were jointly awarded to Graeme each within Alaska Native Corporation for a total of about $130 million.
Working with our partners we plan to utilize this funding connect household healthcare facility at school and 25, King and the across Alaska Hurdle Yukon Delta region.
Affordable high speed Internet for the FERC filing.
Beyond the clear economic benefits to our business. These collaborations also has a potential to deliver transformative change for better living conditions that outcome.
And these previously electric demand.
In the lower 48, we have been awarded $41 million in federal funding for July of this year.
<unk> of the ramping up last quarter for $10 million.
And at homes at an entity in the southwestern U S.
This will be spent to connect thousands of homes and many schools businesses and health care facilities to advanced high speed services, and we anticipate filing for a winning additional brands and other funding support in the coming quarters.
And we view this as a nice complement to our core efforts to execute our U S strategy.
Now before turning to our quarterly results I would like first to take a moment to discuss that.
Current economic and financial climate.
While we are closely monitoring developments, we remain confident in our market leading positions as well as our overall business prospects.
Along our way to becoming a leading connectivity provider smaller market traditionally underserved segment.
We have acquired highly valuable experience investing in as well as building and operating network based businesses.
As part of this progression, we manage our operational between multiple business cycles that event as well that have had significant economic impacts on the markets we serve.
So while we take the recent economic developments in prospect seriously and we will adjust as we need to.
It's worth noting why we believe we are well positioned to continue moving forward and generating value for our stakeholders.
First is our differentiated model and strategy.
We provide essential communications services rural and remote markets that most other operators.
Historically avoided survey.
By building out the necessary capabilities to support this market entry strategy, we have secured high recurring revenue.
Durable cash flows.
Sticky customer relationships.
The strong competitive footing as well as other favorable business aggregates.
And we believe demand for our services will remain high across all our markets.
Second is our sound financial and capital allocation strategy.
While we invest in those areas that we believe are attractive from a risk adjusted perspective.
We also maintain a strong balance sheet underpinned by high recurring operating cash flows and.
And limited non discretionary capital expenditures.
This provides us with significant flexibility in our capital spending and allocation decision.
Based on market conditions and opportunities that arise we are able to speed up.
Slowdown or change the network build outs in our three year plan.
Similarly, we have the ability to be opportunistic in accessing capital and capitalizing on new growth opportunities.
Or alternatively to add to shareholder value in other way.
While this flexibility is compelling we believe in all market cycles.
It is particularly relevant today, given the current business climate.
Third and not least is our high quality leadership team.
Both at the parent and subsidiary level, we have a leadership team.
Things that are operational experience across multiple market cycles.
And of course, the added benefit of seasoned managers and staff working with them.
We are proud of the culture, we built here at <unk> over the past 30, plus years and consider it to be a critical strategic asset.
So now for a brief overview of our quarterly results before Justin provides a deeper dive into our financial performance.
In the third quarter, we grew total revenues by 9% and adjusted EBITDA by 14% year over year.
This was driven by positive results across both of our operating segments, including a strong performance in Alaska.
Fiber and broadband customer additions and mobile subscriber growth.
Consistent with the past, we continue to leverage cash flow durability from our more mature businesses and to reinvest those proceeds in other markets that are earlier in their growth cycle as well as an existing network infrastructure upgrades.
The healthy growth in our international multiple subscriber and revenue I noted earlier is a nice success story.
We expect to see that positive momentum carry forward as our improved sales and marketing capabilities and completed network upgrades bear fruit.
We are steadily expanding our broadband subscriber base and state of the art communications infrastructure, both domestically and internationally.
In the U S. As I mentioned at the top of the call our multiyear network expansion strategies benefitting from new sources of federal funding, which hit both economic value and social benefits for all involved stakeholders.
We are proud to be working with our partners both in Alaska and the.
Southwestern U S to help bridge the digital divide.
Of note, our Alaskan operations performed well in the quarter.
With the substantial topline contribution and strong operating cash flow.
While we continue to see resilient demand in Alaska for our enterprise and wholesale solution.
We also have made initial inroad to provide fiber private services to select market, let's say.
This initiative is still in its early stages, and we look forward to updating everyone on its progress in future quarters.
So in summary, we delivered good results in both the U S and international markets. During the third quarter, we remain committed to being first to fiber in those markets that are aligned with our established criteria and where we believe we can all developed strong first mover advantage.
In addition, we continue to prioritize building and owning modern or digital communications infrastructure.
Distant without glass and steel strategy.
Most importantly, as we execute towards these two strategic objective underpinning our three year plan. We are also steadily expanding our overall broadband network and subscriber count.
And while that gives us confidence in our long term growth targets as well as our core financial objectives for the full fiscal year.
Our financial position allows us to be flexible in the execution of our strategies as we look to maximize value for shareholders.
And that fits for now I'll hand, it over to you Jeff for financial results great. Thanks, Michael.
We delivered a solid financial performance in the third quarter of 2022.
During the period drove consolidated revenues were $182 2 million up 9% year over year operating income was $1 4 million improving from an operating loss of $1 million last year.
And adjusted EBITDA was $41 9 million up 13, 8% year over year.
These improvements were mainly driven by the addition of a full quarter of Alaska communication results compared to a partial quarter last year and the improved operational performance in Alaska on a pro forma full quarter basis.
Notably we also continue to see strong subscriber growth in other markets as we make significant network and operational investments and continue to execute on our three year strategic growth plan.
Now turning to our segment breakdown.
In the international segment revenues were $90 million in the quarter, increasing 6% year over year.
This growth was growth was the product of higher mobile and broadband subscribers and the associated revenue, partially offset by a scheduled step down in federal high cost support subsidies for the U S Virgin Iron.
For the segment was $27 9 million in the quarter.
377.
7% year over year, driven by subscriber growth as well as operational investments in customer acquisition additional backhaul capacity and increase resiliency to support our higher mobile and broadband revenue in the segment.
Sure.
In our U S segment revenues were $92 2 million in the quarter up 13% year year over year.
During the period business and carrier services accounted for approximately 70% of the segment services revenue in.
In line with our consolidated performance drivers the increase in segment revenues was mainly due to the addition of a full quarter of Alaska result, compared to a partial quarter of the same period, a year ago, along with solid organic revenue growth year over year.
Consistent with our expectations year over year revenue growth in the segment was partially offset by a reduction in legacy wholesale wireless revenues.
First net construction contributed $3 3 million to the segment revenues in the quarter, we completed approximately 70% of the site and now expect to complete 75% of the build by the end of 2022 versus our prior forecast of 85%.
This is mainly due to the timing of permitting and approvals as mentioned in prior quarters.
Adjusted EBITDA for our U S segment was $21 9 million in the quarter up 33, 6% year over year.
This increase was mainly due to the same factors, which led to the higher segment revenues in the period.
Net loss through the third quarter was $2 8 million or a loss of 25 per share.
Paired with a net loss of $2 6 million or a loss of 22 per share in the same period a year ago.
We reported $38 9 million in Capex spending for the quarter.
That includes $19 3 million in our U S segment, and $19 4 million in our international segment.
Now turning to our balance sheet and cash flows we ended the quarter with total cash and cash equivalents of $77 8 million.
In addition for the first nine months of the year net cash provided by operating activities was $79 million compared with $47 7 million a year ago.
Year to date, we utilized approximately $36 million of cash to fund various working capital items, including prepaid circuits and inventory as well as to reduce payables and accrued balances.
At the end of the third quarter, our total debt outstanding was $355 6 million.
This amount includes 220 $226 million in Alaska communications balance sheet, and excludes $43 $5 million related to the first that customer receivable financing facilities.
With a consolidated net debt to EBITDA ratio of under two times, including both non recourse and parent level debt.
We maintain strengthen our balance sheet as well as flexibility in our financial strategy as Mike spoke to earlier in his remarks.
In summary, we delivered solid financial results for the third quarter and our outlook for the full fiscal year remains unchanged.
Benefiting from our established leadership across our markets as well as from our ongoing network expansion network upgrades and subscriber base increases.
As we consistently invest in line with our three year strategic growth plan. We're also building out our foundation and setting up ATM well for the long term.
We look forward to continuing to deliver value to all stakeholders across our operations and update everyone on our progress going forward.
Thank you everyone that concludes my prepared remarks for today I'll turn the call back to Michael for his closing comments.
Thank you Justin and thank you everyone for joining us we're excited about the future given the essential nature of our offerings.
Quality and growing reach of our network.
And the early mover advantages were.
Enjoying in underserved communities.
And lastly, the financial flexibility, we have within our control.
I'll turn it back to the operator for questions.
Thank you.
If you have a question please press star one.
Telephones, one moment, while we compile the Q&A roster.
The first question that I have is coming from Rick.
Please go ahead.
Hey, everybody good morning, good morning.
A couple of questions.
Obviously.
You guys are trying to help out will remote area as you've gotten a couple of grants methanol grams in Alaska help us understand social benefits clear help us understand the economic value to all of these grants imply when you spend Capex then you get reimbursed Capex you get it through service revenues.
Kind of the timing help us understand how we should think about youre announcing these grants and how we should be modeling and thinking of the economic value add.
Yeah, Okay. Thank you Rex so so the grant so.
First thing as we've said previously I want to note.
Is that the grant size and I think we're getting questions does not translate directly and immediately and the economic value for ATM.
For example building in remote areas of Alaska considered small populations might have less of an economic impact on our business.
Our take longer.
To ensure that some of our smaller brands we acquired.
The way, we think about this and I will get back to the Capex and the second our guest and well put.
We view these brands more complementary effort to our core strategy.
So thats.
We look at being the primary provider of connectivity to multiple customer segments across our geography, and the grant allow us to.
Serve more people serve more communities too.
Add economic underpinning to our other efforts.
So when we build in fiber into our community.
And the southwest for example.
We are to serve lets say the schools that are homes under our brand. We are also.
Working that with our broader plan to extend to fiber to the towers to build businesses and to build the other commodities that may not be grant supported.
Really just a piece of the pie and then there is no direct capex with the brands. We've talked about so we've really is these are decent really by and large fully funded with the exceptions of small amount.
Talked about in July where I think we got $10 million and we had about $1 million.
It may be under the <unk> program going forward that they're going to be a lot of matching plans and we will look at whether our piece of the capex.
<unk> has an adequate risk adjusted return.
When we apply for it.
But.
And then lastly, when will when will that impact us.
You won't see much impact in our core numbers and deliverables next year. It will be minimal as you go farther out 'twenty four 'twenty five.
Some of these brands well, yes had a nice bolstering we believe to EBITDA and revenue.
Still just the piece of the pie right. This is not a grant the only strategy we have.
Does that answer your question Rick.
Yes, yes, it does.
Second question.
Guys had mentioned the secret wind acquisition.
Any update on that acquisition I think you had mentioned kind of a rough EBIT number any thoughts on the timing any update to the revenue and EBITDA impact and we noticed that in third quarter. There was I think a $3 $4 million transaction integration charge, what was that related to.
Okay. So first I'll take the last one.
Transaction charges in the third quarter that just M&A related charges. Some of it gets affected when some of it where other activities and as you know from the past we don't comment on that.
Activities, unless and until there's something to announce.
As the sacred wins.
Economic impact.
We did not as we said last quarter.
We expect the business will generate EBITDA of about $10 million in 2022.
Didn't disclose the revenues for that.
So we expect the business to do at that level or better.
In the next year and it will be combined with our Carbonette broadband operation and within our overall U S segment.
And the timing of the closings are at close.
It has not closed, but we expect it to close in the fourth quarter.
So.
Sure.
And the final one for me is obviously a couple of times, you've highlighted your balance sheet the financial flexibility.
As I understand is that to kind of comfort to market that other companies are seeing trouble raising money in a high interest rate environment to deploy capital programs is that also meant to say youre looking at some potential M&A.
Well it is meant to say multiple things. So the question is why do I keep talking about financial flexibility.
The first is to assure shareholders that we know.
The whole reason for being here.
Reward our investors.
That's our primary objective and.
In the economic environment, we're in and the prospective environment I think there are more questions from shareholders about okay.
Whats your spending is that level of spending appropriate how do we how do we.
Ensure that.
We see adequate returns as investors and so I think what we're saying is we have a flexibility to.
In our capital allocation to do things for shareholders.
And we will weigh that against.
The other point, which you raised which is because of our flexibility a lot of our competitors don't have the same flexibility. So we do see an opportunity.
Two.
<unk> first mover advantage.
Generate nice returns.
Perhaps including M&A with that including bolt on that particular M&A that they can.
Accelerate.
While enhance our existing strategy, but what we're really saying is we're going to be very conscious of the environment, we're not going to get too far ahead of our skis and we're going to adjust.
As we need to make sure shareholders benefit.
Okay, that's pretty clear.
Still a lot guys.
Yes, thanks, Nick.
Thank you for your questions now as we prepare for the next question.
Okay.
Our next question will be coming from Gregory.
One of Sidoti. Please go ahead your line is open.
Good morning.
Right.
In the international segment, what was the how much FCC support revenue, where you're still getting and what's the timing of the wind down of the remainder of that.
We're still getting about one point.
$4 million a quarter.
Right now a month I should say.
Quarter to quarter.
$5 million a year in the wind down Michael do you want to comment on that.
Schedule Y balance yeah, I mean, we're still we're still talking to the FCC about that.
And trying to understand it with respect to how that market served and whether it will be adequately served.
So that's about all I would have to say on that.
Okay.
And then on the NIM.
On the mobile side.
Excuse me churn.
There is still going up but you are spending more.
To acquire the customers so.
But staying around for a shorter period of time can you just talk about.
Maybe that dynamic.
The return you're expecting to get there.
Do you have plans to try and bring churn down.
Yes, Greg so churn on mobile first thing I'd note is up a little but.
Recognize that we have a very high prepaid base rate for the.
The percentage of our base that prepaid is.
Quite significant.
So I don't think I don't think those churn levels at a blended churn number are bad.
That said of course, lower churn is always better.
And there is probably some of the <unk>.
Uptick because of promotional activity right. So if.
If you grow gross add.
Going to see some of those will take some of those loans, particularly on a prepaid basis.
Or when.
<unk> rolled off but net net we liked the economics around it.
We'll continue to watch it carefully, but we like the economics of it.
Okay, Great and then.
Lastly are you still funding your private networks business, what is the status of that.
It's really a much smaller business. It is it is assumed within our U S segment with income net.
And it.
The minimum funding requirements in this last quarter and probably positive positive contribution going forward.
But small.
In terms of your kind of.
Yes.
Our refocused strategy around first of fiber in glass and steel does that still fit in with the strategy or is that something that.
And maybe is no longer.
Focus of the business.
Okay Greg.
Greg you're asking we still private network fits within our first of fiberglass and steel strategy.
Right is it like a noncore asset now that may be.
Does not fit anymore.
Yes, so I think and just maybe for everybody listening because some people might not know what we mean by private networks that private networks essentially cap.
Capex are in building or.
Customer primate.
Advanced wireless connectivity.
Keep it simple.
And so we still are offering that service, we're offering that service in multiple markets that we really view it as a service add on to our existing.
A core part of our strategy to expand that service.
Okay, great. Thank you.
Thank you next.
Next question.
And we have.
Our next question is coming from Hamid.
<unk>.
B Ws financial your line is open.
Hi, This is Amit <unk>.
Just wanted to.
Ask you about the subscriber growth commentary.
How sustainable is this growth and.
What are you doing in terms of trying to upsell that customer.
Get into the more.
Fiber in the higher end of the.
<unk> been spectrum that you provide.
Providing.
So just to be clear and good morning, you're asking about really about the broadband subscriber side.
Yes.
Okay.
So I think it is very sustainable in fact, we're with our plan, we expect to continue to grow.
The percentage of.
Our customers are on higher speeds in the overall number.
I think so.
And in terms of up selling.
We have we have seen as many operators are seeing continued interest in <unk>.
Shifting customers to take.
Upgrade to higher speed and higher capabilities or add mesh solutions and things like that so we continue to have success there and we've also seen.
And a lot of our newer fiber build.
If we look at our plans and sort of demographics.
We are typically seeing it take up at higher planned level than we had built into our business plan.
So which is great. So I think as we see that.
Growth I think youll see.
Some positive impact on <unk> from that from people buying more speed.
And then of course the growth.
Fiber I think we're quite bullish on it.
Okay and then my other question was as far as the mobile side is concerned what is the competitive risk here.
Add more and more subscribers.
<unk>.
More of a degradation in pricing.
I know you always worry about that.
Keep an eye.
Paranoid about competition paranoid about pricing.
Keep a careful eye on it it's not really something that.
Front of mind worry at this point.
Either on the competitive on the pricing I think.
If anything we expect it to be growing our foods overtime and mobile.
<unk> and <unk>.
Spoke to churn before as well.
Concerned about that expanding within the within the two segments.
Prepaid and postpaid.
But it's something we will always keep an eye on and reacting quickly if we see a change.
And does the growth in these two.
The segments to broadband and mobile will that help you at all to get to free cash flow positive state in 'twenty, three or is that still further out.
Yes, so the growth in overall revenues of course, close down and benefits free cash flow free cash flow again is somewhat discretionary so we.
Hi, operating cash flow today, we have relatively low sort of what we would call maintenance capex. So so.
If we wanted to start stop expanding our slowdown expanding our free cash flow.
Wood graph right, we would start.
Taking that high operating cash flow.
Excess.
Relatively easily.
So.
Yes, I think I think that.
That's the main feature in that I don't know Im.
Yes.
You covered I think we have.
We have strong free cash flow today.
In a lot of our Capex as Michael mentioned is kind of forward looking so we have the ability to control that as much as we want to control the capex spend.
And the other point Amit on that though.
It's true if you look at our markets and it's a core part of our strategy. There is a layering effect.
In any market as we add.
And as and.
And as we add customers, whether it's mobile.
Our fixed whether it's consumer or business or.
Our government.
There is an economy of scale benefit so as we grow those revenues within that market you see higher margin contribution margin.
Free cash flow expansion.
Okay. That's it for me Thank you Erika.
Thank you.
While we prepare for our next question.
And our next question is coming from Rick Prentiss.
Raymond James Your line is open.
Yeah, Hey, what's coming in with a follow up if I could.
A lot of discussion on satellites lately, we've had T mobile in space and externally, we plan to Apple in globalstar as far as putting satellite capabilities communication capabilities and the iPhone 14.
I get the question a lot from investors first how do you guys view the potential competitive threat from satellites into your different end markets and then associated with that you guys have had a relationship established with one web.
Where is that at.
I'm pleased the merger, which we think there will be mutual set what does that bode for you guys.
I think we think satellite is largely complementary to our businesses.
As I noted before we're always paranoid right, but we think it's largely complementary where it.
Because of the inherent capacity.
Differences.
Along with some performance characteristics and cost.
We view it mostly as an attractive fill in.
So that's where we partnered with partner to actually deliver that.
The people in our in our <unk>.
Broader operating area, where satellite solution in it and it's a more economical solution than something we could provide by building network ourselves.
And we will continue to do that in fact, we're continuing to look at that and then we're looking at wholesale relationships to providing.
Backhaul transport for the satellite companies.
<unk>.
I think there is clear value.
What they bring and I view it I think we view it as largely complementary to what we have.
And from a standpoint of any competition on the mobile side.
Yeah on the mobile side I, just I think that is largely.
Hyper competitive market trying to retail for now.
Don't see it as.
As a major factor certainly for us I can't speak to those players, but in our market.
We really don't see it as a major factor and should it become important to our subscribers to provide.
Some capability like that.
There's going to be multiple.
Satellite operators to choose from partner with to provide that solution.
When it's really ready.
<unk>.
So I don't think Theres more.
Impacted that I can say.
Okay.
And.
Touching on a little bit the macroeconomic environment.
Just to understand a little bit about how inflation is we're taking you companies and operations directly.
Are you feeling anything from a recessionary impact potentially out there and with a high interest rate environment any change in thoughts of all of those items inflation turns to maybe recession, and then higher interest rates as far as this all might mean for for your guidance is.
Yes, so like everyone else.
Seeing inflationary pressures in certain areas.
As labor materials equipment, we're also keeping an eye on.
Central economic churn around the low end of our subscriber base, but we havent seen anything meaningful there.
And so what we're doing about it.
The moment it is not really had a material impact on our business.
But we are at.
<unk> monitoring local national and global economic factors, and we're working hard to make the business more efficient and reduce costs.
And we've also raised prices on our services in select markets, where it makes sense and we do this Rick typically by delivering additional value such as higher fee in return for higher monthly service fee.
So we're continuing to evaluate it but that so far that's what we're seeing and that's what we're doing.
And on the interest rate side any change in thoughts on.
Two of your guidance.
No I mean, we've given the EBIT.
The EBIT guidance, so, but right now we're pretty confident where we are in terms of our ability to.
Our loan facilities and whatnot.
Confident where we are now.
Okay very good thanks.
Thank you.
There are no further questions at this time I will now turn the call back to Michael for closing remarks go ahead, Sir alright. Thank you operator, so ACN continues to execute at a high level this quarter with steady momentum across our markets.
We're serving our customers well advancing our strategic broadband build outs and making excellent progress toward our three year growth objectives.
In addition, we are proud to be working with our partners in the last in the lower 48 helped bridge the digital divide.
Thank you all.
Take care everyone.
This concludes today's conference you may disconnect have a great day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Good day, and thank you for standing by and welcome to the <unk>.
International third quarter 2022 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 I would now like to hand, the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer of the company. Please go ahead, Sir great.
Great. Thank you operator, and good morning, everyone. Today, we will be reviewing our third quarter 2022 result earnings results with me here is Michael prior <unk> Chief Executive Officer.
Michael will be providing an update on our business strategy as well as high level overview of our quarterly results I'll cover the relevant financial information and provide additional color where necessary.
As a reminder.
We released our third quarter earnings press release last night after market close investors can find the release and summary slides for the call 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 expectations.
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.
In an effort to provide useful information to investors investors. Our comments today include non-GAAP financial measures.
For details on these measures and reconciliations to comparable GAAP measures intuitive for further information regarding these 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.
Now I'll turn the call over to Michael for his remarks.
Alright, Thank you, Jeff and welcome everyone.
The third quarter of 2022 was another good quarter for ATM, and one where we served our customers well advanced our strategic broadband buildup.
And made excellent progress toward our three year growth objectives.
For example, we grew the homes passed by our broadband networks to about 614000 at the end of the quarter.
Is 9% higher than a year ago.
Of this amount we added about 29000, new homes passed by fiber or other higher speed solutions.
Our ongoing network investments are also reflected in our subscriber levels.
As of September $32000 to 54% of our 205000 broadband subscribers were connected to our higher speed networks that represent an increase of nearly 13% year over year.
Other metrics, we track as part of our three year plan are also showing good progress for.
For example, we ended the quarter with 356000 mobile subscribers in our international segment.
Up about nine 5% from a year ago as a result of our sales and marketing efforts and investments.
Both in the Caribbean and in the U S. Most of our expansion work at the end market that we believe will continue to benefit from growing demand and positive secular tailwind.
Putting us in an excellent position to benefit from this growth and to help enable it as.
As we provide these communities.
<unk> capabilities that will help them drive.
Towards that end our efforts in the U S to reach many traditionally underserved communities were bolstered by some great wins in securing critical federal funding.
Since July we have been named recipients, except recipients for roughly $144 million and awarded grants.
As part of our Alaska fiber optic project were jointly awarded to Graeme each within Alaska Native Corporation for a total of about $103 million.
Working with our partners we plan to utilize this funding disconnect household healthcare facility at school in 25 communities across Alaska Rural Yukon Delta region.
The affordable high speed.
The internet for the first time.
Beyond the clear economic benefits to our business deep collaborations also has a potential to deliver transformative change for better living conditions an outcome in these.
As previously and connected community.
In the lower 48, we have been awarded $41 million in federal funding since July of this year inclusive of the ramping up last quarter for $10 million.
At homes at any entity in the southwestern U S.
This will be sent to connect thousands of home and many schools businesses and health care facilities to advanced high speed services, and we anticipate filing for a winning additional brands and other funding support in the coming quarters and.
And we view this as a nice complement to our core efforts to execute our U S strategy.
Now before turning to our quarterly results I would like to first take a moment to discuss the current economic and financial climate.
While we are closely monitoring developments, we remain confident in our market leading positions as well as our overall business prospects.
Along our way to becoming a leading connectivity provider smaller market traditionally underserved segment.
We have acquired highly valuable experience investing in as well as building and operating network based businesses.
As part of this progression, we manage our operational between multiple business cycles that event as well that have had significant economic impacts on the markets we serve.
So while we take the recent economic developments and prospects seriously and we will adjust as we need to.
It's worth noting why we believe we are well positioned to continue moving forward and generating value for our stakeholders.
First is our differentiated model and strategy.
We provide essential communication services rural and remote markets that most other operators have historically avoided survey.
By building out the necessary capabilities to support this market entry strategy, we have secured high recurring revenue.
Durable cash flows.
Sticky customer relationships.
And our strong competitive footing as well as other favorable business atrophies.
And we believe demand for our services will remain high across all our markets.
Second is our sound financial and capital allocation strategy.
While we invest in those areas that we believe are attractive from a risk adjusted.
<unk>.
We also maintain a strong balance sheet underpinned by high recurring operating cash flows and.
And limited non discretionary capital expenditures.
This provides us with significant flexibility in our capital spending and allocation decision.
Based on market conditions and opportunities that arise we are able to speed up.
Slowdown or change the network build outs in our three year plan.
Similarly, we have the ability to be opportunistic in accessing capital and capitalizing on new growth opportunities.
Or alternatively to add to shareholder value in other way.
While this flexibility is compelling we believe in all market cycles.
It is a particular rental relevant today given the current business climate.
Third and not least is our high quality leadership team.
Both at the parent and subsidiary level, we have a leadership team.
Things that are operational experience across multiple market cycles.
And of course, the added benefit of seasoned managers and staff working with them.
We are proud of the culture, we built here at <unk> over the past 30, plus years and consider it to be a critical strategic asset.
So now for a brief overview of our quarterly results before Justin provides a deeper dive into our financial performance.
In the third quarter, we grew total revenues by 9% and adjusted EBITDA by 14% year over year.
This was driven by positive results across both of our operating segments, including our strong performance in Alaska.
Fiber and broadband customer additions and mobile subscriber growth.
Consistent with the past, we continue to leverage cash flow durability from our more mature businesses and to reinvest those proceeds in other markets that are earlier in their growth cycle as well as an existing network infrastructure upgrades.
The healthy growth in our international mobile subscriber and revenue I noted earlier is a nice success story.
We expect to see that positive momentum carry forward as our improved sales and marketing capability and completed network upgrades bear fruit.
We are steadily expanding our broadband subscriber base and state of the art communications infrastructure, both domestically and internationally.
In the U S. As I mentioned at the top of the call our multiyear network expansion strategies benefitting from new sources of federal funding, which have both economic value and social benefits for all involved stakeholders.
We are proud to be working with our partners both in Alaska and the.
Southwestern U S.
Bridge the digital divide.
Of note, our Alaskan operations performed well in the quarter.
With the substantial topline contribution and strong operating cash flow.
While we continue to see resilient demand in Alaska for our enterprise and wholesale solution.
We also have made initial inroad to provide fiber private services to select markets in the state.
This initiative is still in its early stages, and we look forward to updating everyone on its progress in future quarters.
So in summary, we delivered good results in both the U S and international markets. During the third quarter, we remain committed to being first to fiber in those markets that are aligned with our established criteria and where we believe we can also develop strong first mover advantage.
In addition, we continue to prioritize building and owning modern core digital communications infrastructure.
And with that glass and steel strategy.
Most importantly, as we execute towards these two strategic objective underpinning our three year plan. We are also steadily expanding our overall broadband network and subscriber count.
And while that gives us confidence in our long term growth targets as well as our core financial objectives for the full fiscal year.
Our financial position allows us to be flexible in the execution of our strategies as we look to maximize value for shareholders.
And that fits for now I'll hand, it over to you Jeff for financials, great. Thanks, Michael.
We delivered a solid financial performance in the third quarter of 2022.
During the period total consolidated revenues were $182 2 million up 9% year over year operating income was $1 4 million improving from an operating loss of $1 million last year.
And adjusted EBITDA was $41 9 million up 13, 8% year over year.
These improvements were mainly driven by the addition of a full quarter of Alaska communication results compared to a partial quarter last year and the improved operational performance in Alaska on a pro forma full quarter basis.
Notably we also continue to see strong subscriber growth in other markets as we make significant network and operational desk and continue to execute on our three year strategic growth plan.
Now turning to our segment breakdown.
In the international segment revenues were $90 million in the quarter, increasing 6% year over year.
This growth was growth was the product of higher mobile and broadband subscribers and the associated revenue, partially offset by a scheduled step down in federal high cost support subsidies for the U S were denied.
For the segment was $27 9 million in the quarter.
377% year over year, driven by subscriber growth as well as operational investments in customer acquisition additional backhaul capacity and increased resiliency to support our higher mobile and broadband revenue in this segment.
Sure.
In our U S segment revenues were $92 2 million in the quarter up 13% year year over year.
During the period business and carrier services accounted for approximately 70% of the segment services revenue.
In line with our consolidated performance drivers the increase in segment revenue was mainly due to the addition of a full quarter of Alaska results compared to a partial quarter of the same period, a year ago, along with solid organic revenue growth year over year.
Consistent with our expectations year over year revenue growth in the segment was partially offset by a reduction in legacy wholesale wireless revenues.
First net construction contributed $3 3 million to the segment revenues in the quarter.
Completed approximately 70% of the site and now expect to complete 75% of the build by the end of 2022 versus our prior forecast of 85%.
This is mainly due to the timing of permitting and approvals as mentioned in prior quarters.
Yes.
Adjusted EBITDA for our U S segment was $21 9 million in the quarter up 33, 6% year over year.
This increase was mainly due to the same factors, which led to the higher segment revenues in the period.
Net loss through the third quarter was $2 8 million or a loss of 25 per share.
Paired with a net loss of $2 6 million or a loss of 22 per share in the same period a year ago.
We reported $38 9 million in Capex spending for the quarter.
That includes $19 3 million in our U S segment, and $19 4 million in our international segment.
Now turning to our balance sheet and cash flows we ended the quarter with total cash and cash equivalents of 77 8 million.
In addition for the first nine months of the year net cash provided by operating activities was $79 million compared with $47 7 million a year ago.
Year to date, we utilized approximately $36 million cash to fund various working capital items, including prepaid circuits and inventory as well as to reduce payables and accrued balances.
At the end of the third quarter, our total debt outstanding was $355 6 million.
This amount includes 220 $226 million in Alaska Communications balance sheet, and excludes $43 5 million related to 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.
We maintain and strengthen our balance sheet as well as flexibility in our financial strategy as Mike spoke to earlier in his remarks.
In summary, we delivered solid financial results for the third quarter and our outlook for the full fiscal year remains unchanged.
Benefits from our established leadership across our markets as well as from our ongoing network expansion network upgrades and subscriber base increases.
As we consistently invest in line with our three year strategic growth plan. We're also building out our foundation in setting our ATM well for the long term.
We look forward to continuing to deliver value to all stakeholders across our operations and update everyone on our progress going forward.
Thank you everyone that concludes my prepared remarks for today I'll turn the call back to Michael for his closing comments.
Thank you Justin and thank you everyone for joining us we're excited about the future given the essential nature of our offerings the quality and growing reach of our network.
And the early mover advantages were.
Enjoying in underserved communities.
And lastly, the financial flexibility, we have within our control.
I'll turn it back to the operator for questions.
Thank you.
If you have a question please press star one.
A telephone one moment, while this is now the Q&A roster.
First question go ahead is coming from Rick.
Please go ahead.
Hey, everybody good morning, good morning, Mike.
A couple of questions.
Obviously.
You guys are trying to help out will remote area as you've gotten a couple of grants methanol grams in Alaska help us understand social benefits clear help us understand the economic value to all of these grants imply is that when you spend Capex then you get reimbursed Capex you get it through service revenues.
Kind of the timing help us understand how we should think about youre announcing these grants and how we should be modeling and thinking of the economic value add.
Yeah, Okay. Thank you Rick so so the grant so.
First thing as we've said previously I want to note.
Is that the grant size and I think theyre getting the questions does not translate directly and immediately and the economic value for ATM.
For example building in remote areas of Alaska considered small populations might have less of an economic impact on our business.
Our take longer.
To mature than some of our smaller brands we acquired.
And the way the way, we think about this and I'll get back to the Capex and the second our guest and work but.
We have these brands more complementary effort to our core strategy.
So thats.
We look at being the primary provider of connectivity to multiple customer segments across our geography.
And the grants allow us to.
Serve more people serve more communities too.
Add economic underpinning to our other efforts will.
We will rebuild in fiber into our community.
In the southwest for example.
The surplus segment schools that are homes under a brand we are also.
Working that with our broader plan to extend to fiber to the towers to build businesses and to build the other communities that may not be grant supported so it's really just a piece of the pie and then there is no direct capex with the grants with <unk>.
Talk about so it really is these are really.
And large fully funded with the exception of the small amount we.
Talked about in July where I think we got $10 million and we had about $1 million match. It may be under the <unk> program going forward that they're going to be a lot of matching plans and we will look at whether our piece of the capex.
Has an adequate risk adjusted return.
When we apply for it.
But.
And then lastly, when will when will that impact us.
You won't see much impact in our core numbers and deliverables next year. It will be minimal as you go farther out 'twenty four 'twenty five.
Some of these brands will have a nice bolstering, we believe to EBITDA and revenue.
Bill just a piece of the pie right. This is not a grant the only strategy we have.
Does that answer your question Rick.
Yes, yes, it does.
Second question.
You guys had mentioned the secret wind acquisition.
Any update on that acquisition I think you had mentioned kind of a rough EBIT number.
On the timing any update to the revenue and EBITDA impact and we noticed that in third quarter. There was I think a $3 $4 million transaction integration charge, what was that related to.
Okay. So first I'll take the last one.
Transaction charges in the third quarter that just M&A related charges. Some of it gets affected when some of it where other activities and as you know from the past, we don't comment on the activities unless and until there's something to announce.
As the sacred wins economic impact.
We did not as we said last quarter.
We expect the business will generate EBITDA of about $10 million in 2022.
Didn't disclose the revenues for that.
So we expect the business to <unk> at that level or better.
And the next year and it will be combined with our top net broadband operation and within our overall U S segment.
And the timing of the closings are at close.
It has not closed, but we expect it to close in the fourth quarter.
So there's lots of it.
And the final one for me is obviously a couple of times, you've highlighted your balance sheet the financial flexibility.
Help us understand is that to kind of comfort the market that other companies are seeing trouble raising money in a high interest rate environment to deploy capital programs is that also meant to say youre looking at some potential M&A.
Well it is meant to say multiple things. So the question is why do I keep talking about financial flexibility.
First to assure shareholders that we know.
The whole reason for being here.
To reward our investors.
Our primary objective.
<unk>.
In the economic environment, we're in and the prospective environment I think there are more questions from shareholders about okay.
What's your spending is that level of spending appropriate how do we how do we.
Ensure that.
We see adequate returns as investors and so I think what we're saying is we have a flexibility to.
In our capital allocation to do things for shareholders.
And we will weigh that against the.
The other point that you raised which is because of our flexibility a lot of our competitors don't have the same flexibility. So we do see an opportunity to.
U.
<unk> first mover advantage.
Generate nice return.
Perhaps including M&A with that including bolt on that particular M&A that they can.
Accelerate.
While enhance our existing strategy, but what we're really saying is we're going to be very conscious of the environment, we're not going to get too far ahead of our skis and we're going to adjust.
As we need to make.
Sure shareholders benefit.
Okay, that's pretty stable.
Hello, guys.
Yes, thanks, Nick.
Thank you for your questions now as we prepare for the next question.
Okay.
Our next question will be coming from Gregory.
One of Sidoti. Please go ahead your line is open.
Good morning, Greg.
Right.
In the international segment, what was the how much FCC support revenue, where you're still getting and what's the timing of the <unk>.
Wind down in the remainder of that.
We're still getting about $1.4 million a quarter.
Right now I should say.
Yes.
The quarter started a quarter.
$5 million a year in the wind down Michael do you want to comment on that.
Schedule, the wind down yes, I mean, we're still we're still talking to the FCC about that.
And trying to understand it with respect to how that market served and whether it will be adequately served.
So that's about all I would have to say on that.
Okay.
And then on the <unk>.
The mobile side.
Excuse me churn.
There is still going up but you are spending more.
To acquire the customers so.
But they are staying around for a shorter period of time can you just talk about.
Maybe that dynamic.
The return you're expecting to get there.
Do you have plans to try and bring churn down.
Yes, Greg so churn on mobile first thing I would note it is up a little but.
Recognize that we have a very high prepaid base rate for the.
The percentage of our base in prepaid.
Quite significant.
So I don't think I don't think those churn levels at a blended churn number are bad.
That said of course, lower churn is always better.
And there is probably some of the slight uptick because of promotional activity right. So.
If you grow gross add.
Youre going to see some of those will take some of those loans, particularly on a prepaid basis.
Or when promotions roll off but net net we liked the economics around it and we'll continue to watch it carefully but we like the economics of it.
Okay, Great and then lastly.
Lastly are you still funding your private networks business, what is the status of that.
It's really a much smaller business. It is it is assumed within our U S segment with income net.
And it.
The minimum funding requirement in this last quarter and probably positive positive contribution going forward.
But small.
In terms of your kind of.
Our refocused strategy around first of fiber in glass and steel does that still fit in with the strategy or is that something that.
And maybe is no longer.
<unk> focus of the business.
Okay.
Greg you're asking if we still private network fits within our first fiberglass and steel strategy.
Right is it like a <unk>.
Non core asset now that maybe.
Does not fit anymore.
Yes, so I think and just maybe for everybody listening because some people might not know what we mean by private networks with private networks essentially.
Capex are in building or.
Customer primate.
Advanced wireless connectivity.
Keep it simple.
And so we still are offering that service, we're offering that service in multiple markets, but we really view it as a service add on to our existing.
A core part of our strategy to expand that service.
Okay, great. Thank you.
Thank you next.
Next question.
And we have.
Our next question is coming from Amit <unk>.
<unk>.
B Ws financial your line is open.
Hi, This is Amit <unk>.
Just wanted to.
Ask you about the subscriber growth commentary.
How sustainable is this growth and.
What are you doing in terms of trying to upsell that customer.
Get into the more.
Fiber in the higher end of the <unk>.
<unk> been spectrum.
Providing.
So just to be clear and good morning.
Asking about really about the broadband subscriber side.
Yes, okay.
<unk>.
It is very sustainable in fact, we're with our plan, we expect to continue to grow.
Percentage of.
Our customers are on higher speeds in the overall number.
I think so.
And in terms of up selling.
We have seen as many operators are seeing continued interest in.
<unk> customers to take.
Upgrade to higher speed and higher capabilities or add mesh solutions and things like that so we continue to have success there and we've also seen.
And a lot of our newer fiber build.
If we look at our plans and sort of demographics.
We are typically seeing a take up at higher planned level than we had built into our business plan.
So which is great. So I think as we see that.
Growth I think youll see.
The positive impact on <unk>.
From that from people buying more speed.
And then of course the growth.
Fiber so I think we're quite bullish on it.
Okay and then my other question was as far as the mobile side is concerned what is the competitive risk here.
Add more and more subscribers.
<unk>.
More of a degradation in pricing.
I know you always worry about that.
Keep an eye.
Paranoid about competition paranoid about pricing and you keep a careful eye on it it's not really something that <unk>.
Front of mind worry at this point.
And on the competitive on the pricing I think.
If anything we expect to be growing our foods overtime and mobile so and.
Book to churn before as well, we're not concerned about that expanding within the within the two segments of prepaid and postpaid.
But it's something we will always keep an eye on it reacted quickly if we see a change.
And does the growth in these two.
Segments to broadband and mobile.
Help you at all to get to.
Free cash flow positive state in 'twenty, three or is that still further out.
Yes, so the growth in overall revenue course closed down and benefits free cash flow free cash flow again is somewhat discretionary. So we have high operating cash flow today, we have relatively low sort of what we would call maintenance capex.
So we.
If we wanted to start stop expanding a slowdown expanding our free cash flow.
Wood wood graph right, we would start.
Taking that high operating cash flow and have excess.
Eloquently equally.
So.
So I think I think that that's the main feature in that I don't know.
Yes.
You covered it I think.
We have strong free cash flow today.
In a lot of our Capex as Michael mentioned is kind of forward looking so we have the ability to control that as much as we want to control. The Capex then.
The other point Amit on that though.
It's true if you look at our market that is a core part of our strategy. There is a layering effect.
And any market as we add staff.
And then as in that and as we add customers whether it's mobile.
Our fixed whether it's consumer or business or our government.
There is an economy of scale benefit as we grow those revenues within that market you see higher margin contribution margin.
Free cash flow expansion.
Okay. That's it for me Thank you Erika.
Thank you one moment, while we prepare for our next question.
And our next question is coming from Rick Prentiss.
Raymond James Your line is open.
Yes, Hey, I want somebody with a follow up if I could.
A lot of discussion on satellites lately.
T mobile and space on externally, we've had apple in globalstar as far as putting satellite capabilities communication capabilities and the iPhone 14.
I get the question a lot from investors first how do you guys view the potential competitive threats from satellites into your different markets and then associated with that you guys have had a relationship established with one web.
Where is that at.
Complete the merger, which we think there will be mutual set what does that bode for you guys.
I think we think satellite is largely complementary to our businesses.
As I noted before we're always paranoid right, but we think it's largely complementary.
Because of the inherent capacity.
<unk>.
With some performance characteristics and cost.
We view it mostly as an attractive fill in and so that's where we partnered with partner actually deliver.
The people in our in our.
Broader operating area, where satellite solution in it and it's a more economical solution than something we can provide by building network ourselves and we'll continue to do that in fact, we're continuing to look at that and we are now.
We're looking at wholesale relationships to providing backhaul.
Backhaul and transport for the satellite company.
<unk>.
I think there is clear value.
What they bring and I view it I think we view it as largely complementary to what we have.
And from a standpoint of any competition on the mobile side.
Yeah on the mobile side I, just I think that is largely.
Hyper competitive market trying to retail for now.
Don't see it.
As a major factor certainly for us I can't speak to those players, but in our market.
I really don't see a major factor and should it become important to our subscribers to provide.
Some capability like that I think theres going to be multiple.
Satellite operators to choose from and partner with to provide that solution.
When it's really ready.
So.
So I don't think there is more.
Impacted that I can say.
Okay.
You touched a little bit the macroeconomic environment.
Help us understand a little bit about how inflation is I think the company's operations directly.
Are you feeling anything from a recessionary impact potentially out there and with a high interest rate environment any change in thoughts of all those items deflation turns to maybe recession, and then higher interest rates as far as this all might mean for for your guidance is.
Yes, so like everyone else, we're we're seeing inflationary pressures in certain areas.
As labor material and equipment, we're also keeping an eye on.
Central economic churn around the low end of our subscriber base, but we havent seen anything meaningful there.
And so what we're doing about it.
At the moment, it's not really had a material impact on our business.
But we are.
Actively monitoring local national and global economic factors, and we're working hard to make the business more efficient and reduce costs.
And we've also raised prices on our services in select markets, where it makes sense and we view this Rick typically by delivering additional value such as higher fee in return for higher monthly service fee.
So we're continuing to evaluate it but that so far that's what we're seeing and that's what we're doing.
And on the interest rate side any change in thoughts on.
Two of your guidance.
No.
We've given the EBIT.
The EBIT guidance, so, but right now we're pretty confident where we are in terms of our ability to.
On our loan facilities and whatnot.
Where we are now.
Okay very good thanks.
Thank you.
There are no further questions at this time I will now turn the call back to Michael for closing remarks go ahead, Sir alright. Thank you operator.
The ATM continues to execute at a high level a quarter with steady momentum across our markets.
We're serving our customers well advancing our strategic broadband build outs and making excellent progress toward our three year growth objectives.
In addition, we are proud to be working with our partners in the last in the lower 48 helped bridge the digital divide.
Thank you all.
Is there everyone.
This concludes today's conference you may disconnect have a great day.