ATN International, Inc.

Good day and thank you for standing by. Welcome to the ATM International Q2 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining us on our call to review our second quarter 2021 results and to discuss our recent lab and communications acquisitions. With me here is Michael Pryor, ABTN's Chief Executive Officer. During this call, I'll cover the relevant financial information, and Michael, as usual, will provide an update on business and outlook. Before I turn the call over to Michael for his comments, I'd like to point out that this call and our press release contain forward-looking statements concerning our current expectations, objectives, and underlying assumptions regarding our future operating results. and 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 one-gap financial measures. For detail on these measures and reconciliations to comparable gap measures and to 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 8K filing provided to the SEC. I should also note that SEC filings for Alaska Communications up through the first quarter of 2021 can be found on the website at ALSK.com. And now we're still finalizing the business and personal purchase accounting and expect to file our 8K aid that will include the performance of financial results around the end of September. And with that, I'll turn the call over to Michael.

Thank you, Justin. We were pleased to close the acquisition of Alaska Communications last week, more or less on the timeline we expected. As we have discussed on previous calls, we are excited about both the near and long-term opportunities here and think this is an excellent fit for our operating portfolio. and extension of our core business strategy, which is building and operating critical communications infrastructure into more remote and challenging markets where we can maintain a long-term competitive advantage. I will provide more thoughts on this addition shortly. Otherwise, our existing business has performed well overall for the quarter with solid revenue growth led by growth and approval additions. We did, of course, experience higher year-on-year expenses against an extraordinarily low second quarter last year, when many expenses were immediately reduced or mitigated by government action. Added to that were expense increases in several categories, including regulatory, and some unusual expenses, which we don't expect to continue into the current quarter, including a legal rule. So I'll turn back to Alaska. For the past Two years, this business has had good success growing its business and wholesale revenue, which now represents more than two-thirds of revenue, and much of that is under multi-year contracts. We expect that strategy and success to continue as we leverage fiber facilities built on an anchor tenant return model and look for opportunities to generate incremental cash flows on those facilities at the same time as we continue to pursue additional strategic builds. We're also exploring opportunities to refine and accelerate their business strategy. These include taking advantage of recent fiber mills in the Pacific Northwest, an MDU business, and providing resources to better pursue public-private partnerships, managed services, and private network opportunities. And we'll speak more about that in coming quarters. In the meantime, I want to officially welcome the Alaska employees into the ATN family. Our teams have been off to a fast and productive start, and I am grateful for the very positive and forward-looking attitudes of all concerned. I also want to thank the internal teams who got the deal done and are still working on the details of integration. Our financing partners, Freedom 3 Capital and the bank led by Fifth Third Bank Corp, as well as our financial and legal advisors, who are all critical to getting this done and will be just as critical moving forward. Thank you all. So we will include Alaska in our U.S. telecom segment, which going forward will account for roughly half of AT&T's consolidated revenues. In the third quarter, a little over two months of results will be included in our consolidated results. And Justin will have some more details on the balance sheet impacts as well in a few minutes. So sticking with the domestic businesses for now, our existing U.S. telecom business has a similar quarter to the first quarter this year with EBITDA at almost exactly the same level. The inputs are similar as well. The first step build continues on schedule, and construction revenue for that build is still more than offset by construction expense, as expected. Spending on the developing product and networks business also has continued at a similar pace to the previous quarter, and Justin will provide some numbers on that. As we alluded to in the release, after reviewing the direction of progress of the underlying businesses in this segment, we concluded that While there are some important common operational resources, our rural business under the umbrella of common rural networks and our private network business, GeoVerse, would be better served with a more formal separation, similar to how we pursue different markets in our international telecom segment. The businesses are distinct, and the customers they are pursuing and services they are offering have different attributes. Further, we see some interesting opportunities for both organic and strategic expansion And we may want to utilize strategic or financial partners to pursue those, particularly on the private network side. As to rural networks, we're pursuing a five or four strategy of connecting rural communities. We are looking to utilize a combination of carrier wholesale customers, enterprise customers, and government incentives to connect each community. And then we look to serve the full scope of the market's communications needs directly or through local partners. As an example of that, we expect to complete two middle-mile fiber builds in northern Arizona in the current quarter. Nearly all of the construction cost is covered by government incentive payments to build into educational sites and provide high-speed data services. We are augmenting that build and expect to provide back-loaded wireless towers, data services to enterprise customers, and wholesale transport services to some local broadband providers. The business is looking to execute on more of this sort of arrangement to connect rural communities out west. In addition, our rural broadband revenue in these markets is growing, roughly 10% higher for the first six months of the year, and we think there's room to grow selectively from here with network improvements and expansion. But our focus for now is on the enterprise and wholesale side. Moving to international telecoms, Broadband growth was more central to the story in international telecom. Subscribers increased by 6% year-on-year. While some of the largest builds are behind us, we are continuing to invest in expansion of the reach of our fiber-based networks and in our overall capacity and quality. We see plenty of additional opportunity for residential subscribers and enterprise revenue with our fixed data services while maintaining low levels of churn. Relevant to that, there are two developments worth noting in the Canada market. One, the government showed an innovative and forward-looking approach in removing VAT charges from broadband services. They are focused on getting people connected for learning, for business activity, and for general quality of life. Second, another sign of a change in Canada, we have landed contracts to provide substantial fiber facilities, and advanced mobile services, including private LTE to oil and gas customers. And we expect that to continue to grow. International telecom segment mobile subscriber levels also continue to grow, continuing to trend a year ago as a result of a number of measures our teams undertook to improve our competitive positioning in select markets. Year-on-year, we saw a 16% increase in overall subscriber levels. similar rates have increased on the prepaid and postpaid side. Video subscribers on the IMF continue to decline and voice subscribers remain steady. Expenses were high for this segment for the second quarter in a row. As explained in our release, some of that was in the realm of one-time costs and some of it was increased for regulatory and other expense. Outside the one-time items, there are no quick fixes. but we will continue to improve operating efficiencies to manage expenses down where we can. In many areas, revenue opportunities related to the network expansions I referenced are a higher priority. We've been asked on previous calls about the impact and timing of the pandemic recovery. As an update, I note that most of our international markets are still feeling economic pain from very limited travel into and out of the market. We are encouraged by the pickup and leisure travel and are hopeful that the next 12 months will look better than the past 12 months in that standpoint. To recap and to provide a little bit of a higher-level perspective following this major transaction, more than three-quarters of our revenue is monthly recurring. It arrives through the operation of a collection of domestic and international communications services companies operating in smaller and typically more remote markets. and that in each case have substantial network infrastructure, a strong and extensive track record in markets, as either the first or second leading provider of the relevant services and infrastructure, and good momentum around their core service offerings. We believe we can continue to expand in these markets and live markets. The remainder of our business, which is domestic, is comprised of a small but growing rural fiber and broadband business that has similar attributes, to those more geographically distinct markets, a wholesale wireless business engaged in multiyear restructuring, and an emerging private network business. We are working to create digital value and a clear story around those latter assets. For now, if we simply annualize the first half performance for both ATN and Alaska, ATN would have annual revenues of about $740 million, with the vast majority derived from recurring and contracted resources, and adjusted EBITDA of about $160 million. We believe that is a great platform on which to create value. And with that, I'll turn it over to Justin, but I'll just note that we are hearing feedback that says the call quality has been a little rough. We're going to continue, but we hope you can hear us well enough to understand. We need to repeat, we will, so...