ATN International [ATNI] Conference call transcript for 2023 q1
2023-04-29 14:15:12
Fiscal: 2023 q1
Operator: Good day, and thank you for standing by. Welcome to the ATN International First Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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, Chief Financial Officer. Please go ahead.
Justin Benincasa: Great. Thank you, operator, and good morning, everyone. Today, we will review our first quarter 2023 results. With me here is Michael Prior, ATN's Chief Executive Officer. Michael will provide an update on our business and strategy as well as a high-level overview of our quarterly results. I'll then cover our financials and provide additional color where necessary. As a reminder, we released our first quarter results press release last night after market closed. Investors can find the release and results presented 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, our press release and the presentation containing 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 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 atni.com or to the 8-K filing provided to the SEC. I'll now turn the call over to Michael for his prepared remarks.
Michael Prior : Thank you, Justin, and thank you for joining us, everyone. I would like to start the call today with three key takeaways from our Q1 performance. One, our strategy is working and is driving growth in subscribers and footprint or addressable market; two, adjusted EBITDA performance is improving in line with the subscriber and revenue growth. And three, our three-year outlook, as announced at the beginning of 2022 is tracking to plan. We expect revenue and EBITDA growth to ramp to bring us in line with the three -year CAGRs we have forecast. At ATN, our central purpose is to provide connectivity for all. In doing so, we improve lives and communities and deliver lasting value for all our stakeholders. We go where the need is and where most of the larger telecommunications companies prefer not to go. To date, that includes the Caribbean, the rural and tribal lands of the U.S. Southwest and Alaska. Today, we are in the process of advancing initiatives to secure our vision and long-term growth. We call these strategic initiatives, glass and steel and first to fiber. They are core to our strategic three-year plan, as I first outlined in the beginning of 2022. It is a plan with the intention to build a highly resilient customer base and average revenue per user, or ARPU, on the tail of relatively short-term increases in capital expenditures. To accomplish our goals, we are currently investing in quality assets to expand our strong market position, which should bode well for the consistency of future cash flows. Internationally, we are investing in our first to fiber strategic initiative to expand our market leadership. Through this strategy, we are bringing fiber rich digital infrastructure to the Caribbean, expanding our network reach in growing markets like Kaman and Guyana and continually improving and strengthening our network and services in places like Bermuda and the U.S. Virgin Islands. These actions are providing us with several new growth levers and cash flow generators, while at the same time, reducing the risk of customer churn. Domestically, in last our fiber expansion continued to all segments, business, carrier wholesale and retail. And the team is accomplishing that while also working to improve operating efficiency and margins. In the Lower 48, our glass and steel strategic initiatives is capitalizing on the changing needs of our wholesale mobile carrier customers to complement an effort to fill in the fiber and other connectivity gaps in the rural areas of the Southwestern and Western United States. The FirstNet contract with AT&T was the first pillar of this strategy, and we expect to enter into a similar arrangement with another national carrier in the current quarter. These partnerships with the national mobile carriers are a testament to our strong and reliable offerings, scalability, deep and broad local operating capabilities and brand reputation. As important, we are expanding our business and retail broadband operations in the region using government grants and anchor tenants wholesale or government customers to expand our high-speed network and fixed line revenues. And as we discussed last quarter, the addition of Sacred Wind was intended to boost this effort. The early evidence is very positive with the team meshing well with their new colleagues and hitting the ground running with some key early wins on new subsidized fiber builds and customer growth. The first quarter of 2023 marks the start of the second year of our three-year investment plan. We are already seeing the benefits of our expanded network and its associated customer additions. ATN's first quarter revenue reached the highest level in more than a decade. This quarter, we showed consistency of execution and were again rewarded with high levels of customer retention and progress on our key operational and financial metrics. We expect our customer revenue and adjusted EBITDA growth trends to continue throughout 2023. We're also working on augmenting this growth through improvements of cost structure of several operations, such as by accelerating the removal of legacy network and operating costs. In total, we are enthusiastic about the durability of our revenue, our financial flexibility and our long-term growth prospects. We continue to track to our three-year plan. And to illustrate our progress in the quarter, we grew the homes passed by our broadband networks to about 736,000 at the end of the quarter, which was 21% higher than a year ago. This includes an additional 108,000 passed by fiber or other higher-speed solutions. Our ongoing network investments also are reflected in our subscriber levels. As of March 31, 2023, 55% of our more than 216,000 broadband subscribers were connected to our fiber or other higher-speed networks, representing growth of nearly 18% year-over-year in high-speed data subscribers. We ended the quarter with more than 328,000 mobile subscribers in our international segment, and this is up 13% from a year ago, reflecting the success of our sales and marketing efforts and investments. As Justin will discuss, we saw positive results across both of our operating segments, including a strong performance in Alaska, fiber and broadband customer additions that I've just mentioned and of course, the mobile subscriber growth. Both in the Caribbean and in the U.S., most of our expansion work is in markets that we believe will continue to benefit from growing demand and positive secular tailwinds, putting us in an excellent position to benefit from this growth as we provide these communities with the connectivity capabilities that will help them thrive. An example of this work is via our subsidiary in the U.S. Virgin Islands. We were just awarded a contract to bring high-speed fiber-based connectivity to all public schools in the territory. The project is 100% fiber-based, delivering the fastest speeds and including an inter-island fiber link between the two Department of Education network operation centers, providing a critical additional layer of resilience for the school's connections. Notably, this public-private initiative ensures that the territory benefits from a more digitized teaching and learning experience as it helps schools and libraries and obtaining affordable Internet access and telecommunication services. In summary, we remain committed to providing connectivity for all. We are working to be first to fiber in those markets that are aligned with our established criteria and where we believe we can also develop strong firstmover advantages. In addition, we continue to prioritize building and owning modern core digital communications infrastructure, consistent with our blast and steel strategy. Most importantly, as we execute towards these two strategic objectives underpinning our three-year plan, we also are steadily expanding our overall broadband network and subscriber count. In turn, this should generate revenue growth with higher incremental operating margins, giving us confidence in our long-term growth targets as well as our core financial objectives for this year. As Justin will expand upon momentarily, our financial position enables us to be flexible in the execution of our strategies as we look to maximize value for stakeholders. And with that, I'll hand the call back over to you, Justin.
Justin Benincasa : Great. Thanks, Michael. With much focus these days on the financial climate inclusive of interest rates and access to capital, let me start by sharing a few words on our capital allocation strategy and how we expect the moves we're making today to expand ATN's success now and in the years ahead. ATN is in a strong competitive position given our solid balance sheet to make strategic investments in advanced connectivity as we set out to do last year. Our operations generate significant cash flow that provides ample liquidity to support continued investment in advancing our growth initiatives that Michael talked about earlier. We have a disciplined and balanced capital allocation strategy that we'll continue to adapt as we deploy capital to reward stockholders, including our quarterly dividends, organic investments to help secure future growth and our share buyback program. In addition, we'll work to maintain financial flexibility, allowing us to remain opportunistic in making investments that can accelerate or enhance our strategy and returns. All in, our plan works to better serve customers by establishing a first-to-market advantage, which in turn will provide durable financial results for years to come. This is a playbook we've deployed successfully in the past. We anticipate that temporarily heavy capital investment cycle will be followed by a substantial increase in monthly recurring revenues and free cash flow. Turning to our results for the quarter. Total consolidated revenues increased 8% as you can see in our accompanying slide presentation that we've added to our website along with some additional financial tables. Operating income improved $0.6 million from $0.1 million a year ago. Adjusted EBITDA was up 6% year-over-year. These improvements were primarily driven by continued strength in the international segment, steady results in the domestic business as we benefit from the investments, we've made in network expansion upgrades totaling more than $200 million over the prior two years as well as from the Sacred Wind acquisition, which closed in November of 2022. Turning now to our segment breakdown. In our international segment, revenues rose 4% in the quarter and adjusted EBITDA was up 5%. This increase was the product of continued growth in broadband and mobile subscribers and the associated revenue, partially offset by the previously announced step down in federal high-cost support subsidies for the U.S. were islands. Our strength internationally continues to be driven by superior customer support and great execution by the local teams to increase high-speed data subscriber counts and ARPU. We also see continued positive growth in our mobile subscriber base and revenues as the result of strong sales and marketing efforts following our substantial network upgrades and expansions. While these marketing and sales efforts are delivering with benefits, we are aware that overall expenses have room for improvement, and we'll continue to monitor and make the necessary moves to balance subscriber and revenue growth and margins in this climate. In our U.S. segment, revenues were up 12% in the quarter. Of note, our Alaskan operations continued to perform well, producing a substantial top line contribution and strong operating cash flows. During the period, business and carrier services accounted for approximately 74% of the segment service revenues mainly reflecting higher revenue performance from Alaska. This was partially offset by expected reduction in legacy wholesale wireless revenue as we continue to reposition the Lower 48 business around the glass and steel strategy and carrier managed service contracts that provide stable long-term recurring revenue. As part of our effort to reposition this business, we conducted a review of all the sites that were supporting our legacy roaming network. This review was aimed at determining what was necessary to support the business in the future. As a result, we recorded a restructuring charge of $2.9 million in Q1 to exit sites that were no longer needed. Construction revenues which aligned with the number of FirstNet sites completed in a given quarter and roughly equivalent to construction costs were also lower year-on-year. We expect to substantially complete the construction project in 2023 with a small number of studies being completed in early '24. Based on the schedule today, we estimate the construction revenue will be in the range of $12 million to $14 million, with approximately 70% to 75% of that revenue coming in the second half of 2023. Overall, for the U.S. segment, adjusted EBITDA was up 16% year-on-year, mainly due to the contribution of our expansion in Alaska and the Sacred Wind acquisition. ATN's total net loss for the quarter increased to $5.9 million or a loss of $0.44 per share, mainly due to a $5.4 million increase in interest expense over last year. We reported core CapEx for the quarter of $50.6 million, which includes $29.1 million to our U.S. segment and $21.5 million for our international segment. Higher CapEx spending in the U.S. include investments in fiber builds in Alaska, infrastructure to support FirstNet and modest additional costs following the Sacred Wind acquisition. International segment spending largely includes the continued fiber deployment in Guyana and mobile network investments. In line with our previously announced guidance, we expect a lower CapEx spend for the rest of the year compared to our first quarter pacing. Now turning to our balance sheet and cash flows. We ended the quarter with cash and cash equivalents of $56 million. Net cash provided by operating activities was $16 million. In the quarter, we used approximately $27 million of cash to fund various working capital items, including the reduction in CapEx payables and accrued balances. At the end of the first quarter, our total debt outstanding was $465 million, including $30.3 million in debt from the Sacred Wind acquisition and $249.1 million on Alaska Communications balance sheet. This figure excludes the $48.1 million related to the FirstNet customer receivable financing facility. With the consolidated net debt to adjusted EBITDA ratio of 2.3 times, we're continuing to maintain our strong balance sheet as well as the flexibility needed to execute our fiber build strategy. Before we turn to our guidance, I want to note that as we shared last quarter, we've changed how we report our adjusted EBITDA beginning in 2023 to be in line with most of our peers. We're excluding non-cash stock-based compensation and have provided a pro forma reconciliation table in our earnings release. For the first quarter of 2023, stock-based compensation was $1.8 million compared with $1.5 million in the same period last year. As detailed in our news release, our longer-term outlook continues to track the plan. For 2023, our guidance remains the same with adjusted EBITDA in the range of $183 million to $193 million for the full year, with somewhat more of that 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, net of reimbursed amounts primarily for network expansion and upgrades, which are expected to further drive subscriber revenue growth in the following periods. In summary, we delivered solid financial results aligned to our plan, which we expect will yield durable recurring revenues and cash flow growth. We're benefiting from our established leadership across our markets and as well as from our ongoing network expansion, network uppers and growth in our subscriber base. As we invest in accordance with our three-year plan, we're also building out our foundation in setting ATN up well for the long term. We look forward to continuing delivering value to all our stakeholders across our operations and updating everyone on our progress going forward. And with that, I'll turn it back over to Michael for his remarks.
Michael Prior : Thank you, Justin. ATN continued to execute at a high level this quarter with steady momentum across our markets. Strategically, our market approach enables ATN to deliver a strong product suite to customers and to secure our market leadership by growing subscribers and revenue and reducing churn. Being the first to provide a community true high-speed connectivity creates a unique opportunity to generate customer loyalty and build a strong base of revenue across all sectors, consumer, business and government, which in turn enhances operating cash flows and generates strong returns for our stakeholders. Looking ahead, we will continue to serve our customers well, advance our strategic broadband build-outs and make progress toward our three-year growth objectives. With that operator, I'll hand it back to you to open up for questions, please.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Ric Prentiss with Raymond James. Your line is open. Please go ahead.
Michael Prior : Sure. Okay. Stepping back away from it. You mentioned you might be pursuing and might have a similar contract to FirstNet with a second carrier. So is second net going to be similar low-margin contract to get stuff out there and you get some other business offer? Or how should we think about what this second net? I know they probably don't want to be called that, but the second contract would.
Operator: Thank you. And one moment for our next question. Our next question is going to be from the line of Greg Burns with Sidoti. Your line is open. Please go ahead.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Hamed Khorsand with BWS Financial. Your line is open. Please go ahead.
Operator: Thank you. And one moment for our next question. And we have a follow-up question from the line of Ric Prentiss with Raymond James. Your line is open. Please go ahead.
Operator: Thank you. I'm showing no further questions, and I would like to turn the conference back over to Justin Benincasa for any further remarks.
Michael Prior : Actually, I'll take it this as for Michael Prior, so thank you, operator, and thank you all for joining us this morning. We're excited about the future, given the essential nature of our offerings, the expansion of our network, our firstmover advantages in underserved communities and the financial flexibility we have within our control. Thanks, everyone.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
