Q2 2023 ATN International Inc Earnings Call
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I would now like to have the conference over to your speaker today, a T N C. F O just had been Acosta. Please go ahead.
Thank you Sean and good morning, everyone. Today will we will review our second quarter, 2020th we resolve with me here today is Michael prior Ats, Chief Executive Officer, and Brad Martin Ats, Chief operating officer.
Michael will provide an update on our business strategies as well as a high level overview of our core of the results.
<unk> cover our financials and provide additional color were unnecessary.
As a reminder, we released our second quarter results press release last night after the market closed <unk>.
Investors can finally, this release and the results presentation for the call on our Investor Relations website.
Before I turn the call over to Mike I'd like to point out that this call or press release and the presentation contains forward looking statements concerning our current expectation objective and underlying assumptions regarding a future operating results. These.
The state is the subject to the risks and uncertainties that could cause actual results to differ materially from those described.
Also in an effort to provide useful information to investors are comments today include non-GAAP financial measures.
For details on these measures and the reconciliations two comparable GAAP measures and for further information regarding the fact that it that may affect our future operating results. Please refer to our earnings release on our website at <unk> dot com or the hate K filing provided to the SEC I will now turn the call over to me.
<unk> for his prepared remarks. Thank you Justin good morning, everyone and thank you for joining US we kept the first half of 2023 with a strong second quarter highlighted by robust subscriber growth and an accelerating conversion of subscribers to our high speed networks.
Before we discuss specific operating metrics, let me share three key takeaways from our second quarter performance.
First we continue to execute well against our three year plan, delivering higher revenue and EBITDA unhealthy subscriber growth.
Second we have demonstrated strong momentum on the customer front with growth in all key retail subscriber categories, and some big wholesale and enterprise customer <unk> such as the recent longterm agreement, we announced with the National carrier the U S.
And third with this month's renewal and expansion of our credit facilities, we continue to prudently manage our balance sheet with a focus on using future cash flow from operations to enhance liquidity and reduce debt.
We're on a well defined strategic mission to provide connectivity for all through our glass and steel and first to five or strategies, we are focusing on regions, including Alaska.
The Western U S that rural tribal lands out there in the Caribbean.
Validating the success of those strategies are high speed subscriber base and international mobile subscriber base each grew by double digits in the quarter.
Testimony to the quality of our value proposition.
And strong sales and marketing execution.
Homes passed by our high speed data networks increased 10% sequentially at the end of the second quarter. This represents a 66 per cent annual inquiries and was driven primarily by the rapid expansion of our fiber networks in Guyana in the United States.
This in turn led to a 22% year on year increase in high speed subscribers.
In our international segment, we exited the quarter with more than 399000 mobile subscribers.
14 per cent increase from the same period last year.
Just it will provide more color on the operating segments in his prepared remarks.
But our results underscore the fact that we're on a strong competitive footing as we move into the second half of this year and beyond.
Among atm's unique competitive advantages is that we've made the right investments to scale, our business and provide customers with an unsurpassed portfolio of services.
And our island and Caribbean markets, we have repeatedly been the first to provide advanced high speed data services, whether fixed or mobile.
And a western U S. We undertook a difficult multi year effort now nearly complete to transition from providing wholesale roaming services to providing a suite of infrastructure and network services to our large carrier customers.
And to that we are actively lettering on six fiber and other high speed data services to local businesses schools health care facilities and consumers.
As part of that evolution and May we were excited to announce a long term agreement with Verizon wireless under which we will provide an array of network infrastructure and technical services.
The initial term of the agreement is seven years and includes automatic renewals for up to two additional three year periods.
This longterm contract reinforces the value of our glass and steel strategy and the differentiated services, we offer to the market.
The agreement Leverages are operating <unk> capabilities in network assets across more than 50000 square miles of the western United States to deliver superior high speed connectivity add an attractive cost to our customer.
Also in our U S operations are teams continue to excel at securing government subsidies and support as part of our focus on delivering advanced high speed connectivity to rural and remote communities.
And the second quarter, we were rewarded a 10 million dollar grant to subsidize the build of a fiber fixed wireless network, which will pass more than 11000, unserved and underserved locations in new Mexico.
We expect more awards in coming quarters, as we follow on to more than 150 million dollar grants awarded to us and our partners last year for fiber expansions in Alaska in the lower 48.
The network builds funded by these in future grants are likely to extend over the next several years, which shouldn't turn provide a continuing opportunity for customer and revenue growth.
In the first year and a half of our three year fiber expansion plan, we've made meaningful yet prudent capital investments to ensure the quality and durability of our network.
As we approached the latter stages of this plan, we expect to dial back our capital spending while using our upgraded network footprint to continue to grow our subscriber base and recurring revenue.
Another important recent achievement was the completion in July of a 300 million dollar debt refinancing that extends and expands our senior secure credit facilities.
Justin will add some details about this shortly but in light of the current credit market environment. The agreement is a testament to the support of our bank group and the strength of our business and track record.
Before I conclude let me address potential investor inquiries in the <unk>.
Media coverage about the use of led covered cabling in the telecommunications industry.
Last week, we issued a news release detailing our preliminary findings.
We believe that our network in the U S contains less than 10 miles with lead sheets copper cables and our network outside of the U S contains approximately 20 miles of let cheap copper cables.
To the best of our knowledge substantially all of this conduit is buried underground and none of it is underwater while.
Well, we do not expect us to be a significant financial or operating issue for a T N.
Health and safety of our employees and the communities where we operate.
There's always a key priority for all of us at a T. I D and so we will take this matter seriously as we evaluate next steps.
In summary, we begin the second half of 2023 with positive momentum driven by growing revenue improved margins and expanding subscriber basis.
Our upward trajectory provides us with the ability to lean into our commitment to pair capital spending is our three year plan approaches completion next year.
And with that I'll hand, the call back over to you just great. Thanks, Michael I'd like to provide some color on our second quarter resolve specifically, where we're seeing positive momentum driven by a recent investments and how we see your balance sheet taken shape, given our recent refinancing and a longer term capital allocation calls before.
Four I began I should note you can view our financial tables in the earnings release issued yesterday afternoon and in our our accompanying presentation posts on the Investor Relations section of our website.
Starting with the P&L total queue to consolidated revenues increased by 4%.
Operating income improved to 2.4 million up from 1.7 million last year, while adjusted EBITDA rose, 10% or $4.1 million driven by strong subscriber growth growth across the international segment and enterprise growth in the U S. S.
Total net income for the quarter increase to 800000 for a loss of three cents per share.
The loss for sure calculation includes the impact of preferred dividend that are not included in the net income calculation.
Now looking at the segment breakdown International revenues rose, 4% in order apologize to D, but it was up 7%.
This increase was the product of strong broadband and mobile subscriber growth, partially offset by the previously discussed step down and federal high cost support subsidies for the U S. Virgin Islands. This will not impact the year over year comparisons following this score.
We continued to benefit from strong revenue subscriber growth across all international Geography's fueled by our network upgrades and expansions superior customer care inconsistent execution by our local teams.
These efforts have increased the number of homes passed by iced tea data solutions and allows us to migrate many legacy copper D. S L customers to more durable fiber services.
As Michael noted we have also continued growing our international mobile mobile subscriber base to nearly 400000 customers.
We will continue to carefully monitor expenses and capitalize on an opportunity to make our networks and operations more efficient as we work to push operating margins higher in the segment.
In the U S government revenues were up 4% from grows and fixed revenue driven by strong enterprise sales in Alaska and the addition of sacred one.
This revenue growth was partially offset by reductions that legacy roaming revenues and lower firstnet construction revenue ajar.
I just did even if it was up 10%, resulting from strong performance in the lower 48 helped by the secret when acquisition and overall operating expense improvements.
Ah repositioning of the balance business around the glasses seal strategies working the Verizon contract. Michael noted previously reflect this transition from the legacy wholesale roaming business to providing infrastructure and technical services to the major carriers.
Carrier service contracts will provide stable longterm recurring revenue.
Because the first half of 2022, we invested $89.5 million in Capex Ned of $7 million in reimburses will cost as we tactically deployed capital into our networks consistent with our classics deal and first the fiber business strategies.
As expected or Catholic extended trend it higher in the first quarter of the year and we still expect full year 2020, 2023 spending to be in 160 $170 million range that we got it too.
Within the U S segment Catholics, and it was $56 million, which was primarily related to fireworks dances in Alaska in the lower 48.
Internationally, Capex spending was $38.9 million, which focused on the continuing thyroid appointment in Guyana as well as mobile network investments.
As demonstrated by our 22 per cent growth in high speed data subscribers. These strategies of delivering measurable measurable results.
The network.
Since we're making our materializing at plan, leading to steady recurring revenues and we're focused on ensuring that these investments will continue to significantly benefit the community three sir and deliver longterm longterm returns for our shareholders.
At the same time, we're also working to enhance our financial flexibility address on the balance sheet.
As of the end of Q2 to our total net outstanding was 40 482.1 million and our.
<unk> leverage ratio still just 2.3 times.
In July we completed the financing of our credit facility and lessons are maturity profile.
We turned out the outstanding Barnes.
<unk> into a six year facility and renewed a revolver credit.
All the credit facility for another five years.
This facility will allow us to maintain financial flexibility as we approach the end of our three year capital investment cycle.
As we look out past year and noted in our outlook lower capital expenditures and increasing operating cash flows we expect to reduce or net leverage ratio by the end of 2024.
Turning to other balance sheet and cash flow highlights we ended the quarter with cash and cash wasn't 67 million.
Cash provided by operating activities with $60 million in the first half of 2023.
Also in the first half of the year, we reduced capital of liabilities by approximately $15 million driven primarily by the reduction in account fail.
In summary.
We are performing well in our business plan is working or Capex investments are driving positive subscriber and operating metrics and financial results that are improving each quarter.
As we start planning for 2024, we focused on increasing free cash flow to further strengthen our balance sheet.
And continued to work on improving operating margins, we remain focused on executing our core strategy and we appreciate your support as we move into the last days of our network investment campaign.
We're excited about the progress you've made expanding and enhancing our network with high quality assets, providing atm's with a foundation for durable cash future cash flows and a strong balance sheet.
And with that alternative back over to Michael.
<unk>.
So I'm excited about atm's future through prudent and strategic investments, we are positioning ourselves for sustained growth and exceptional performance are glass and steel and first to fiber strategies are delivering measurable results across our business and creating demonstrable value.
For our stockholders and.
And now operator turn it back over to you for questions.
Thank you we will know conduct a question and answer session.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Withdraw your question. Please press star one one again.
Please stand by as we compiled a Q and a roster.
And our first question comes from Rick Prentice with Raymond James Financial.
Hi, good morning, everybody <unk>.
Right.
Alright, a couple of quick questions. One I think I know the answer to but then the press releases talked about recent acquisition was that the November acquisition of secret Winter was there another acquisition.
It was yeah, maybe that was a little confusing, but it yes. It was the last year's acquisition of Sacred wind.
Okay, Alright, and then in regards to the contract with Verizon You mentioned network infrastructure technical services.
This is not like a first and that contract, though with construction. This is kind of more shifting from roaming two recurring revenue so that way we should think of this.
Yeah, there there will be no construction revenue wreck so just.
It does incorporate the other services that come in to the person that contract.
The backhaul Tao <unk> technical services that stuff, but you're right you're actually that that's what it will be very you know very much more.
Consistent recurring revenue.
Right.
Okay.
Obviously your your your guidance was X construction revenue. So wanted to make sure we didn't have any of that with the Verizon contract Yeah No ma'am.
Alright.
And.
Obviously, the tower companies have I have seen some pretty big pullback and their services business or what they call. The services business Crown actually getting out of the installation business on a on a recent U K that they filed how should we think about the kind of the nature of what you're performing in is it more.
Recurring or is or aspects that would be similar to what crown and this morning American tower scissors, some pull back from their services abrupt pull back from their services businesses.
No. It's still it's still at the end of it the contract right. So it's you know there's a committed level across all the you know the years of the contract and I think.
Possibly different I don't know their business as well, but.
It's really we have a great value proposition in these areas right and we have people on the ground or close to it. It is it is far and difficult often for the field Tech forces of these big carriers too.
You know to administer so you know I think we're in a great position with those services and it's a good value proposition and I could probably help a little on that to <unk>. This is you know all contracted revenue.
Right as opposed to I know that some of the services that they might be violent the tower companies this kind of.
Bill decided to do some more incremental incremental this contract.
Okay. Good good.
You're gonna have to reschedule as you were setting out on the three year journey.
You mentioned caplin, Tennessee would come down your suggestion that as well, but you also thought that there could be no focus on shareholder returns stock buybacks dividends, how how should we think about now that you kind of get into the second half of this process, how you're thinking about that financial flexibility and shareholder return prospects.
Well I mean, I think we sent the date of a single on that last year. When we you know increase the dividend that for many years and pulling it flat so last December and.
You know and and as we near the end of this through your Bill period, we definitely you know.
Are looking at all the ways to create value for shareholders. So you know I think we'll have financial flexibility will will expect to see operating cash flow expand and and free cash flow. After capex to expand so that that should present us with that opportunity.
Okay, I appreciate you and say well.
I Gotta think.
One moment for our next question in as a reminder, if you would like to ask a question. Please press star one one on your telephone.
And our next question comes from <unk> from B W. S financial.
Good morning. This is up I hate calling in for a <unk> first question are there any near term headwinds from your new North American wireless carrier contract.
No I'm not I'm not sure what those would be but no I can't think of any near term headwinds.
Okay.
And then just with the interest rates going up is there a <unk> impact on your capital expenditure plan since you're carrying a larger balance buyer interest rate.
We have not we've not had to or felt we had to adjust our capital.
Spending plans based on interest expense, but interest expense has gone up that's true and you know we do look across the gamut of capital allocation.
Where are the opportunities are what the returns look like what our competitors might be doing so I I would say interest rates and cost of capital certainly enters into the equation.
Okay. Thank you very much.
Yep.
And one moment for our next question.
And our next question comes again from Rick practice with Raymond James Financial.
Hey, what's your by the time, I'm gonna get questions and but uhm.
Can you give us an update on your thoughts on the timing and when I'm, obviously, it's going to be fought state by state, but just kind of give us an update on what you're thinking on the the government subsidies and beat in particular.
Yeah, I think I'll ask Brad Martin to talk talk to that.
Sure. Thanks, My <unk> yeah.
Yeah. So so recently as late June the 16th we operate in your were announced they would work 400 billion.
And programs so that the deadlines for those states submission to the end of the year. So our teams are working with T. Mobile Street apartment offices to identify those projects, what's important vegetables projects or sustainable financially and obviously have you have a.
Long term sustainable operational profile.
Well, we have a team and each of those states working <unk>. So we do expect to continue to update you on.
On that.
And on the state you're working is it still fiber preferred has to be fiber is fixed where else a potential out there for someone to find out.
Yeah. So it's been it makes a ball for you. It is certainly <unk> preference for fiber that's certainly the be program, but there are opportunities to serve with fixed wireless.
The practice of certain cyber.
And given the contract with with Verizon Wireless are you working on any others out there and kind of how you do the.
Your footprint might bring to what is in essence, hopefully somebody at four carrier marketplace again.
Yeah No. We we were taught we talked to speak to all the carriers and we're in we're looking at that and I think you know.
<unk> repeat the phrase before I mean, I do think we have a good value proposition.
And I think every one of the national carriers is looking as you know well is looking very carefully at cos and and how to do things more efficiently from a cost standpoint, and I think.
Our service form of you know shared infrastructure shared network services can be can be part of that equation.
Okay last one for me obviously this year you provide the Capex guidance you provided to you, but the guidance longer term you have revenue guidance on there as well should we expect this week.
Round out this year start thinking about specific 24 guidance what is your head as far as what you might be providing what the number itself, obviously, but just kind of what metrics should be helping the street go to handle it.
<unk>, you're a little faint, but I think you were asking.
What metrics, we would be providing towards the 24 guidance.
Exactly yep.
I I I mean, I think we expect to do you know the same first of all you know the lost the most important guidance are the are the two big components of free cash flow, so EBITDA and capex.
And so with that you know we haven't.
We have and as you know to this date given any guidance on you know subscribe or metrics or fiber metrics and things like that you know not to say, we would never do it but I think it would be focused on those those key metrics if I'm understanding your question correctly.
Yep.
Okay. Thanks.
Sure.
Showing no further questions at this time I would now like to turn the conference back to Michael prior for closing remarks.
Alright, well. Thank you everybody appreciate you joining us today.
And another quarter.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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