ATN International, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Focus on executing strategy to leverage network assets and manage business prudently to increase cash flow and deliver value. US Telecom is assessing ways to expand value, deemphasizing certain consumer markets, and leveraging fiber assets and BEAD funding. International segment saw adjusted EBITDA growth, 5G adoption, and launch of a unified brand in Guyana. Key operational highlights include high-speed data subscriber growth in International and reimbursable capital expenditures in US Telecom due to BEAD grants.

Segment Performance

• International Segment: Revenues were $94.3 million, essentially flat compared to Q3 2023. Adjusted EBITDA grew to $32.2 million from $27.5 million in Q3 2023, a 17.3% increase. Fixed revenue gains and business mobility revenue growth offset consumer mobility declines in Guyana. High-speed data subscribers increased 4% Y/Y. 60% of total mobility revenue in Q3 came from two 5G-capable networks. Launched a unified brand in Guyana.
• US Telecom Segment: Revenues were $84.2 million, down 13% Y/Y. Reported a non-cash $35 million goodwill impairment charge. Reimbursable capital expenditures increased significantly YTD in Q3 due to BEAD program grants, with over $280 million in construction phase for fiber-based projects.

Guidance

• Revenues for full year 2024 now expected in range of $720 million to $730 million, down from previous range of $730 million to $750 million.
• Adjusted EBITDA expected in range of $182 million to $188 million, down from previous range of $190 million to $200 million.
• Capital expenditures expected in range of $100 million to $110 million net of reimbursed amounts.
• Net debt ratio expected to be 2.3 to 2.6 times, with goal to bring leverage closer to 2 times over medium term.

Risks

• Competitive headwinds impacting low ARPU prepaid customers in International consumer mobility (Guyana).
• Execution challenges in US Telecom sales and delivery, especially in Alaska.
• Market multiples compression affecting US Telecom's valuation and financial performance.

Question and Answer

Q: Obviously, a tough quarter on the US Telecom side. You mentioned addressing margins on that side. Should we think that there's -- is this like forced cuts, so we're going to see a kind of a restructuring charge coming? Or what kind of timeframe does it take to kind of address and right size the costs given the revenues haven't really replaced the ACP and the ECF programs?

A: Hey, Ric. This is Carlos. I'll take this one. Thanks for the question. As we talked about it in Q2, and we reiterate a little bit this quarter, some of the efforts that we have been pursuing across the different segments are already kind of reflecting into the numbers. You saw some of the restructuring and reorganization charges, some efforts that are related to the U.S. segment are embedded there. And some of the benefits that we did in International as well, you saw them flowing through the numbers as well. In terms of some of the more structural changes that we are pursuing, those naturally take a little more time and we expect to see more of those benefits into 2025 and beyond. So that's kind of the process we're pursuing.

Q: In the U.S., how would you, I guess, characterize the demand environment relative to maybe where you thought it was six to 12 months ago?

A: Yeah. So, really, I think there's -- to distinguish between the two key areas, consumer and enterprise, there are, again, very different dynamics happening in those markets. So, on the -- so maybe on the enterprise care and wholesale, a lot of the -- we do see strong demand, and that is something -- a lot of the delays that we've had or misses that we've had have been more on delayed deals, has not necessarily been -- the majority is certainly on delayed deals, not necessarily lost deals. We obviously have had some lost deals. But we do see the demand for broadband services on the wholesale side continuing to grow. So that's something that is encouraging for the business moving forward. On the consumer side, Greg, there are a lot of dynamics and I'll specifically speak to the Southwest, where we had the larger -- largest impact on the ACP shutdown. That is -- there are a lot -- a couple of dynamics. One, we are -- we have been in the process of deemphasizing and shutting down some of our legacy fixed wireless broadband service areas. Part of that is due to R&R. Part of that is just due to the remote nature and the profitability of certain sites. So that has been a unique focus for us to rationalize where we have network and rationalize operations. From a competitive market, it has changed. The fixed wireless access progress you see from the major carriers, that is a product set that is a new competitive dynamic as they overbuild. A dynamic for us is we actually get to participate in that, because we sell through our carrier managed services to those carriers. So, we provide backhaul, tower lease that flows through our enterprise and carrier lines of service. So that's an area where we are trying to focus where we have what we consider next-gen fixed wireless technology. This is north of 100 megabit to 500 megabit to gigabit style solutions. We think those are very competitive with the MNO fixed wireless service offerings. So, when we talk about refocusing our efforts, it's where we have superior technology, because it's very difficult to compete with inferior technology against the quality of those brands, if that makes sense.

Q: Hey, good morning. Just some follow-up here. I think all year, you've been talking about this loss of the ECF and ACP programs. So, if you could just help me understand why that impact that you've been talking about all year, now all of a sudden is, you weren't ready for subscriber losses and the softness in consumer.

A: So, Hamed, yeah, so maybe distinguish between the two programs. So, ECF was a program that went away earlier this year. We spoke about the failure to fill that pipeline, to backfill that pipeline on some deals in one of our markets. So that has been -- the ability to backfill -- that pipeline is one of the dynamics we've been working towards all year. So that's to distinguish between ACP. ACP, generally, we have -- from a subscriber -- maintenance of subscriber base through that transition actually roughly came in line with our expectations. A dynamic with ACP that we did not predict our largest market, which is in the Southwest of ACP subscribers, which lost about 28% of their consumer subscriber base. We were projecting keeping about -- losing about 30%. So, we actually did a little better than we had planned. What we did not plan for was the amount of work required to retain those customers. There was a four-month period where we were out, reaching out to every customer renewing them and that had an impact on the ability to sell new. So that was something that we did not foresee as impactful in one of our Southwest markets. So that's the distinction between ACP and ECF. But they were ultimately big programs. ACP was really announced after the start of the year. ECF, we knew about late last year. So that was something we were planning for. And that is still a dynamic of filling that significant pipeline, both revenue and EBITDA is something that we're working towards.