ATN International, Inc.

Good day and thank you for standing by. Welcome to the ATN International Q1 2025 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. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michelle Citrowski, Head of Investor Relations and Treasurer. Please go ahead.

Thank you, Operator, and good morning, everyone. I'm joined today by Brad Martin, APN's Chief Executive Officer, and Carlos Doglioli, APN's Chief Financial Officer. This morning, we'll be reviewing our first quarter 2025 results in reaffirming our 2025 outlook. As a reminder, we announced our 2025 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 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 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 ir.atni.com or the 8 filing provided to the SEC. Before handing the call back to Brad, I'd like to note that moving forward and in line with common practice, we plan to shift the timing of our earnings release and calls by approximately one week. The adjustment is intended to better align with the timing of our 10 filing. With that, I'll hand the call over to Brad.

Thank you, Michelle. Good morning, everyone, and thank you for joining us. I'd like to start by recognizing our teams across ATN for their continued commitment and execution. In the face of industry-wide shifts and macroeconomic uncertainty, we've remained focused on what we can control, operational performance, discipline investment, and our long-term strategy. Our Q1 results reflect that discipline. As expected, our top line revenue declined year over year, largely due to the wind down of COVID-era government subsidy programs in the U.S. markets. We delivered 2% adjusted EBITDA growth, and cash from operations increased 55% to $35.9 million. These outcomes demonstrate early progress as we start the year and execute against our strategy. The strategic capital investments we've made over the past three years are delivering tangible returns. In the first quarter, we expanded the number of broadband homes passed by high-speed data services to 427,000 households, an increase of 11% year-on-year, and grew our high-speed subscriber base by 2% year-on-year. We remain confident in our long-term vision, leveraging our fiber and digital infrastructure to deliver high-value services, especially in markets where connectivity is both underbuilt and essential. And that vision is supported by a financial foundation that continues to strengthen. Let me take a moment to highlight key themes from the quarter. In our international segment, we saw improved operating efficiency resulting in an 11% increase year-on-year in adjusted EBITDA. Demand for high-speed broadband and business services remained steady. Increases in post-paid mobile subscribers and mobile data consumption continue to drive improvements in ARPU. The segment remains a strong contributor to our financial performance and a framework for how we are positioning our U.S. business over time. Domestically, while revenue declined as expected, we remain focused on executing our strategic shift. Our goal is clear. Grow our base of fiber and fiber-fed business and carrier solutions as we transition legacy consumer services towards fiber and fiber-fed broadband solutions. We are aligning our network go-to-market strategy, and capital deployment with its long-term focus. While the near-term transition creates revenue pressure, we are building a more resilient and higher margin business for the future. Importantly, we are advancing approximately $370 million in government-funded broadband infrastructure projects. Over half of these projects are expected to be completed in 2025. These programs are essential to our longer-term U.S. growth strategy. enable us to expand our fiber footprint with reduced capital intensity and provide long-term upside as projects come online and begin to generate revenue in the first quarter we submitted additional applications under the bead program in the u.s southwest reinforcing our commitment to expanding broadband access in historically underserved regions these efforts are a natural extension of our mission to connect people communities, and businesses with the infrastructure that enables opportunity. We also made strong progress on cash generation Q1, reflecting disciplined cost controls and focused capital allocation. We are encouraged by these early results, and we are reaffirming our annual guidance as previously outlined on our Q4 earnings call. Looking ahead to the rest of 2025, our priorities remain unchanged. continue expanding high-speed broadband and business services in our international markets while improving margin and capital efficiency, stabilize and reposition our U.S. business around sustainable fiber and fiber-fed revenue streams, and maintain a strong financial position to discipline capital allocation and a focus on cash flow growth. On the broader policy front, we're also monitoring recent developments around trade and tariffs. While we do not source devices or equipment at the same scale as large national carriers, any sustained increase in tariffs on network infrastructure, including fiber-related components and electronics, could introduce cost pressure over time. That said, based on our current supply chain visibility and the fact that half of our revenue in our largest consumer markets are outside of the United States and not immediately impacted, we believe we can manage any near-term impact within our existing 2025 financial outlook. We will continue working closely with our vendors and partners to mitigate cost volatility and ensure continuity of service delivery. While we recognize that the operating environment remains dynamic from policy shifts to competitive intensity, we believe we're executing the right strategy for the long term. Our focus is on monetization, operational leverage, and value creation. Carlos will take you through the numbers, but I want to reiterate, we are making steady progress, we are focused on our goals, and we remain confident in ATN's future. With that, I'll turn it over to Carlos.

Thank you, Brad. Good morning, everyone, and thanks for joining us. Today, I'll walk through our first quarter financial results and our outlook for the remainder of 2025. As Brad mentioned, we enter the year focused on executing with discipline, and our Q1 results reflect early signs of progress, particularly in terms of cash flow and operational efficiency. While the macro environment remains challenging, especially in our domestic markets, we believe the strategic actions taken in recent quarters, along with the benefits of our investment cycle, have strengthened our ability to serve our customers, support durable revenue generation, and drive margin expansion. With that, let's now review our P&L results for the first quarter in more detail. Total company revenue for the quarter was $179.3 million, down 4% year over year. As expected, this decline reflects the wind down of the Emergency Connectivity Fund and Affordable Care Program. Operating income for the quarter decreased to 2.7 million as cost management actions and ongoing efficiency efforts across the business were offset by increases in transaction related expenses, losses on asset transfers and restructuring and reorganization expenses. Net loss for the first quarter was 8.9 million or 69 cents per share. This compares with the prior year's net loss of 6.3 million and 50 cents per share as the factors influencing operating income similarly impacted net loss for the period. Adjusted EBITDA was $44.3 million, up 2% from the prior year, supported by continued growth and margin expansion in our international segment, partially offset by the anticipated decline in our U.S. segment. Looking now at the segment's performance. Beginning with our international segment, Q1 revenues increased to 94.5 million from 93.1 million in the first quarter of the previous year, driven partially by carrier services growth. Adjusted EBITDA for the international segment increased to 32.4 million for the quarter, compared to 29.3 million in the same period last year. Cost containment efforts and operational improvements contributed to the quarter's performance. In our domestic segment, first quarter revenues were $84.8 million, down 9.5% year over year. As previously mentioned, revenue was impacted by the conclusion of the ECF and ACP programs. The lower revenue led to a decrease in adjusted EBITDA to $17.5 million, down 15.4% compared with the same quarter last year. Moving on to the balance sheet and cash flow highlights. We ended the quarter with $97.3 million in cash, up from $89.2 million at year end. Total debt stood at $562.4 million, and our net debt ratio was 2.52 times. Net cash provided by operating activities increased 55% year-over-year to $35.9 million, driven by working capital management efforts. Capital expenditures in Q1 totaled 20.8 million, net of 22.4 million in reimbursable capital spending. This compares to 36 million in CapEx and 13.5 million in reimbursable in the prior year's quarter. This reduction in expenditures reflects the shift in our framework to increase operational cash flow supplemented by available grant funding. We return capital to our shareholders through $3.6 million in dividends during the first quarter of 2025. With that, let's move to our outlook for 2025. We are reaffirming the outlook for 2025 that we provided in our fourth quarter release. We continue to expect revenue for the year to be in line with 2024, excluding construction revenue. Adjusted EBITDA to be essentially flat with last year. Net capital expenditures between 90 and 100 million. Net debt ratio to remain flat to year end 2024 with a slight potential improvement exiting the year. As we look ahead to the balance of the year, we continue to expect the second half to contribute a larger share of full year results. This reflects the timing of revenue stabilization efforts in the U.S. segment and the continued ramp up in our international markets. As part of our continued cost containment initiatives, we anticipate incurring further reorganization and restructuring expenses in the second quarter. In summary, we're executing on a clear set of priorities, improving cash flow, transitioning our U.S. business, and leveraging the strategic capital investments we've made in recent years. While we're not immune to broader market headwinds, We believe our strategy is sound, our balance sheet is strong, and we remain committed to delivering long-term value for shareholders. Thank you, and now I'll hand the call back over to Brad.

Thanks, Carlos. Before we open the call for questions, I want to leave you with a clear message. We are focused on execution, committed to financial discipline, and confident in the strategy we've put in place. This is a year of transition, and we're beginning to see encouraging signs. improved cash flow, progress on our grant-funded bills, and consistent performance internationally. Our long-term goal remains the same, to create a stronger, more efficient, and more resilient ATN. With that, operator, we'd like to open it up for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by. We will compile the Q&A roster. Our first question comes from the line of Rick Prentice of Raymond James & Associates. Your line is now open.

Thanks. Good morning, everybody.

Good morning, Rick.

Good morning, Rick. Hey. Appreciate the comments on, you know, monitoring trade and tariffs, and it feels like your supply chains are good for this year. How much of the – we obviously have talked to a lot of the big telcos AT&T and Verizon reported last week, and they felt that they were pretty insulated from it because a lot of the electronic components are smaller compared. Do you buy your fiber from outside the United States, or is it really just more of the electronic side that you're exposed to?

So, Rick, so we have a lot of our construction materials or fiber construction are sourced in the U.S., and – That's part of the reason we've looked at our build of materials for our build for 2025 and understand the dynamics and quite a significant portion of that is sourced locally. So the electronics and the variations of where those electronics are coming from, whether it be China, Taiwan, Thailand, Vietnam, from the major vendors like Cisco and others, are something we're watching closely. There are a lot of projects in place now that purchase orders have already been built, issued, and those are really immune. We have major programs that are dependent upon vendors like Ericsson with a lot of manufacturing going to Mexico that are exempt, the USMCA exemption. So it's dynamic, as we all know, and we're watching it very closely. But a really important dynamic for us is that our largest consumer markets with handsets that have a lot of manufacturing in China are all in our international markets. So those are generally exempt from these tariffs. So anyway, like we said in prepared remarks, we're planning that 2025 we're going to be able to absorb any variations that we see within our guidance.

And then remind us, because obviously trade and tariffs have impacted interest rates. They've impacted FX rates. Remind us how the U.S. dollar, being a U.S. reporting company, what kind of FX exposure do you have in your international markets when you bring it back to U.S.? ?

So Rick, this is Carlos. So the majority of the markets where we operate internationally are pegged to the dollars. I think in Guyana, we haven't seen any significant fluctuation so far, probably even the fact that right now they're being able to kind of be exporting a significant amount of oil out of the market. So that allows them to have a little bit of a buffer there. So we haven't seen yet any significant impact from that front.

Okay, good. And obviously, we're seeing a lot of roll-ups of fiber companies and private multiples being higher than public multiples. How are you viewing the marketplace as far as that private versus public multiples and some of the roll-ups that might be occurring?

Yeah, so we are watching those dynamics too, Rick. And ultimately, you know, it is a vibrant market and there are a lot of players that are performing well in the fiber space. There are players that have got some headwinds. But look, we recognize that dynamic and that's something that we're always trying to understand how we can best unlock value for our investors.

Okay. And the last one for me, you mentioned some of the government funding. Is that something that's going to find its way through kind of gross capex, reimbursement net capex? Is that something that's going to find its way onto the revenue in the shorter term versus the longer term? Help us understand that $370 million of government funding, with half of it in 2025, how you think that might play into your financials.

Yeah. So, I mean, just to clarify a couple of points on that. So, of the $370, about half of the projects will be complete or expect to be complete this year. And to clarify, we had many of those projects going on even in 2024 under the construction debate. So our reimbursable CapEx as of last, for 2024, was around 108 million, I believe, for the year. This, if you see, you know, similar ratios, we have quite a bit of reimbursable this year as well. So those programs, Rick, really, there are some programs that will be going live in mid to late Q3. We will see some revenue, but that's in our plan right now. The significant monetization of those is going to be in our out years, 26, 27, where we see the larger benefits of the monetization. And to be clear, $370 million, a significant portion of that are some very large subsea remote regional fiber projects in Alaska. So obviously these would not get built without these subsidies. So they are definitely opening up opportunities, but there's not an equivalency of the size of the grant to the size of the economic value. But those will certainly be something we'll be taking advantage of here in 26. They'll provide more visibility when we guide to that next year.

Thanks. Thank you. Our next question comes from the line of Greg Burns of Sedoti. Your line is now open.

Good morning. Just to follow up on the government grant funding, you mentioned the $370 million that you've won already, but you also, I guess, mentioned some bids you have in under the B program. Can you just talk about the relative size of what the opportunity is there?

Yeah, so BEAD is something that we are participating in the Southwest, as we mentioned. The dynamics with BEAD, Greg, are obviously fluid. So there are dynamics with NTIA and the funding mechanisms that need to be effectively passed through. There is a commerce memo that's scheduled for May 15th that we're watching closely that is going to clarify some of the dynamics of the administration around So the general theme we're seeing is there are delays. Most states are delaying the award timing or even the submission timing. One dynamic that we are seeing which is positive is that the basic financial and technical requirements for the programs are going unchanged. So that allows us to leverage the work we've done around planning for those projects. But at a high level, Of the six states we operate, there's four billion approximately of BEAD funding that is effectively provisioned for those states. So we obviously won't participate in all of that. But in areas, our view, Greg, is we're going to look at it very strategically, where it can build on to strategic network footprint that we have today, where we have good distribution and middle-mile network. Because remember, many states, this is really to connect the end users. So it's really a fiber to the home preference. Some states do allow for middle-mile reimbursement. So we're trying to take advantage of that where that is possible. And like-kind exchanges is another important dynamic, which offsets the match and the capital intensity for ATMs. So we're looking at all the variations. We do expect we'll be learning more about the grants that we've submitted here in the coming months. And it'll be an important dynamic for our continued investment in fiber. But the dynamics right now are watching this memo coming out in the 15th from Commerce that will likely help the states finalize timing of their final submissions and awards.

All right, great. Thanks for that. And then just Leslie, in terms of monetizing the investments, the organic investments you've already made over the last couple of years, can you just talk about, maybe give us an update on some of the changes you're making in terms of leadership processes to improve your sales motion? And are you seeing any maybe green shoots or progress in terms of those monetization efforts?

Yeah, so as we've talked, we've got two new leadership teams in our two U.S. markets, and really that started here in Q1. And look, we're encouraged by some early progress. Obviously, new leadership brings a new focus. But one of the key themes we are seeing is that there is a growing carrier demand for access and transport in the markets that we offer. That's a very good sign. one of the key services we provide in the U.S. markets. So that's a very positive dynamic that we continue to maximize for the business. But that is a growing pipeline. We have had a more successful USAC season this year. So these are programs that renew every one to two years, and that season is in Q1. We did better this year. Those will be projects built and will start to monetize in the second half of this year. Again, all built into our current forecast. But again, a little bit better performance there, which is encouraging. But the teams are taking a focus. I think that's one of the really important areas, really renewed focus on how we're approaching this conversion of legacy technologies to remind folks we exited our retail mobile operations, which is a pretty long process, but that was effective as of effectively 1st of January. And we have legacy broadband DSLs and legacy fixed wireless that we're looking to convert to fiber or fiber fed fixed wireless. And we are making some progress. It's still a relatively smaller component of the revenue streams for our U.S. markets, but we are encouraged by some of that progress. And internationally, we continue to unlock the leverage of the investments that we've made. We've seen some good improved performance in inbound roaming. That's based upon the improvements we've made with data capacity in our 5G networks. So that's, again, a good progress sign we've seen here in Q1, and we still see significant data demand and data plan growth in our largest mobile market in Guyana, which is, again, another positive sign which is impacting our groups.

All right, great. Thank you. Thank you. For our next question, we will come back. We're at Prentice with Raymond James and Associates. Your line is now open.

Hey, thanks for the opportunity for follow-up. Back on the BEAD funding, a follow-up on the previous question. What are you hearing as far as NTIA confirmation, and will that slow anything down, or can Congress just move forward and then NTIA will kind of implement it? But how is the NTIA leadership transition affecting it?

There's a lot going on. I mean, there are several bills right now, Rick, as you know, that are in front of Congress that relate to a lot of different topics. I think a couple went through the House just this week. So there's everything from spectrum authority to some of the newer rules around the NTIA B program. So look, the primary impact we're seeing right now is the delay in the B program. Effectively, all of the subsidy programs we participate in and reimbursable CapEx programs, all of that has been on time and as expected here in Q1. So that is all moving as expected, and we don't foresee any impact on the service subsidy programs like CAF or reimbursable programs that we've already won. But BEAD is the primary, and we're watching that closely. There are states that are further ahead. that people are moving forward with some early builds. Our states have not yet granted any funds yet, so the fund flow is still something that is an important dynamic, and we expect that to be delayed, as you read in the press. So that's the primary dynamic, and the timing of those delays could impact the ability to monetize, you know, those B builds in which half of 26 or which half of 27. That's what we're watching closely to our outward forecasts.

Okay. And speaking of 26 and 27, I know too early to give official guidance, but how are you feeling about the prospects of being able to grow businesses? Obviously, you know, we were down from 23 to 24. We're flattish. from 24 to 25, what does it take to be able to get growth or could there be further declines then?

So some of the things I mentioned, Rick, are encouraging signs. So in our U.S. markets, and remind the primary dynamic for revenue shifts and EBITDA shift was the loss of this ECF program, this COVID-era funding program. So again, with that in mind, the fundamentals for carrier demand, again, remind you that our primary revenue streams in the U.S. markets where we had some of these headwinds are carrier business and wholesale. So the demand we're starting to see for the support of transport, and that's coming from the carrier success in areas where they're adding on effectively fixed wires or where they're seeing improved performance around fiber. We sell transport services and we sell obviously this carrier managed services, which are tower services. So we expect, as they are improving their footprint, we are going to continue to leverage our wholesale arrangements to see that growth. And again, the pipeline build is encouraging. On the consumer side in those markets, we are still in a transition, as we've talked, about legacy services to new fiber and fiber fed services. That was behind in 24. We are seeing some encouraging signs to relatively small base. But we are continually improving that footprint. Programs like the programs that we have underway now for grants, which include Fibers of the Home and Middle Mile, are all things that are going to help us monetize as we go forward. So we see in the U.S. the opportunity based on grants and based on carrier demand to can approve. But the effective demand for broadband is still there. pervasive, which is a great sign for our business. Our belief is if we can provide that broadband on durable assets, we've got a great business to run in the long term.

Okay. And then for Carlos, talk to us a little bit about the balance sheet. Obviously, rates are pouncing around, but how are you thinking about managing the interest costs, and particularly then as it affects the free cash flow?

Yeah, I think, Rick, we continue to work on improving margins and that way, you know, continue to work on delivering. So, you know, you can see that as part of the cost structure, how we've been moving it, lowering capex. So all those elements that we have been acting on from the beginning of, you know, actually from 2023 on, we believe are going to continue to help us to improve leverage, reduce our interest expenses, and then also provide improved capital allocation optionality.

And what time frame does that capital allocation changes look like? Is it able to show up in 26, or is it thinking it's 27?

I think, you know, we believe that we're going to continue to improve the position. You know, we think that if we continue to march towards that improving the margins, you know, as we go into 2026, you know, certainly there'll be more options for, you know, optionality for capital allocation.

Okay. Great. Thanks for the follow-ups. Thanks, Rick.

Okay. I am showing no further questions at this time. I would now like to turn it back to Brad Martin for closing remarks.

Thank you, operator. Thank you all for joining us today. We look forward to continuing our discussions with many of you in the coming months. Appreciate all your time and support. Have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.