Good day, and thank you for standing by. Welcome to the ATN International Q2 2024 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's 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, Michele Satrowsky, Corporate Treasurer and Head of Investor Relations. Please go ahead..

Thank you, operator, and good morning, everyone. I'm joined today by Brad Martin, ATN's Chief Executive Officer, and Carlos Doglioli, ATN's Chief Financial Officer. This morning, we'll be reviewing our second quarter 2024 results. As a reminder, we announced our 2024 second quarter results yesterday afternoon after the market closed.

Investors can find the earnings release and conference call slide presentation on our Investor Relations website. Our earnings release and the presentation contains certain 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. In an effort to provide useful information for 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 ir.atni.com or the 8-K filing provided to the SEC. Lastly, a scheduling note.

Historically, ATN has held earnings calls four weeks after the quarter's end. Going forward, we will be shifting the earnings call out a week and our Q3 call will be during the week of October 28. Now, I'll turn the call over to Brad..

Thank you, Michele. Good morning, everyone, and thank you for joining us. We're making progress in our efforts to leverage our First-to-Fiber and Glass & Steel investments to drive top line growth, improve operating efficiency, and deliver value to our shareholders and customers over the long term.

Our second quarter performance is driving the business toward that goal. During the quarter, we grew adjusted EBITDA, delivered top and bottom line growth in our International Telecom segment, and benefited from cost-management efforts.

We remain committed to managing the business prudently to improve our operating leverage and shifting the mix of our products and services to drive higher revenues, ARPU, and margins, with an emphasis on high-speed data, mobile data, and enterprise services.

We remain confident that we are positioning ATN to win in these markets with our upgraded network, localized sales teams, and enhanced leadership. Based on our first-half performance and the progress we are making delivering on our plan, we are reaffirming our 2024 outlook.

I'll begin the call today by covering highlights from our second quarter performance and progress executing our strategy, before turning the call over to Carlos to review our second quarter financials and full-year guidance in more detail.

Starting with highlights from the quarter, notably in Q2, we grew adjusted EBITDA by 6% year-over-year, supported by strong International Telecom segment top line growth and benefits from the actions initiated at the end of last year and earlier this year to improve operating efficiency.

Overall revenue declined 2% as growth in International Telecom was offset by an anticipated year-over-year decline in the US Telecom revenue, due primarily to the expiration of the Emergency Connectivity Fund program that we have previously discussed.

During the quarter, we completed the sale of an international real estate asset, the result of a long-standing commitment to manage the business prudently. As shared last quarter, we also have further sharpened our focus on managing operating and capital costs.

Carlos will expand upon the financial impact of the sale and progress with our cost-saving efforts in his remarks. A top priority for the ATN team has been to advance the carrier projects that were delayed in Q1 and sharpen our efforts to accelerate revenue conversion from these programs in the second half of the year.

We made good progress with these efforts in Q2, having now addressed the major causes of the delays. We are off and running with the deliveries and schedules, keeping us on track to deliver on our 2024 outlook. Turning now to strategic and operational highlights.

The growing demand for reliable high-speed data connections is ubiquitous in the remote and rural communities that we serve in the US and abroad. Through the execution of our First-to-Fiber and Glass & Steel investment strategies, we continue to enhance the quality, value, and longevity of ATN's fiber-rich digital network.

This is incredibly important for positioning ATN to better serve our customers, defend and grow our market share, improve the mix of our business, and maximize our growth opportunities over the long term.

As we move through the final year of our three-year investment cycle, we have begun to scale back the level of our investments with the goal of approaching more normalized CapEx spending levels by 2025.

Our focus now is on supporting further expansion with more moderate CapEx investments while aggressively pursuing US government-funded infrastructure programs to supplement our growth.

At the same time, our team is focused on harvesting the investments we have already made in our network to drive strong, sustainable recurring revenues, durable free cash flow, and enhanced shareholder value. We made notable progress with these efforts in Q2, as demonstrated by the growth we delivered across several key operational metrics.

High-speed data broadband customers is a key metric to drive higher-quality revenues and margins and ultimately helps us unlock the full potential of ATN's assets. In the second quarter, we increased the number of homes passed by high-speed broadband to more than 403,000, up 22% from a year ago.

We also saw continuous strength with our conversion of subscribers onto our high-speed network, with high-speed data subscribers increasing 141,000, up 9% compared with last year.

Regarding overall broadband subscribers, it is important to note that as we build out our next-generation network, we also are intentionally decommissioning older legacy network as we optimize our network footprint and technology. As a result, by design, we are seeing broadband subscriber churn on these legacy low-speed networks.

Now, taking a closer look at operational highlights by segment. Starting with our International Telecom segment, which represents about half of ATN's revenue, international sales increased 4%, adjusted EBITDA grew by $4.2 million as we benefited from positive shift in our mix and grew ARPU.

This includes growing several core high-value growth areas within the International Telecom segment. Notably, at the close of the second quarter, we grew gigabit-capable high-speed data homes passed by 2% year-over-year to 257,000 homes. In the same period, we grew international high-speed data broadband subscribers by 9%.

On the business side in Q2, we completed the launch of Brava, our new business solutions brand across our international markets.

We also once again grew revenue for International Business Solutions, which was up over 10% year-over-year, with international business mobility revenue growth of 40% year-over-year and international fixed business revenue growth approaching 9% year-over-year.

In international mobility, while overall revenue was relatively flat year-over-year and churn increased slightly, we made progress improving the quality of our subscriber base by converting customers to higher margin services. This is demonstrated by the increased business mobility revenue growth I just mentioned.

Additionally, we increased the number of prepaid and postpaid mobile data plans subscribers by 9% year-over-year. In Q1 and Q2, we deployed new 5G networks, and these favorable data adoption trends position ATN to maximize the returns on these investments into the future.

Finally, I want to note that the churn in mobility is primarily non-plan prepaid voice customers, which are our lowest ARPU and margin subscribers. Turning to our US Telecom segment, which accounts for the other half of ATN's revenue.

Our focus in the US remains on driving high-speed broadband uptake, supporting carrier transitions, leveraging grant funding, and expanding our enterprise business opportunities. Additionally, we continue to advance several important operational milestones within our US markets.

At the close of the second quarter, we increased broadband homes passed in the US by high-speed data by 85% year-over-year to more than 146,000 homes.

As expected, the Q2 impact of the Affordable Connectivity Program expiration was immaterial and we continue to expect the full-year impact from ACP to be minimal to ATN's revenue and net-neutral to our profitability.

The temporary headwinds from these government programs rolling off have been considered in our guidance, and our mitigation efforts are working to plan. Before turning the call to Carlos, I want to reiterate that our priorities for 2024 remain unchanged.

We are focused on leveraging our upgraded network assets and localized operations to convert high-value revenue opportunities while managing the business prudently to protect and grow margins.

As we complete the final year of our investment plan, we are bringing CapEx down, but continue to support targeted network expansions through a combination of internal and government grant funding. And we are prudently managing our balance sheet with the goal of lowering our leverage over time.

I want to extend my gratitude to the ATN team for their hard work and dedication, as well as to our customers and partners for their continued trust and support. We are confident in our ability to achieve our goals for 2024 and deliver sustainable growth for our shareholders over the long term. And with that, I'll hand the call over to you, Carlos..

Thank you, Brad. Good morning, everyone, and thanks for joining us today. As Brad highlighted, we're making progress in our efforts to leverage the investments we have made to grow revenues in key areas while also improving the operating efficiency of the business.

Our second quarter performance demonstrates progress against these objectives, and we remain committed to advancing these efforts moving forward. Let's review our second quarter financials. Total company revenue of $183.3 million was down 2% compared with the same period in 2023.

As anticipated, the step down in revenue occurred primarily due to the discontinuation of the Emergency Connectivity Fund program in early April. In the quarter, we were encouraged by a strong performance in our International Telecom segment, specifically high-speed data subscriber and fixed revenue growth.

Operating income in the second quarter was $24.3 million versus $2.4 million in Q2 of 2023. The increase was primarily due to a gain of $15.9 million on the sale of a non-core real estate asset in the International Telecom segment. SG&A expenses were lower across the operations, driven by our cost management efforts.

Additionally, lower depreciation and amortization expense contributed to the improvement. Net income was $9 million and $0.50 per share, reflecting the $15.9 million gain and operating expense reductions. This compares with the prior year's net income of $0.8 million and a loss of $0.03 per share.

Adjusted EBITDA for the second quarter was $48.7 million, up 6% from the year-ago period, reflecting lower operating expenses, which more than offset the decrease in revenue. Looking now at the segments’ performance, beginning with our International segment. Revenues increased 4% to $95.4 million.

Our International segment experienced strong year-over-year high-speed data subscriber growth, resulting from the network expansion efforts and technology investments of the past several quarters that contributed to the 4% increase in fixed revenues.

Higher revenue and the benefits of the restructuring efforts executed last year and in the first quarter led to a 14% year-over-year increase in adjusted EBITDA to $33.3 million. We expect to continue to benefit from the restructuring efforts throughout 2024.

In our Domestic segment, Q2 revenues were $87.9 million, down 7% year-over-year due to the expected discontinuation of the Emergency Connectivity Fund program, the de-emphasis of mobility, as well as the impact from the wind down of the Affordable Connectivity Program, which came in line with expectations.

Adjusted EBITDA for the Domestic segment was $21.9 million, down 4% compared with the prior year. Revenue-related headwinds were partially offset by a reduction in costs associated with the lower revenue, as well as the prior year restructuring and the benefit of more recently-initiated cost-management efforts.

Moving on to the balance sheet and cash flow highlights. We ended the quarter with a net debt-to-adjusted EBITDA ratio of 2.45 times on total debt outstanding of $541 million.

Net cash provided by operating activities for the first half of 2024 was $53.5 million, down from $60.3 million in the prior year period, driven primarily by an increase in interest expense associated with a higher level of debt versus prior year period. Turning now to capital expenditures.

CapEx during the first six months of the year totaled $61.8 million, net of $46.2 million of reimbursable capital expenditures. This compares to $89.5 million, net of $7 million in reimbursable capital expenditures in the prior year.

During Q2, we returned capital to our shareholders through $3.7 million in dividends and $9.9 million in share buybacks. Transitioning now to cost management and guidance. Looking at our margin improvement efforts, there are three areas of focus for ATN in 2024 and beyond.

The first is realizing the benefit from the cost-cutting programs that were rolled out late 2023 and in Q1 of this year. As mentioned, we had benefits in Q2 from these programs, and we expect to derive further benefits in the second half of the year.

The second area of opportunity is near-term cost management actions that our team has and will continue to pursue to better align our cost structure with the current operating environment. We believe these efforts will yield continued savings throughout the year, which are reflected in our guidance.

In parallel, we also continue to shift our strategy for the third area of opportunity, which is longer-term operational efficiency. Here, we are identifying structural operational opportunities to further streamline costs and drive lasting margin improvement in 2025 and beyond.

Our team has made good progress in identifying opportunities, and we continue to finalize our plans in this area. We look forward to sharing more detail in the coming months. With that, let's move to our 2024 guidance.

Today, we are reaffirming our full year 2024 outlook given our Q2 results and the progress made on our efforts to grow profitable revenue streams and advance our margin improvement opportunities.

We continue to expect revenues in the range of $730 million to $750 million for the full year, adjusted EBITDA in the range of $190 million to $200 million for the full year, capital expenditures in the range of $100 million to $110 million, net of reimbursed amounts.

And lastly, we continue to expect to exit the year with a net debt ratio of 2.25 times to 2.5 times. We continue to monitor the net debt ratio as it could move above the range in the short term due to working capital needs driven by the timing of reimbursements. Our objective remains to bring down leverage closer to 2x over the medium term.

In closing, our focused execution on strategic initiatives is driving improved performance. We expect to deliver on our 2024 outlook and continue executing our strategy, providing a solid foundation for future growth. Thank you for your attention. I'll now hand the call back over to Brad..

Thanks, Carlos. We believe we have the right strategy in place to achieve our outlook for 2024 and position ATN to deliver exceptional value for our shareholders, employees, customers, partners, and local communities for years to come.

Our enhanced footprint, talented team, and commitment to our mission position us to provide critical connectivity to our customers, grow in our markets, and deliver profitable growth, cash flow expansion and value creation for our shareholders. With that, operator, I'd like to open it up for questions..

[Operator Instructions] And our first question comes from Rick Prentiss of Raymond James. Your line is open..

Good morning, everyone..

Good morning, Rick..

Hey, a couple of questions. The 6 -- sorry -- the $16 million asset sale, I think, you mentioned was international real estate, non-strategic.

What type of real estate was that? Are we talking towers? Is it buildings? And are there other non-core assets that you're thinking you could monetize?.

Yeah. So, Rick, that was really a piece of property. It's an undeveloped piece of land. So to give you some context on the asset. Look, we're always routinely looking at our asset portfolio to maximize shareholder value. So that's something that we're consistently doing. This process had been in place for multiple quarters. So hopefully that's helpful..

Yes, it is.

And did the asset sale help inform the $10 million stock buyback? Or how should we think about why stock buyback was so high, maybe the stock price? But also kind of what you're thinking of the pacing going forward on shareholder returns from the stock buyback standpoint?.

I guess -- so, Rick, this is Carlos. So the two processes were not necessarily connected. The real estate sale was a process that had been going on for several quarters. So it was just -- it came to fruition at the beginning of the quarter. So that's how those two things happened.

And the share buyback program had been instituted also independently of that real estate sale..

And remind us of what's left on the authorized program and how you're thinking about pacing that given the leverage targets?.

So there's another $15 million. But at this point, I don't have anything else to comment on..

Okay. That's fine. And obviously, the CapEx is net of reimbursement. The revenue is absent construction.

How much construction revenue is there left to go this year as we look into the future years?.

So, it will continue to be a component, Rick. So it's something that -- we still have some programs to finish off that will be a continuation. But we expect it not to be at the same scale that it has been. But we are -- we definitely will continue to see some construction revenue throughout the year..

Yeah, I think -- yeah, I would say like it's -- as you know, the margin on that is not impacting -- cash is minimum. I think we see it around like $5 million. But anyway, I hope that helps..

It does, it does. And as you think about private multiples and public multiples, we've seen recently, obviously, T-Mobile work with a infrastructure company, EQT, and get involved in Lumos. We've seen T-Mobile get involved with private equity company KKR Infrastructure and take a big stake in Metronet.

As you look at the private world out there, any updated thoughts to possibly joint venturing? Because private multiples still seem like they're well above public multiples..

So Rick, yeah, we think the activity you just mentioned is something that really is aligned with the strategy we have in Glass & Steel. So those larger mobile providers buying into fiber companies is something, again, very much aligned and backs up what we have been doing with our First-to-Fiber and Glass & Steel in our operations.

Look, our -- I'm not going to comment on where we are in processes. Our Board routinely considers strategic opportunities. And we're always looking at what are the best opportunities for our shareholders. And we are -- we certainly see those type of moves as something that can confirm that we have the right strategy.

We're very confident in our strategy to generate continued shareholder value..

Okay. Maybe just a little broader strategic thought of, we've seen convergence kind of wireless with fiber broadband be higher in Europe. It seems to be happening in the US.

But maybe just a little strategic thought on where do you think the US is in this process and how can it play forward?.

Yeah. So look -- I mean, we certainly follow those trends, and you're certainly seeing the cable operators with some success delivering mobility solutions. We do this in our international markets as well where we offer mobile. So again, we see those trends as something that are providing value in certain areas.

But it really depends on your go-to-market strategy and the customer base that you can address. We will say -- and our rural markets are a bit distinct from some of the markets that some of the competitors and some of those cable operators I just mentioned are operating in.

So we see there's value there and we see that trend as something that we're watching closely and something we're actually taking advantage of in some of our markets..

Great. Thanks so much..

[Operator Instructions] And our next question comes from Hamed Khorsand of BWS Financial. Your line is open..

Hey, good morning.

So first off, on the international side with the high-speed data customer gains, is that a function of the economies being stronger in your international markets? Could you just talk about that a little bit more of why the consumer is gravitating to that service?.

Yes, Hamed -- so it's a mix. We operate in markets where there is pretty strong economic tailwinds, in Guyana, for example, with the oil discoveries there.

But a lot of it is really based on the demand, the investments that we've made and the strategy that we've taken to be First-to-Fiber, to lead with great solutions for the consumer and enterprise in these markets. And we are ahead in that strategy in most of our markets, and we're leading on that fixed line deployment in these markets.

So it's a combination of two. There are some economic tailwinds, but generally it's us really being able to execute on having the right infrastructure in place to meet the market needs. But the demand for great broadband service is absolutely ubiquitous.

I mean, it really is something that does change lives when you can bring a great gigabit capacity broadband solution to the homes of these markets..

Okay.

And then on the US front, from a Q1 comparison standpoint, was the entire revenue decline related to the ECF program?.

I believe, Hamed, that the majority of it was driven by that. It was -- we've signaled -- it was around like over $25 million of revenues on an annualized basis, and that ended early Q2. I think it was like $27 million, $28 million on an annualized basis. So….

Okay.

So if I map that out, I mean, there was -- the underpinnings in the US market was actually better since it declined to only $1 million or so, right?.

Yeah. Net of that ECF program, there was growth in our enterprise space, Hamed, in that market. So that was a significant contributor to revenue performance..

Okay.

My last question was, is there any more cost savings you could take advantage of?.

Excuse me. I couldn't hear you, Hamed. Sorry..

From cost savings, is there more that you could take advantage of? More cost cuts to come?.

Look, I think when you look at our guidance and you compare the numbers on the first half and the expectations for the second half, you can see that the incremental impact of these efforts reflected in the margin improvement..

Okay. All right. Thank you..

Thank you. Our last question comes from Greg Burns of Sidoti. Your line is open..

Good morning.

The churn that you mentioned in the US from decommissioning some of your older networks, how many more quarters do you foresee that being a headwind? And when we look at the broader growth in your ability to monetize the broadband investments in the US, could you just talk about maybe some of the initiatives or programs you have in place to drive increased customer adoption in that market?.

Yeah, good morning, Greg. So yeah, so the churn, as I mentioned in my prepared remarks, is impacted by some of the intentional new overbuilds that we're doing with our new network deployments and new technologies. And there are areas where we are rationalizing the network. So we're overbuilding in certain areas, in other areas we're not.

So where it makes business sense, we may be decommissioning network. And that is a headwind we do expect to see for another couple of quarters. There was a minimal impact from ACP in Q2. We do expect that to be a little bit more significant in Q3, as many other telecom operators do as well. So that is something that we're watching closely as we talk.

It's in our guidance. And we are actually performing to our expectations on ACP. So -- but look, it's something that we are -- we have -- and you can see from the stats that we have published, we've got opportunity to penetrate the networks that we have been building.

And that's really where we see the counterpoint to some of the churn on the legacy technologies. And the churn is really on legacy technologies, DSL and some legacy fixed wireless broadband..

Are there any maybe forward-looking metrics like funnel or anything you could share with us that maybe gives you confidence in the opportunity or the potential growth over the next year or so from the broadband business in the US?.

So look, we are -- our forward guidance here we think is appropriate. We don't share funnel specifics. But look, we are definitely encouraged about leveraging the assets we've built. There is certainly opportunity to expand in both major segments, consumer and enterprise, in the markets that we serve.

So again, the investments that we have made and are continuing to make are something that give us confidence in that. And one point that maybe is useful, we are starting to see a pickup in reimbursable CapEx programs. These are really the government-funded programs.

And as we say in our -- as we stated in our earnings release, we have about $46 million of net reimbursable, which is up significantly year-over-year. So we're starting to see these grant programs that we've discussed and government-funded reimbursable programs starting to make significant contribution to our overall capital profile.

And that is an opportunity for us to continue to expand into the future..

Okay. Great.

And then internationally, on the wireless side, is growth there going to be coming more from ARPU expansion and subscriber growth going forward?.

Yeah. So look, it will be a mix of both. And we have -- we're pleased with the data adoption movements that we're seeing in the market. That is something that's been very intentional. We've upgraded our networks in those markets. We made investments that can take and leverage and support those trends for a significant period of time.

So -- but this is exactly what we want to do, is get higher quality revenue streams. And those prepaid and postpaid plan subscriber growth numbers are evidence of that. That's a good trend. The churn numbers on the aggregate subscriber counts that we published really are prepaid voice only. So minutes of use.

These are very low ARPU and overall very low revenue subscribers..

Okay. Thank you..

Thank you. This concludes the question-and-answer session. I would like to turn it back to Brad Martin for closing remarks..

Well, thank you, everyone, for joining today. We look forward to speaking with many of you in the months ahead. So thank you again for your time, and we'll talk soon..

This concludes today's conference call. Thank you for participating and you may now disconnect..