Welcome to the ATN International Q4 and Year-end 2022 Earnings Call. [Operator Instructions].

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'll be reviewing our fourth quarter and year-end 2022 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 annual and quarterly results.

I'll cover the relevant financial information and provide additional color where necessary. As a reminder, we released our fourth quarter and year-end results press release last night after market closed. 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, our 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 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. .

Thank you, Justin, and welcome all. We appreciate you joining us. .

2022 was another solid year for ATN. We achieved year-over-year top line growth, improved profitability for both the fourth quarter and 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, the resilient need for our communication services and the consistent execution of our strategy. .

Since this is our year-end call, it gives us an opportunity to discuss our business more holistically. To us, ATN's business model is relatively straightforward and fairly consistent across markets and service offerings. At ATN, we delivered connectivity for all.

What that means is we look for smaller markets that lack the quality or type of communications infrastructure or service offerings available in larger markets. .

And then we work creatively and with a relatively long time horizon to see if we can develop a viable case for making an investment to fill that gap, a form of bridging the digital divide.

We have been doing this for some time, and we believe the criticality of quality connectivity has only increased, and in turn, the demand and other economic factors that support these investments have improved. So we go where the need is and where most of the larger telecommunication companies did not.

To date that includes the Caribbean, the rural and tribal lands of the U.S. Southwest and Mountain West and Alaska. .

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 returns and recurring cash flows.

In turn, the communities we serve benefit from having a focused and dedicated provider willing to invest in providing an elevated class of connectivity, which is often transformative for their quality of life, enabling better education, health care, entrepreneurial opportunities, entertainment and social connection. .

So each quarter you will give 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 3-year plan focused on 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 with the associated CapEx spend, we tend to experience a strong and sustained 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% to $726 million, largely reflective of our successful acquisition of Alaska Communication, together with solid execution and the growing high-speed data and mobile customer base that continues to exhibit strong demand for the services we offer. For the fourth quarter, our results met our plan.

Revenue was up 2% year-on-year as the last acquisition annualized fully in the third quarter of '22. 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 buildouts. .

Highlights of the fourth quarter and the year included high-speed network growth.

We grew our homes passed by our high-speed networks by 44% year-on-year to more than 275,000, which represents roughly 38% of our nearly 730,000 homes passed by broadband, which is up from 31% at the end of '21, and we generated a 15% annual increase in subscribers served by our high-speed networks.

We also grew mobile subscribers in International Telecom by 12.5% year-on-year to about 378,000 while also bringing blended mobile churn rates down. Also in the middle of the quarter, we completed the acquisition of the telecommunications company Sacred Wind Enterprises. .

Sacred Wind expands our geographical presence further into New Mexico and with it, we gained additional talent and momentum to execute on our fiber and high-speed data growth in the region.

A ready example of this was the receipt in the fourth quarter of a new $8 million grant to connect more than 3,000 homes with fiber services in Sierra County, New Mexico.

It's also worth noting that in the first full year as part of ATN, Alaska Communications Services turned in a record financial performance with the highest EBITDA level in nearly 10 years. Now we have more ambitions for this investment, but it's off to a good start. .

So the fourth quarter concluded the first year of the 3-year outlook we provided at the start of 2022. In this outlook, we provided visibility to our strategy, investments, revenue and EBITDA objectives out to the end of 2024.

As we enter year 2, we are tracking the plan, and we expect to pick up the pace of organic growth as we move through this year and approach the midpoint of the 3-year plan. In total, the company's investments in higher speed services in underserved markets through fiber and other high-speed data solutions, position ATN 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 as a great example of execution aligned with purpose and strategy.

We served our customers well, expanded our customer base and geographical footprint and progressed on our Glass and Steel and First-to-Fiber buildouts. 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 of ATN for their part in its 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. .

We delivered a solid fourth quarter financial performance. During the period, total consolidated revenues increased 2% to $192 million. Operating income has improved to $4.7 million from an operating loss of $20.3 million last year, which included a $20.6 million goodwill impairment. Adjusted EBITDA was $43.6 million, up 3% year-over-year.

These improvements were mainly driven by continued strength in the International segment, steady results in the domestic businesses and the Sacred 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 and mobile subscribers and the associated revenue, partially offset by the scheduled step-down in federal 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 and 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 mainly 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 sites.

Construction revenues were roughly equivalent to construction costs, as has been the case for several quarters, and we are now completed approximately 75% of the sites we're delivering under the FirstNet program.

For next year, we expect to substantially complete the project, which will contribute approximately $27 million to the segment annual revenues with approximately 2/3 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. .

ATN's total net loss for the quarter was $1.4 million or a loss of $0.18 per share. This compares with a net loss of $24.2 million or a loss of $1.60 per share for the same period a year ago, which included the goodwill impairment charge. We reported $50.2 million in CapEx spending for the quarter, which included $32.6 million for our U.S.

segment and $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 FirstNet and additional costs following the Sacred 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 of cash to fund various working capital items, including prepaid circuits, sales commissions and FirstNet construction costs as well as to reduce payables and accrued balances. At the end of the fourth quarter, our total debt outstanding was $422 million.

This includes approximately $32 million in debt from the Sacred Wind acquisition, $232 million on Alaska Communications balance sheet and excludes $46 million related to the first customer receivable financing facility.

With the total consolidated net debt to adjusted EBITDA ratio of just over 2x, we continue to maintain strength on 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 EBITDA beginning in 2023 and beyond to be in line with most of our peers.

Beginning with Q1 2023 results, we'll be excluding non-cash stock-based compensation from our adjusted EBITDA number and have 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 $8.5 million and $9.5 million. .

adjusted EBITDA in the range of $183 million to $193 million for the full year 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 in the following periods.

Our business targets for the 3-year period ending 2024 remain unchanged with the exception of our net debt ratio, which we now anticipate to be approximately 2x at the end of 2024, with additional debt following the close of the Sacred Wind transaction, higher borrowing costs than anticipated at the start of 2022 and additional fiber investment opportunities in Alaska.

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revenue compounded annual growth rate of 4% to 6% from 2021 to 2024, excluding construction revenue, adjusted EBITDA CAGR of 8% to 10% over the same 3-year period, which was not impacted by the definition change to exclude stock-based compensation as we're comparing to pro forma adjusted EBITDA for both '21 and '22.

Capital expenditures returned to more normalized levels of 10% to 15% of revenue after 2024, and as noted, the net debt ratio of approximately 2x exiting 2024. .

In summary, we delivered solid financial results in the fourth quarter and year, and our 3-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 upgrade and subscriber base increases.

As we invest in accordance with our 3-year plan, we're also building out our foundation in setting up ATN 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'll turn the call back over to Michael for his closing comments. .

Thank you, Justin. .

ATN continued to execute at a high level in 2022 with steady momentum across our markets. We are serving our customers well, advancing our strategic network build-outs and making excellent progress toward our 3-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. .

[Operator Instructions].

Our first question comes from Ric Prentiss of Raymond James. .

A couple of questions. Michael, obviously, you guys are focused on connecting small markets, whether it's Caribbean, rural tribal, Alaska, et cetera. Update us a little bit about what you're seeing in government stimulus grants funding, be money, moving money to the states.

What's the process like? And how is it proceeding? When can you expect to see even more come your way?.

Okay. So a question on grants so far and what to expect. So far, it's been detailed we were awarded approximately $172 million in '22, and that includes what we picked up with the Sacred Wind acquisition. And I'll note there, of course, the headline number is not the important thing.

What is really important is what it contributes to us economically and what it represents in 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 and moved away from certain grant opportunities where we just didn't think the economics would work. .

As to the funding in particular, that, of course, the program has started, but it's a very different timing and different states. It's really a state-by-state basis, as you probably know.

So we are actively involved in reviewing the opportunities there, engaging with the states, 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 in what you're sensing so far, is it still a preference for fiber? Is it requirements for fiber? Could fixed wireless also be something that could be of interest?.

There is currently a preference for fiber or fiber fed, but there's also been plenty of allowance and discussions about fixed wireless, particularly certain technologies. And we are actually deploying technology today that exceed 100 megabit per second quite easily and could go up faster than that.

So I expect you'll see that evolve as programs administer, but right now, I think fixed infrastructure is primary focus. .

We've heard from some of the other fiber-first people racing to plan flags, people are starting to think about should they have an MVNO or some kind of wireless part of the bundle.

As you look at your markets, how important would wireless be? 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 is we're actually enabling wireless connecting connections, mobile connections from the national carriers as part of what we did, right? So we're building fiber a lot of towers. We're continuing to work directly with a lot of the carriers.

For us, we see that as part of what we'll bring to the community and they'll actually have join on multiple providers. So I don't think for us that bundle is a focus in the markets we serve. .

Okay. And last question. The dividend increase 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?.

Yes, sure. So the first thing I would note is we raised the dividend using, well it's 24% increase, we used 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 if you look back at it, the essence of it was communicating our belief in the strength of the plan and also rewarding shareholders on a current basis. .

Our next question comes from Greg Burns from Sidoti. .

If you look at the wireless growth internationally, can you just maybe give us a little bit more color on what's driving that and what the complexion of those markets are? Like how much market share do you have? Is there still room for growth in those markets? Or is there any particular market where you're seeing outsized growth in the wireless side?.

Yes. I think it was across several markets. The larger numbers were in Guyana and the U.S. Virgin Islands. And 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 a great network in both places, so it was primarily about selling and figuring how to 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.

Can you just maybe talk about that a little bit relative to maybe where we were a year ago when you bought the asset?.

Yes. So Alaska to date, I would say the performance was on the top end of our near-term expectations. I think I referenced in my prepared remarks that we do have ambitions to do better. I think there's work across revenue growth across operating efficiency and capital efficiency and really in all buckets.

And I think the team has identified a number of initiatives to go after that. So I expect we will build on that.

And so that wasn't very different, of course, from expectations, which changed a little, and we referenced it when we talked about our capital spending guidance, is 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's a fairly significant piece of this year's expected capital expenditure, and we probably didn't expect that level when we first made the investment. .

Okay. And then the acquisition model for Alaska, bringing a financial partner.

Is that something you're looking at for other acquisitions? Like what are your thoughts on future acquisitions in and how you would go about maybe financing them with a shared model like Alaska?.

So in thinking about future acquisitions, the first thing I'd say is we're pretty focused on our strategic plan today. That doesn't mean that we won't consider additional acquisitions that look attractive. But you're right, that's about the financing.

And so when we think about financing an acquisition, particularly a 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 if we need to, but we are not going to be on the very high end of leverage, such as a private equity firm might do on an individual deal. So that will mean that if we want to do larger transactions, we might 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 or it could be something at other levels. But I'm not projecting that. I'm just saying we would look at all of those things and balance it against balance sheet risk. .

Our next question comes from Hamed Khorsand from BWS Financial. .

Could you first elaborate on the revenue opportunity from the CapEx expansion in Alaska.

Is this all new customers? Or are you encroaching on competition?.

Yes. So it is mostly new customers to date. As you know, when we did the Alaska transaction, we were clear that more than 2/3 of the revenue was business and wholesale. So that consumer side is not a big piece of it. And there is opportunity there to grow that and gain share.

And some of it will be as we go forward, we'll be certainly rolling DSL customers onto fiber services and which can result in higher ARPUs, but also results in lower churn. .

You can see some of the investments paying off, Hamed, already in terms of the mobile and the broadband subscriber growth, right? That should lead to revenues future revenues, good durable future revenue. .

And that was actually going to be my follow-up on that.

So is the success you've seen to date really from your new installs? Or is that from just the legacy network and your marketing strategy?.

Are you asking this across the company? Or are you asking Alaska specific?.

Alaska specific. .

Okay. So I think a lot of the revenue growth to date was business and wholesale, what we would put in that category in enterprise. So the advancing of the bill that we started in 2022 on the consumer fiber side is not material for the numbers in '22. .

Okay. And then my other question was on Sacred Wind.

Are you 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?.

Sacred Wind is really -- is combining with our Commnet subsidiary into one operation, and that's already happened and moving the pace. So as I said in our prepared remarks, it's really about accelerating that shift to the sort of fixed and fiber led revenues for our lower 48, if you will, on the U.S. segment.

So it's really fully integrated in the approach. .

Any success as far as building on that FirstNet with maybe another competitor now that you have also bigger wins into the mix as far as its network footprint?.

Yes. We're continuing to discuss larger carrier wholesale deals, which I think is what you're talking about, involving things like backhaul towers and related services. .

And 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, 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..