Q4 2022 ATN International Inc Earnings Call
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Good day, and thank you for standing by.
Welcome to the a T M International Q4 and year end.
Two earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Justin Benincasa CFO . Please go ahead.
Great. Thank you operator, and good morning, everyone. Today, we will be reviewing our fourth quarter and year end 2022 results.
With me here, Michael Prior Ats, Chief Executive Officer, Michael will provide an update on our business and strategy as well as the high level overview of our annual and quarterly results.
I'll cover the relevant financial information.
And provide additional color where necessary.
We released our fourth quarter and year end results press release last night after market close investors can find the release and summary slides for this call on our Investor Relations website.
Before I turn the call over to Michael I'd like to point out that this call press release and slides contain forward looking statements 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 results to differ materially from those described.
Also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures.
For details on these measures and reconciliations to comparable GAAP measures and for further information.
Regarding the factors that may affect our future operating results.
Please refer to our earnings release on our website at <unk> dot com or to the 8-K filing provided to the SEC.
Ill turn the call over to Michael for his prepared remarks, Thank you, Jeff and welcome all we appreciate you joining us.
2022 was another solid year for HCN.
We achieved year over year topline growth.
Profitability for both the fourth quarter of the year.
And delivered good growth in our customer base as well as in the reach and capabilities of our network infrastructure.
We believe these results demonstrate the strength of our business model that was done at least for our communications services.
And the consistent execution of our strategy.
Since our year end call it an opportunity to discuss our business more holistically.
To us <unk> business model is relatively straightforward and fairly consistent across markets and service offerings.
At ATM, we deliver connectivity.
What that means is we look for smaller markets that lack the quality or type of communications infrastructure as a service offerings available in larger markets.
And then we worked creatively and with a relatively long time horizon to see if we can.
Can develop a viable case, we're making an investment to fill that gap.
Before bridging the digital divide.
We have been doing this for some time and we believe the criticality of quality productivity has only increased.
And in turn the demand at other economic factors.
Support piece of investment.
Roof.
So we go into needed and where most of the largest telecommunications companies did not.
To date that includes the Caribbean, but rural and private lands of the U S southwest of novel wet and a lot.
As a result of our off the beaten path market strategy. When we serve our customers well we are positioned to serve them for many years to come with attractive investment return.
Cash and recurring cash flows.
In turn the communities, we serve benefit from having a focused dedicated provider.
Willing to invest in providing an elevated classic productivity.
As often transformative for their quality of life, enabling better education healthcare entrepreneurial opportunity.
Entertainment and social tonnage.
So each quarter, you will hear us highlight customer totals and other key metrics across our entire footprint.
At this time, our progress on our established metrics is moving relatively rapidly.
And we believe favorably as we enter the second year of a three year plan.
By reaching more consumers businesses and government facilities.
With higher speed data offerings.
As we have noted previously from a business model standpoint.
After we complete our major communications network upgrade or expansion phases.
The associated Capex, then we tend to experience a strong and sustainable increase in free cash flow and we are expecting that in this case as well.
Now looking at this year's performance revenue grew 20% with $746 million.
Largely reflective of our successful acquisition of Alaska Communications together with solid execution.
Growing high speed data and multiple customer base that continues to exhibit strong demand.
Awesome.
For the fourth quarter, our results, let our plan.
Revenue was up 2% year on year as the Alaska acquisition annualized fully in the third quarter of 2002.
EBITDA more than doubled and adjusted EBITDA increased 3% year over year.
As anticipated, we expanded our network our customers and our geographic footprint with next generation communications buildup.
Highlights for the fourth quarter and the year included high speed network growth, we grew our own homes passed by our high speed networks by 44% year on year to more than 275000, which represents roughly 38% of our nearly 730000 homes passed by broad.
Dan.
Which is up from 31% at the end of 'twenty one.
And we generated a 15% annual increase in subscribers served by high speed networks.
We also grew mobile subscribers in international Telecom by 12, 5% year on year Q3.
378.
While also bringing blended mobile churn rates down.
Also in the middle of the quarter, we completed the acquisition of the Telecommunications company secret with enterprises.
Cyclically it expands our geographical presence further.
And with it we gained additional talent in that momentum.
Execute on our fiber and high speed data growth in the region.
Ah Ready example of this was the receipt in the fourth quarter of a new $8 million grant to connect more than 3000 homes with fiber surfaces, and Sierra County, New Mexico.
It's also worth noting that in the first full year as part of HCN, Alaska Communications services turned in a record financial performance with the highest EBITDA level.
Every 10 years.
Now we have more ambition for this investment, but it is off to a good start.
For the fourth quarter included the first year of the three year outlook, we provided at the start of 2022.
And this outlook, we provided visibility to our strategy investments revenue and EBITDA objectives as to the end of 2024.
As we entered the year two we're tracking to plan and we expect to pick up the pace of organic growth as we move through this year as opposed to the midpoint of the three year plan.
In total the company's investments in higher speed services and underserved markets.
<unk> and other high speed data solutions.
Acs well for continued success.
We are investing in quality assets, and a strong market position, which should bode well for the consistency and durability of future cash flows.
We see 2022 is a great example of execution aligned with purposeful strategy.
We served our customers well expanded our customer base and geographical footprint and progressed on our glass with deal with FERC to fiber buildout.
Throughout the year, we created value for our stakeholders as demonstrated by the strength of our outlook and the growth of our dividend, which we recently raised by 24%.
I want to thank all of the people they can for their part in this.
Positive progress toward our plan.
And with that I'll turn it over to Justin to cover the financials in more detail great. Thanks, Michael.
Deliberate we delivered a solid fourth quarter financial performance during the period total consolidated revenues increased 2% to $192 million.
Operating income improved to $4 7 million from an operating loss of $23 million last year, which included a $26 million goodwill impairment.
Adjusted EBITDA was 43 six.
$6 million up 3% year over year. These improvements were mainly driven by continued strength in the international segment steady results for the domestic businesses and the secret wind acquisition.
Turning to our segment breakdown in our international segment revenues increased 3% to $90 million in the quarter.
This increase was the product of continued growth in our broadband mobile subscribers and the associated revenue, partially offset by the scheduled step down in schedule high high cost support subsidies for the U S Virgin Islands.
Adjusted EBITDA for the segment was $29 1 million in the quarter up 4% year over year, driven by the subscriber revenue growth, partially offset by higher sales and marketing costs of the network investments supporting that growth.
In the U S segment revenues were up 2% to $101 6 million in the quarter.
During the period business and carrier services accounted for approximately 70% of the segment service revenues.
We reflecting higher revenue performance from Alaska.
This was partially offset by reduced legacy wholesale wireless revenues and lower construction revenues due to the timing of completed site.
Construction revenues were roughly equivalent to construction cost.
As has been the case for several quarters and we're now completed approximately 75% of the sites, we're delivering under the first in that program.
For next year, we expect to substantially complete the project, which will contribute approximately $27 million to the segment annual revenues with approximately two thirds of that coming in the second half of the year.
Adjusted EBITDA for the U S segment was $22 9 million in the quarter up 3% year over year, mainly due to the same factors that led to higher segment revenues in the period.
Atms total net loss for the quarter was $1 4 million or a loss of <unk> 18 per share. This compares with a net loss of $24 2 million or a loss of $1 50 per share the same period, a year ago, which included the goodwill impairment charge.
We reported $52 million in Capex spending for the quarter, which included $32 6 million for our U S segment.
$17 1 million for our international segment.
Higher capex spending in the U S segment. This quarter includes fiber builds in Alaska infrastructure to support first net and additional cost following the secret wind acquisition.
Now turning to our balance sheet and cash flows we ended the quarter with total cash and cash equivalents of $59 7 million compared with $80 7 million last year.
In addition to the year net cash provided by operating activities was $102 9 million compared to $80 5 million a year ago.
We used approximately $47 million cash to fund various working capital items items, including prepaid circuit.
Sales commissions ensures that construction cost as well as to reduce payables and accrued balances.
At the end of the fourth quarter, our total debt outstanding was 4400 $22 million.
This includes approximately $32 million of debt from the Sacred wind acquisition $232 million on Alaska Communications balance sheet and excludes $46 million related to the firstmerit customer receivable financing facility.
With a total consolidated net debt to adjusted EBITDA ratio of just over two times, we continue to maintain strength of our balance sheet as well as flexibility in our financial strategy.
Before we turn to our outlook I wanted to note that we're changing how we report our adjusted EBIT at the beginning of 2023 and beyond to be in line with most of our peers.
Beginning with Q1 2023 results will be excluding non cash stock based compensation from our adjusted EBIT number and after.
Provided pro forma reconciliation tables in our fourth quarter press release.
For the full year 2022 stock based compensation was $7 $4 million, we expect 2023 stock based compensation to be between $8 five $9 5 million.
As detailed in our press release, our outlook for 2023 is as follows.
Adjusted EBITDA in the range of 183.
$93 million for the full year with somewhat more than with somewhat more of the year on year growth expected in the second half of the year.
Capital expenditures is estimated to be in the range of $160 million to $170 million, that's net of any reimbursed amounts.
Primarily for network expansion and upgrades, which are expected to further drive subscriber revenue growth.
The following periods.
Our business targets for the three year period, ending 2024 remains unchanged with the exception of our net debt ratio, which we now anticipate to be approximately two times at the end of 2024.
With additional debt following the close of the Sacred wind transaction higher borrowing cost as anticipated at the start of 2022 and additional fiber investment opportunities in Alaska.
The outlook for that.
Full three year period, otherwise remains as follows.
Revenue compounded annual growth rate of 4% to 6% and 21 2021 to 2024, excluding construction revenue.
Justice EBIT CAGR of 8% to 10% over the same three year period, which was not impacted by the definition change to exclude stock based compensation as we're comparing to pro forma adjusted for both 'twenty, one and 'twenty two.
Capital expenditures return to more normalized levels of 10% to 15% of revenue up to 2024 and as noted the net debt ratio of approximately two times exiting 2024.
In summary, we delivered solid financial results in the fourth quarter and year and our three year strategic investment plan remains on track.
We're benefiting from our established leadership across our markets as well as from our ongoing network expansion network upgrades and subscriber base increases.
As we invest in accordance with our three year plan. We're also building out our foundation and setting up ATM well for the long term.
We look forward to continuing to deliver for all stakeholders across all our operations and updating everyone on our progress going forward.
Thank you everyone and that concludes my prepared remarks, I will turn the call back over to Michael for his closing comments. Thank you Jeff Oxford.
<unk> continued to execute at a high level in 2022 with steady momentum across our markets.
We are serving our customers, while advancing our strategic network build outs.
And making excellent progress toward our three year growth objectives.
In addition, we are proud to be working to help bridge, the digital divide and enrich lives.
And now operator, we'd like to open up the call for questions.
Okay.
At this time, we will conduct a question and answer session. As a reminder to ask a question you need to press star one on your telecom and week screening.
To withdraw your question Press Star one again please.
Please standby, while we compile the Q&A roster.
Yes.
Our first question comes from Ric Prentiss of Raymond James Your line is now open.
Thanks, Good morning, everyone.
Eric Hi couple.
Couple of questions.
Michael Obviously you guys are.
On connecting small markets.
So theres Caribbean World travel, Alaska, et cetera update us a little bit about what youre seeing in government.
Stimulus grants funding be money moving money to the states kind of what's the process.
Like how is it proceeding when can we expect to see even more come your way.
Okay. So the question on grant, so far and what to expect.
So far.
Retail we were awarded approximately $172 million in.
'twenty two.
And that includes what we picked up with the sacred with acquisition.
And I'll note there of course, the headline number is not the important thing.
What is really important it's what it contributes to us economically and what it represents.
New communities connected homes passed and so on.
So we do have more applications pending.
It's hard to predict the timing and we are pretty disciplined we have turned down.
<unk> moved away from circle Grant opportunities, where we just didn't like the economics.
Would work.
As to the B funding in particular that of course, the program had started but at very different timing and different states. It's really it's really a state by state basis as you probably know.
So we are actively involved in.
Reviewing the opportunities, they're engaging with the state engaging with municipalities continuing to engage with tribal and native Alaskan.
Entities.
So I think we expect to see more although we don't expect the financial impact to be material to 2023.
Okay.
And what Youre sensing so far or is it still a preference for fiber or is it requirements of fiber fixed wireless also would be something that could be of interest.
There is currently a preference for fiber or fiber fed, but there has also been plenty of allowance and discussion.
About.
Fixed wireless, particularly certain technologies.
And we've actually we're actually deploying technology today that.
Exceed 100 megabit per second.
Quite easily and it could go up faster than that so I expect you'll see that evolve.
As the program administered but right now I think.
Infrastructure is primary focus.
We've heard from some of the other fiber first people raising the <unk> people are starting to think about should they have an <unk> or some kind of wireless part of the bundle as you look at your markets how important would wireless and what are your thoughts about how you would achieve that.
Well I think actually what we're doing in most of the markets I can think of it as we're actually enabling.
Wireless connecting connection mobile connections for.
From the national carriers as part of.
It's part of what we like to work with the whole fiber to a lot of towers.
We will continue to work directly with <unk>.
Lot of the carriers.
For us we see that as part of what will break in the community and they'll actually a choice.
The multiple providers, so I don't think for us.
That bundle with a focus in the markets we serve.
Okay.
Okay and last question was again, just given the choppy here hopefully you can hear me okay. So yes.
And the increase.
Okay can you hear me, okay, yes, okay.
The dividend I'm curious was obviously pretty substantial how do you think about.
What drove you to the decision on that amount and what could future dividend increases hold.
Yeah sure. So I'll just just in case people had trouble hearing you are asking about the dividend increase in December .
But what were what was our thoughts behind that and so.
First thing I would note.
The dividend using while it's 44% increase we use a relatively small portion of discretionary cash flow.
And the purpose really was to encourage our investors to be patient with us as we continue with what we think is a very valuable strategic investment plan.
And also we wanted to make clear our comfort and our financial strength and our ability to modify our spending levels should conditions warrant.
So I think I think if you look back at it.
Yes.
That piece of it was communicated.
Our belief in the strength of the plan and also rewarding shareholders on a current basis.
Great. Thanks, so much guys stay well.
Yes.
Okay.
Thank you very much please.
Please hold your.
Your line up our Q&A.
And our next question comes from Greg Burns from Sidoti <unk>, Greg.
Good morning.
When you look at the.
The wireless growth internationally.
Could you give us a little bit more color on what's driving that and what's the what's the complexion of those markets are like how much market share do you have.
Is there still room for growth in those mortgage or is there any particular market, where you're where you're seeing outsized growth in the wireless side.
Yes, I think it was it was across several markets.
The larger numbers.
We are in Guyana, and the U S Virgin Islands.
In both cases.
We think yes, there is more market share to be had for us.
And really what drove it is a combination of all the things you would think of.
I would start with sales and marketing strategies.
And approaches and I think.
We did a good job executing on that.
We had we had a great network at both places and that was primarily about selling.
And figuring out how to add.
Accelerate our growth.
Okay.
And then.
When we look at the performance of Alaska. This year, how does it align with your expectations. When you acquired the asset and it sounds like.
There's more investment opportunities emerging could you just maybe talk about about that a little bit relative to maybe where we were a year ago. When you bought the asset.
Yes, so Alaska.
I would say the performance.
Was on the top end of our near term expectation.
I think I referenced in my prepared remarks that.
We do have ambitions to do better I think that work across revenue growth.
Crops.
It finished operating efficiency and capital efficiency really at all buckets, but I think the team.
<unk>.
There has identified a number.
Initiatives to go after that so I expect we will build on that.
And so that that wasn't very different.
Of course from expectations, what's changed a little and we referenced when we talked about our capital and capital spending guidance.
We're seeing a little bit more and maybe accelerated opportunity on fiber driven projects, including fiber to the home and some of the municipalities.
So that that's a fairly significant piece of.
This years.
Expected capital expenditure.
We probably didn't expect that level, what we personally new vessels.
Okay and then the.
The model the acquisition model.
For Alaska, bringing our financial.
Partner.
Is that something Youre looking looking at further acquisitions like what are your thoughts on.
Future acquisitions finance on how you would go about maybe financing them with a shared model like Alaska.
So.
And thinking about future acquisitions that first thing I'd stated.
We're pretty focused on our strategic plan today.
That doesn't mean that we will consider additional acquisitions that look attractive.
But you're right that's about financing in to when we think about financing an acquisition, particularly the larger acquisition.
We think about also managing our portfolio and our balance sheet risk right. So we're comfortable at the leverage levels. We have today, we're comfortable going a little higher we need to but.
We are not going to be on the.
The very high end of leverage.
Private equity firm might do on an individual deal. So that will mean that if we wanted to do larger transactions. We might have we will have to look at alternative ways to fund them and that can be like this it could be an equity partner.
At the project level.
See something at other levels.
Im not projecting that I'm, just saying, we would look at all of those things and balance that against balance sheet risk.
Okay. Thank you.
Yes.
Thank you.
Our next question comes from Amit <unk> from.
From Dws financial your line is now open.
Good morning.
First.
Elaborate on the revenue opportunity from the Capex expansion in Alaska.
Is this all new customers are you encroaching on competition.
Yes, so the.
It is it is mostly new customers to date.
As you know when we did the Alaska transaction, we were clear.
More than two thirds of revenue with business and wholesale.
So.
That consumer side is not a big piece of it and.
But there is opportunity there to grow that.
<unk> gained share and some of it will be.
As we go forward, we'll be certainly rolling.
Dell customers onto fiber services and.
We can.
Again resulted in IRR food, but also resulted in lower churn.
You can see.
See some of that investment paying off commented already in terms of the on the subscriber the mobile and the broadband subscriber growth rate that should.
Lead to revenue future revenue good durable future revenue.
And that was actually going to be my follow up on that.
As the success you've seen to date really from your new installs or is that from just the legacy network.
Your marketing strategy.
Are you asking us across the company are you asking a specific.
Alaska specific.
Okay.
So I think a lot of the revenue growth was.
Was.
Business and wholesale what we would put in that category and enterprise.
<unk>.
<unk>.
Advancing of the build that we started in 2022 of the fiber consumer fiber side is not material to the numbers in 2002.
Okay.
And then my other question was on the sector wins.
Are you.
We're going to be making any operational changes or enhancements to the network to generate revenue or are you, taking a more hands off approach to that business.
I think our brand is really is combining with our combat subsidiary into one operation that's already happened.
Moving with pace. So it's really it's really as I said in my prepared remarks, it's really about accelerating that shift to the fixed.
Fiber led revenues for our lower 48, if you will use segment.
So it really.
Really really fully integrated.
Product.
Any.
SaaS as far as yes.
Building on that first not with maybe another competitor now that you have also figure one.
And so the mix as far as the network footprint.
Yes, we're continuing to.
It's Scott.
Yes.
Larger carrier wholesale deals, which I think is what youre talking about a malls and things like that.
Backhaul towers.
And related services.
Okay, great. Thank you.
Yes.
Thank you.
Now I would like to turn it back to Michael prior CEO for closing remarks.
Thank you operator, and thank you all for joining US. This morning, we're encouraged about the future given the essential nature of our offerings and the expansion of our network and early mover advantages in underserved communities and the consistency of our execution of the business.
Thank you.
Thank you everyone.
Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Okay.
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