Good day, and thank you for standing by. Welcome to the ATN International Q2 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation there will be 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, ATN CFO, Justin Benincasa. Please go ahead. .

Great. Thank you, Sean, and good morning, everyone. Today, we will review our second quarter 2023 results. With me here today is Michael Prior, ATN's Chief Executive Officer; and Brad Martin, ATN's Chief Operating Officer. Michael will provide an update on our business and strategies 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 second quarter results press release last night after the market closed. Investors can find this release and the results presentation for the 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 contain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operating results. .

These statements are 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, our comments today include non-GAAP financial measures.

For details on these measures and the 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 the 8-K filing provided to the SEC. .

I'll now turn the call over to Michael for his prepared remarks. .

Thank you, Justin. Good morning, everyone, and thank you for joining us. We capped 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 3 key takeaways from our second quarter performance. First, we continue to execute well against our 3-year plan, delivering higher revenue and EBITDA on healthy 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 wins, such as the recent long-term agreement we announced with a national carrier in 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 & Steel and First-to-Fiber strategies, we are focusing on regions including Alaska, the Western U.S. the rural tribal lands out there and the Caribbean. Validating the success of those strategies, our high-speed subscriber base and international mobile subscriber base each grew by double digits in the quarter.

A 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% annual increase and was driven primarily by the rapid expansion of our fiber networks in Guyana and 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 399,000 mobile subscribers. A 14% increase from the same period last year.

Justin 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 ATN's unique competitive advantages is that we have made the right investments to scale our business and provide customers with an unsurpassed portfolio of services. In our Island and Caribbean markets, we have repeatedly been the first to provide advanced high-speed data services, whether fixed or mobile.

In the Western U.S., we undertook a difficult multiyear 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 layering on fixed fiber and other high-speed data services to local businesses, schools, healthcare facilities and consumers. .

As part of that evolution, in 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 7 years and includes automatic renewals for up to 2 additional 3-year periods.

This long-term contract reinforces the value of our Glass & Steel strategy and the differentiated services we offer to the market. .

The agreement leverages our operating capabilities and network assets across more than 50,000 square miles of the Western United States to deliver superior high-speed connectivity at an attractive cost to our customer. .

Also, in our U.S. operations, our 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.

In the second quarter, we were awarded a $10 million grant to subsidize the build of a fiber and fixed wireless network, which will pass more than 11,000 unserved and underserved locations in New Mexico. .

We expect more awards in coming quarters as we follow on the more than $150 million in grants awarded to us and our partners last year for fiber expansions in Alaska and the Lower 48.

The network builds funded by these in future grants are likely to extend over the next several years, which should in turn provide a continuing opportunity for customer and revenue growth. .

In the first 1.5 years of our 3-year fiber expansion plan, we've made meaningful yet prudent capital investments to ensure the quality and durability of our network.

As we approach 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 debt refinancing that extends and expands our senior secured 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 and then pass onto [indiscernible] media coverage about the use of lead-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 of lead sheet copper cables, and our network outside of the U.S. contains approximately 20 miles of lead sheet copper cables. .

To the best of our knowledge, substantially all of this conduit is buried underground, and none of it is underwater.

While we do not expect this to be a significant financial or operating issue for ATN, the health and safety of our employees and the communities, where we operate is always a key priority for all of us at ATN and so we'll 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 bases. Our upward trajectory provides us with the ability to lean into our commitment to pay our capital spending as our 3-year plan approaches completion next year. .

And with that, I'll hand the call back over to you, Justin. .

Great. Thanks, Michael. I'd like to provide some color on our second quarter results, specifically where we're seeing positive momentum driven by our recent investments and how we see our balance sheet taking shape given our recent refinancing and our longer-term capital allocation goals. .

Before I begin, I should know you can view our financial tables in the earnings release issued yesterday afternoon and in our accompanying presentation posted on the Investor Relations section of our website. .

Starting with the P&L. Total Q2 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 across the International segment and enterprise growth in the U.S. segment.

Total net income for the quarter increased to $800,000 or a loss of $0.03 per share. The loss per share calculation includes the impact of preferred dividends that are not included in the net income calculation. .

Now looking at the segments breakdown. International revenues rose 4% in the quarter, while adjusted EBITDA was up 7%. This increase was the product of strong broadband and mobile subscriber growth partially offset by the previously discussed step-down in federal high-cost support subsidies for the U.S. Virgin Islands.

This will not impact the year-over-year comparisons following this quarter. We continue to benefit from strong revenue and subscriber growth across all international geographies, fueled by our network upgrades and expansions, superior customer care and consistent execution by our local teams. .

These efforts have increased the number of homes passed by high-speed data solutions and allowed us to migrate many legacy copper/DSL customers to more durable frame fiber services. As Michael noted, we have also continued growing our international mobile subscriber base to nearly 400,000 customers.

We will continue to carefully monitor expenses and capitalize on opportunities to make our networks and operation more efficient as we work to push operating margins higher in the segment. .

In the U.S. segment, revenues were up 4% from growth in fixed revenues driven by strong enterprise sales in Alaska and the addition of Sacred Wind. This revenue growth was partially offset by a reductions in the legacy roaming revenues and lower FirstNet construction revenue. .

Adjusted EBITDA was up 10%, resulting from strong performance in the Lower 48, helped by the Sacred Wind acquisition and overall operating expense improvements. Our repositioning of the [ balance ] business around the Glass & Steel strategy is working.

The Verizon contract Michael noted previously, reflects this transition from the legacy wholesale roaming business to providing infrastructure and technical services to the major carriers. These carrier service contracts will provide stable long-term recurring revenue. .

For the first half of 2022, we invested $89.5 million in CapEx, net of $7 million in reimbursable costs as we tactically deploy capital into our networks consistent with our Glass & Steel and First-to-Fiber business strategies.

As expected, our CapEx spending trended higher in the first quarter of the year and we still expect full year 2023 spending to be in the $160 million to $170 million range that we guided to. .

Within the U.S. segment, CapEx spending was $50.6 million, which was primarily related to fiber expansions in Alaska and the Lower 48. Internationally, CapEx spending was $38.9 million, which focused on the continuing fiber deployment in Guyana as well as mobile network investments. .

As demonstrated by our 22% growth in IP data subscribers, these strategies are delivering measurable results.

The network investments we're making are materializing at plan, leading to steady recurring revenues, and we're focused on ensuring that these investments will continue to significantly benefit the communities we serve and deliver long-term returns for our shareholders. .

At the same time, we're also working to enhance our financial flexibility and strengthen the balance sheet. As of the end of Q2, our total debt outstanding was $482.1 million, and our net debt leverage ratio stood at 2.3x. In July, we completed the financing of our credit facility and lengthened our maturity profile.

We turned out the outstanding borrowings into a 6-year facility and renewed our revolver -- revolving credit facility for another 5 years. This facility will allow us to maintain financial flexibility as we approach the end of our 3-year capital investment cycle. .

As we look out past the year, you noted in our outlook with lower capital expenditures and increasing operating cash flows, we expect to reduce our 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 equivalent of $67 million.

Net cash provided by operating activities was $60 million in the first half of 2023. Also in the first half of the year, we reduced capital liabilities by approximately $15 million, driven primarily by the reduction in account payables. .

In summary, we're performing well and our business plan is working. Our CapEx investments are driving positive subscriber and operating metrics and financial results that are improving each quarter.

As we start planning for 2024, we'll be focused on increasing free cash flow to further strengthen our balance sheet and continue 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 phase of our network investment campaign.

We're excited about the progress we've made in expanding and enhancing our network with high-quality assets, providing ATN with a foundation for durable cash -- future cash flows and a strong balance sheet. And with that, I'll turn it back over to Michael. .

Thanks, Justin. So I'm excited about ATN's future. Through prudent and strategic investments, we are positioning ourselves for sustained growth and exceptional performance. Our Glass & Steel and First-to-Fiber strategies are delivering measurable results across our business and creating demonstrable value for our stockholders.

And now operator, I'll turn it back over to you for questions. .

[Operator Instructions] And our first question comes from Ric Prentiss with Raymond James Financial. .

Couple of quick questions. One, I think I know the answer to. But in the press release, you talked about your recent acquisition, but was that the November acquisition of Sacred Wind? Or was there another acquisition in the recently. .

It was, yes, maybe that was a little confusing. But yes, it was the last year's acquisition of Sacred Wind. .

Okay. All right. And then in regards to the contract with Verizon, you mentioned network, infrastructure, technical services. This is not like a FirstNet contract, though with construction. This is kind of more shifting from roaming to recurring revenues.

Is that the way we should think of this?.

Yes. There will be no construction revenue, Rick, just -- but it does incorporate the other services that come into the FirstNet contract. Like the backhaul of tower leases, technical services, that stuff. But you're right, it directionally, that's what it will be a very much more consistent recurring revenue. .

Right. Okay. Because obviously, your guidance was ex-construction revenue. So I wanted to make sure we didn't have any of that with the Verizon contract. .

Yes. No. .

And obviously, the tower companies have seen some pretty big pullback in their services business or what they call the services business. Crown actually getting out of the installation business on a recent 8-K that they filed.

How should we think about the kind of the nature of what you're performing? And is it more recurring? Or is there aspects that would be similar to what Crown and this morning American Tower said there was -- have been some pullbacks in their services abrupt pullbacks in their services business?.

No, it's built into the contract, right? So it's -- there's a committed level across all the years of the contract. And I think what's possibly different. I don't know their business as well, but -- it's really -- we have a great value proposition in these areas, right? We have people on the ground. We're close to it.

It is far and difficult often for the field tech forces of these big carriers to administer. So I think we're in a great position with those services, and it's a good value proposition. .

And I can probably help a little on that too, Rick, where this is all contracted revenue, right? I suppose I know that some of the services that they might be buying at the tower companies is kind of build a site to do some work -- incremental. This is our contract. .

Okay. Good. Good. And 1.5 years, 2 years ago, as you were setting out on the 3-year journey, you mentioned capital intensity would come down. You're suggesting that as well.

But you also thought that there could be focus on shareholder returns, stock buybacks, dividends, how should we think about now that you're kind of getting to the second half of this process, how you're thinking about that financial flexibility and shareholder return prospects?.

Yes. Well, I mean, I think we sent a bit of a signal on that last year, when we increased the dividend after many years of holding it flat. So last December. And as we near the end of this 3-year build period, we definitely are looking at all the ways to create value for shareholders.

So I think we'll have financial flexibility, and we expect to see operating cash flow expand and free cash flow after CapEx to expand. So that should present us with that opportunity. .

One moment for our next question. [Operator Instructions] And our next question comes from Hamed Khorsand from BWS Financial. .

This is Waheed calling in for Hamed.

First question, are there any near-term headwinds from your new North American wireless carrier contract?.

No. I'm not sure what those would be. But no, I can't think of any near-term headwinds. .

Okay.

And then just with interest rates going up, is there an impact on your capital expenditure plans, since you are carrying a larger debt balance of higher interest rates?.

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 we do look across the gamut of capital allocation, where the opportunities are, what the returns look like, what our competitors might be doing.

So I would say interest rates and cost of capital certainly enters into the equation. .

And our next question comes again from Ric Prentiss with Raymond James Financial. .

I'll give everybody time to get questions in. But can you give us an update on your thoughts on BEAD and timing and when obviously, it's going to be bought state by state. But just kind of give us an update on what you're thinking on the government subsidies and beat in particular. .

Yes. I think I'll ask Brad Martin to talk to that. .

Sure. Thanks, Mike. Thanks, Ric. Yes. So recently, in late June, again the 6 days we operate in, we're announced -- they were worth $4.2 billion in programs. So the deadlines for the state submission is end of the year. So our teams are working with local state broadband offices to identify those projects.

And It's important to us that those projects are sustainable financially and obviously have a long-term sustainable operational profile. But we have a team in each of those states working [indiscernible] so we do expect to continue to do well, to update on that. .

And on the states you're working in, is it still fiber preferred, has to be fiber, is fixed wireless a potential out there for some of the funding?.

Yes. So it's been a mix of both. I mean it's certainly a preference for fiber. That's certainly the BEAD program. But there are opportunities to serve with fixed wireless, but the preference is certainty fiber. .

And given the contract with Verizon Wireless, are you working on any others out there and kind of how you view the -- your footprint might bring to where there is an essence, hopefully, someday a 4 carrier marketplace again in the U.S. .

Yes. No, we -- we talk to speak to all the carriers, and we're looking at that. And I think I'll repeat the phrase before. I mean I do think we have a good value proposition. And I think every 1 of the national carriers is looking, as you know well, is looking very carefully at costs and how to do things more efficiently from a cost standpoint.

And I think our sort of form of shared infrastructure, shared network services can be part of that equation. .

Okay. Last 1 for me. Obviously, this year, you provided the CapEx guidance, you provided the EBITDA guidance. Longer term, you have revenue guidance in there as well. Should we expect as we round out this year and start thinking about specific '24 guidance.

Where is your head out as far as what you might be providing, not the number itself, obviously, but just kind of what metrics you'd be helping the Street get a hand on?.

Ric, it's -- you're a little thing, but I think you were asking what metrics we would be providing towards the '24 guidance?.

Yes, exactly. Yes. .

I mean, I think we expect to do the same. First of all, the -- it's at last the most important guidance are the 2 big components of free cash flow. So EBITDA and CapEx and so with that, we haven't, as you know, to this date, given any guidance on subscriber metrics or fiber metrics or things like that.

Not to say we would never do it, but I think we'd be focused on those key metrics, if I'm understanding your question correctly. .

Yes, you did. .

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. I appreciate you joining us today, see you in another quarter. .

And this concludes today's conference call. Thank you for participating. You may now disconnect..