Yahoo Finance ATN International, Inc. (NASDAQ:ATNI) Q1 2024 Earnings Call Transcript
ATN International, Inc. (NASDAQ:ATNI) Q1 2024 Earnings Call Transcript April 25, 2024
ATN International, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the ATN International Q1 2024 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 first speaker today, Michele Satrowsky, Corporate Treasurer and Head of Investors. Please go ahead.
Michele Satrowsky: 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 first quarter 2024 results and providing additional insights on the 2024 outlook. As a reminder, we announced our 2024 first 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 contain certain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operations. 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 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 atni.com or the 8-K filing provided to the SEC. And now, I'll turn the call over to Brad.
Brad Martin: Thank you, Michele. Good morning, everyone, and thank you for joining us. The ATN team remains focused on advancing our First-to-Fiber and Glass & Steel strategies to enhance our fiber-rich digital infrastructure and next-generation fixed wireless capability, positioning ATN to capture the growing demand for high-quality broadband in the remote and rural markets that we serve. Although we saw growth in key operational metrics year-over-year resulting from the strategy, our first quarter financial results were softer than expected. I'll begin by briefly covering the dynamics from our first quarter and a revised outlook for the year. Then, I'll outline our progress executing our strategy before turning the call over to Carlos to review our first quarter financials and revised 2024 guidance in more detail.
Starting with our first quarter results. Our first quarter revenue was up 1% and adjusted EBITDA was down 3% versus the prior year quarter. Our U.S. telecom segment performance was impacted by delays in major carrier services projects and weaker than expected business revenue. These dynamics impacted our domestic segment's first quarter results and full year outlook. The U.S. shortfall was partially offset by solid performance in our International segment where revenue and adjusted EBITDA grew 3% respectively, as we grew high-speed broadband services and business customer revenue. Today, we are lowering our guidance to reflect the softer-than-expected first quarter results as well as our current expectations for the balance of the year which has been impacted primarily by two factors.
First, while now we have line of sight to the U.S. carrier services projects moving ahead, the delayed delivery timing will result in some of the previously forecasted revenue moving out of 2024. Secondly, we secured fewer new business contracts for major government program in the first quarter. We expected a higher win rate and we expected these contracts would help offset the step down in the emergency connectivity fund program that expired at the end of the first quarter, as we have previously signaled. In response to these dynamics, we are sharpening our focus on managing operating and capital costs, which Carlos will speak to further in his remarks. Additionally, we are accelerating our efforts to bring in revenue opportunities in the second half of the year.
We built a strong sales pipeline and believe our expanded and upgraded network positions us to convert these opportunities. Additionally, we recently brought in several key leadership hires that add further telecom and operational expertise to the team. This includes several new operational leaders and new commercial leadership in our domestic markets. These talented additions further reinforce our ability to convert growth opportunities and efficiently operate our business. Now turning to strategic and operational updates. We remain focused on our First-to-Fiber and Glass & Steel strategies to strengthen ATN's market position and enable ATN to grow high-speed data subscribers, increase recurring revenues, expand free cash flow and deliver value creation for our shareholders for years to come.
The future of telecommunications is high speed data connections and gigabit cloud solutions, whether through fiber or fixed wireless. This is why for the past two years we have been investing in the enhancement of our high-speed networks reach and capabilities above historical CapEx levels. These investments have continued to yield growth across several key operational metrics. Notably, at the end of the first quarter, we've increased broadband homes passed by high-speed data by 28% and grew high-speed broadband customers by 12% when compared to a year ago period. We also continue to maintain high levels of customer retention. Replacing and decommissioning legacy copper networks with fiber networks remains a key strategy as well. Fiber's many advantages position ATN to deliver high margins over time.
We exited the first quarter with 1,692 fiber route miles, a 5% year-over-year increase. We also increased our fiber homes passed footprint by 19%. Now taking a closer look at operational highlights by segment. Starting with our International segment, which represents about half of ATN's revenue. Across this segment, we continue to see a rapid uptake of high-speed broadband with high-speed data subscriber growth of 11% year-over-year. Another bright spot and area that we have targeted for growth is revenue for international business which is up approximately 13% year-over-year. Turning to our U.S. segment, which accounts for the other half of ATN's revenue. In the U.S. we're focused on building out our digital infrastructure to support the evolving needs of our carrier customers, while also expanding our fiber network to bring fiber fed high-speed data services to underserved rural markets.
Although we experienced some delays in major carrier services projects in the first quarter, we continue to achieve several important operational milestones in our U.S. markets. At the close of the first quarter, we increased broadband homes passed by high-speed data by 75% year-over-year to over 131,000 homes. This expanded footprint represents an opportunity for ATN as we focus on leveraging our assets to increase the market penetration and grow our business. Moving on to an update on grant funding. In the U.S. grant funding remains key to our strategy. While no new grants were awarded in the first quarter, we continue working off past grants awarded. Since the start of 2023, ATN and our partners have secured a total of $91 million of grants and subsidy funding in the U.S. on top of the $155 million for the 2022 year.
These funds will support our continued expansion and customer and revenue growth even as the pace of our self-funded capital expenditures decrease as planned. Regarding BEAD, although some states have delayed their planning, we remain ready and well-positioned to compete for funding as opportunities come to fruition in our operating states. And finally, we want to comment on the Affordable Connectivity Program. Our exposure to ACP remains minimal at approximately 15,000 subscribers and we continue to action mitigation plans. Like others in the industry, we experienced earlier than anticipated shifts in customer purchasing decisions ahead of the program's expiration. The impact is expected to be minimal to ATN's revenue and net neutral on our profitability, dynamics that are reflected in our revised guidance.
Before turning the call over to Carlos, I want to reiterate our priorities for 2024, which include accelerating efforts to close incremental revenue opportunities in the pipeline that leverage our expanded and upgraded network; growing our high-speed network subscriber base and further expanding our fiber footprint through targeted internally funded investments, albeit at a reduced level; leveraging the grants we have already been awarded, while pursuing further economically viable grant funding to augment internal investments in the future; advancing margin improvement initiatives along with executing a broad range of cost reduction actions to align our cost structure and improve operating leverage. And finally, prudently managing our balance sheet with the goal of lowering our leverage over time.
And with that, I'll hand the call over to you, Carlos.
Carlos Doglioli: Thank you, Brad. Good morning, everyone. As Brad previewed, our first quarter results came in below our expectations. Given the first quarter's performance and our current assessment of market dynamics, we are focused on strengthening our business revenue pipeline and accelerating several cost reduction actions. Today, we're revising our full-year guidance, which I will expand upon in a moment. Turning now to a detailed review of our results, starting with the income statement. In Q1, total company revenue of $186.8 million was up 1% compared with the same period in 2023. Excluding construction revenues, service revenues were flat. There were several puts and takes in the quarter. Across the Company, we experienced growth in fixed revenues, which were partially offset by declines in mobility and carrier services revenue.
The primary offset to growth related to the delayed delivery of several carrier services projects and soft business revenues in our U.S. telecom segment. Operating income in the first quarter was $4.6 million versus $0.6 million in Q1 of 2023. The increase was due to lower restructuring expenses and reduced depreciation and amortization expenses compared with the prior year. Net loss in Q1 was $6.3 million for a loss of $0.50 per share, which included $1.2 million of restructuring expenses, a $2.5 million year-over-year increase in interest expense and $1.6 million in tax expenses versus a benefit in last year's first quarter. This compares with the prior year's net loss of $5.9 million for a loss of $0.44 per share, which included $2.9 million of restructuring expenses.
Adjusted EBITDA for the first quarter was $43.5 million, down 3% from the year-ago period, primarily due to a $1.3 million increase in cost of services. Looking now at the segment's performance. Beginning with our International segment, revenues reached $93.1 million at 3% year-over-year. Our International segment saw strong year-over-year high-speed data subscriber growth, resulting from our network upgrade and expansion efforts that drove increased fixed broadband revenues at 4%. This more than offset some softness in the voice portion of mobility revenues. Notably, we're seeing strong demand for data mobile subscriptions. Solid revenue growth and the benefits of the restructuring efforts taken in 2023 led to adjusted EBITDA of $29.3 million, an increase of 3% in the quarter.
We expect to see further benefits from the additional restructuring efforts taken in Q1 and other cost reduction efforts throughout 2024. In our domestic segment, as I mentioned earlier, Q1 revenues were $93.7 million, down 2% year-over-year, due to the late and carrier services project and slow business growth. Adjusted EBITDA for the domestic segment was $20.7 million, down 9% compared with the prior year. This was due to the lack of revenue growth and higher cost of services in the quarter. Moving on to the balance sheet and capital highlights. We ended the quarter with a net debt-to-adjusted EBITDA ratio of 2.5x, on total debt outstanding of $541 million. Net cash provided by operating activities in Q1 was $23.2 million, up from $16 million in the prior year period, driven primarily by improvement in working capital.
Our plan remains to strengthen our balance sheet and continue to expand cash flows. Moving now to capital expenditures. Q1 CapEx was $36 million, net of $13.5 million of reimbursable capital expenditures. This compares to $50.6 million, net of $2.1 million in reimbursable capital expenditures in the prior year quarter. For 2024, we are reducing our CapEx net guidance compared with our original expectations. I will elaborate further during my outlook discussion. In Q1, we returned capital to our shareholders through $3.7 million in dividends and $100,000 in repurchased shares. In completing the review of our results, I would like to expand further on our accelerated plan to capture additional cost savings in the year and better align our cost structure with our go-forward business needs.
In my short time here at ATN, I have been closely assessing our businesses with an eye on how we can improve our profit margins to better align with industry benchmarks and increase returns to shareholders. Bringing a fresh perspective to this analysis has allowed us to identify several opportunities for capturing additional cost savings, from leveraging further efficiencies with common suppliers to streamline impact. In light of current business dynamics, we are approaching this task with heightened urgency. While many changes will require careful planning and be implemented over time, we are preparing to take action as soon as operationally possible. It is our goal to start to derive benefits from some initiatives in the second half of 2024 and ensure our long-term financial success.
With that, I will move on to our review of 2024 guidance. Today, we're updating our full year 2024 outlook to reflect the impact of Q1 on our current expectations for the balance of the year. The Company now expects revenues in the range of $730 million to $750 million for the full year, down from our previous range of $750 million to $770 million. Adjusted EBITDA in the range of $190 million to $200 million for the full year, down from the previous range of $200 million to $208 million. Capital expenditures in the range of $100 million to $110 million, net of reimbursed amounts, down from the prior range of $110 million to $120 million, as we balance decrease in operating cash. And lastly, we now expect to exit the year with a net debt ratio of 2.25x to 2.5x, which compares to our prior target of 2.25x and 2.4x.
In the short term, we could see our net debt ratio move above that range due to working capital needs during the year driven by the timing of reimbursement. Our objective remains to bring down leverage closer to 2x over the medium term. Based on our current plan, we expect the cadence of adjusted EBITDA in 2024 to track closely with 2023, with over 50% of the adjusted EBITDA in the second half of the year. Finally, during my first few months with the Company, I have been able to meet with our shareholders and visit with members of the ATN team across our market. It's given me a great appreciation for what we make possible and the importance of our mission. We certainly have more work to do, but I'm confident that we're taking the access necessary to position ATN to optimize our growth opportunities and deliver sustained value for shareholders.
With that, I'll turn the call back over to Brian.
Brad Martin: Thanks, Carlos. We are committed to managing the business to deliver exceptional value to our shareholders, employees, customers, partners and local communities. There's work to be done in the quarters ahead, but the leadership team and the board believe that we have the right strategy, team and offerings in place to deliver on our plans for 2024. Our enhanced digital footprint offers many exciting possibilities for how we can more expansively serve our customers and deliver durable and profitable growth, cash flow expansion and value creation well into the future. With that, operator, we'd like to open up for questions.
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