Good day, and thank you for standing by. Welcome to the ATN International third quarter 2022 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. I would now like to hand the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer of the Company. Please go ahead, sir.

Great. Thank you, operator, and good morning, everyone. Today, we'll be reviewing our third quarter 2022 earnings results. With me here is Michael Prior, ATN's Chief Executive Officer. Michael will be providing an update on our business and strategy, as well as high-level overview of our quarterly results. I’ll cover the relevant financial information and provide additional color where necessary. As a reminder, we released our third quarter earnings press release last night after market close. Investors can find the release and summary slides for the call or 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 slides, contain 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 to 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 to the 8-K filing provided to the SEC. And I’ll now turn the call over to Michael for his prepared remarks.

All right. Thank you, Justin, and welcome, everyone. The third quarter of 2022 was another good quarter for ATN, one where we served our customers well, advanced our strategic broadband buildout, and made excellent progress toward our three-year growth objectives. For example, we grew the homes passed by our broadband networks to about 614,000 at the end of the quarter, which was 9% higher than a year ago. Of this amount, we added about 29,000 new homes passed by fiber or other higher speed solutions. Our ongoing network investments are also reflected in our subscriber levels. As of September 30, 2022, 54% of our 205,000 broadband subscribers were connected to our higher speed networks. That represents an increase of nearly 13% year-over-year. Other metrics we track as part of our three-year plan are also showing good progress. For example, we ended the quarter with 356,000 mobile subscribers in our international segment, up about 9.5% from a year ago, as a result of our sales and marketing efforts and investments. Both in the Caribbean and in the US, most of our expansion work is in markets that we believe will continue to benefit from growing demand and positive secular tailwinds, putting us in an excellent position to benefit from this growth, and to help enable it, as we provide these communities with the connectivity capabilities that will help them thrive. Towards that end, our efforts in the US to reach many traditionally underserved communities were bolstered by some great wins in securing critical federal funding. Since July, we've been named recipients or subrecipients for roughly $144 million and awarded grants. As part of our Alaska fiber optic project, we were jointly awarded two grants, each with an Alaska native corporation, for a total of about $103 million. Working with our partners,…

Great. Thanks, Michael. We delivered solid financial performance in the third quarter of 2022. During the period, total consolidated revenues were $182.2 million, up 9% year-over-year. Operating income was $1.4 million, improving from an operating loss of $1 million last year, and adjusted EBITDA was $41.9 million, up 13.8% year-over-year. These improvements were mainly driven by the addition of a full quarter of Alaska Communications results, compared to a partial quarter last year, and the improved operational performance in Alaska on a pro forma full-quarter basis. Notably, we also continued to see strong subscriber growth in other markets as we make significant network in operational investments, and continue to execute on our three-year strategic growth plan. Now turning to our segment breakdown, in the international segment, revenues were $90 million in the quarter, increasing 6% year-over-year. This growth was the product of higher mobile and broadband subscribers and the associated revenue, partially offset by a scheduled stepdown in federal high-cost support subsidies for the US Virgin Islands. (Operating income was $13.4 million and Adjusted EBITDA) for the segment was $27.9 million in the quarter, up 3.77% year-over-year, driven by subscriber growth, as well as operational investments in customer acquisition, additional back-haul capacity, and increased resiliency to support our higher mobile and broadband revenue in the segment. In our US segment, revenues were $92.2 million in the quarter, up 13% year-over-year. During the period, business and carrier services accounted for approximately 70% of the segment services revenue. In line with our consolidated performance drivers, the increase in segment revenues was mainly due to the addition of a full quarter of Alaska's results, compared to a partial quarter in the same period a year ago, along with solid organic revenue growth year-over-year. Consistent with our expectations, year-over-year revenue growth in the segment…

Thank you, Justin, and thank you, everyone, for joining us. We're excited about the future, given the essential nature of our offerings, the quality and growing reach of our network, and the early mover advantages we're enjoying in underserved communities, and lastly, the financial flexibility we have within our control. I'll turn it back to the operator for questions.

[Operator Instructions] The first question that I have is coming from Ric Prentiss of Raymond James. Please go ahead.

Yes. Hey, everybody. Good morning. A couple of questions. First, obviously, you guys are trying to help out rural remote areas. You've gotten a couple of grants now, federal grants in Alaska. Help us understand - the social benefit is clear. Help us understand the economic value to you all. What do these grants imply? Is it, you spend CapEx, then you get reimbursed CapEx, you get it through service revenues and kind of the timing. Help us understand how we should think about you announcing these grants and how we should be modeling it and thinking of the economic value-add.

Yes. Okay. Thank you, Ric. So, the grant - so, first thing, as we've said previously, I want to note, is that the grant size, and I think you're getting this with the questions, does not translate directly and immediately into economic value for ATN. For example, building in remote areas of Alaska to serve small populations, right, might have less of an economic impact on our business or take longer to mature than some of our - the smaller grants we've won. And the way we think about this, and I'll get back to the CapEx in a second, or Justin, will, but we view these grants more as a complimentary effort to our core strategy. So, that's - we look at being a primary provider of connectivity the multiple customer segments across our geographies. And the grants allow us to serve more people, serve more communities to add economic underpinning to our other efforts, right? So, when we build in - fiber into a community in the southwest, for example, we are - to serve, let's say the schools or homes under a grant, we are also working that with our broader plans to extend to - fiber to towers, to build businesses and to build other communities that may not be grant-supported. So, it's really just a piece of the pie. And then there's no direct CapEx with the grants we've talked about. So, it really is, these are really by and large, fully funded, with the exceptions of this small amount we talked about in July where I think we got $10 million and we had about $1 million match. It may be under the BEAT program going forward that there are going to be a lot of matching plans, and we will look at whether our piece of CapEx has an adequate risk-adjusted return when we apply for it. But - and then - so then lastly, when will that impact us? You won't see much impact in our core numbers and deliverables next year. It'll be minimal. As you go farther out, ‘24, ’25, some of these grants will yep, have a nice bolstering, we believe, to EBITDA and revenue, but they’re still just a piece of the pie, right? This is not a grant-only strategy we have. Does that answer your question, Ric?

Yes, it does. The second question, you guys had mentioned the Sacred Wind acquisition. Any update on that acquisition? I think you'd mentioned kind of a rough EBITDA number. Any thoughts on the timing? Any update to the revenue and EBITDA impact? And we noticed that in third quarter there was, I think, a $3.4 million transaction integration charge. What was that related to?

Okay. So, first, I'll take the last one. The transaction charges in the third quarter, that's just M&A-related charges. Some of it, yes, was Sacred Wind. Some of it were other activities. And as you know from the past, we don't comment on those activities, unless and until there's something to announce. As to Sacred Wind’s economic impact, I think we did not - as we said last quarter, we expect the business will generate EBITDA of about $10 million in 2022. We didn't disclose the revenues for that. So, we expect the business to bid to at that level or better in the next year, and it will be combined with our Commnet broadband operation and within our overall US segment.

And the timing of the closing, did it close?

It is not closed, but we expect it to close in the fourth quarter. So, this quarter.

And lastly - yes. And the final for me is, obviously, a couple of times, you've highlighted your balance sheet, the financial flexibility. Help us understand, is that to kind of comfort the market that other companies are seeing trouble raising money in a high interest rate environment to deploy capital programs? Is that also meant to say you're looking at some potential M&A?

Well, it's meant to say multiple things. So, the question is, why do I keep talking about financial flexibility? And I - and so, first is to assure shareholders that we know the whole reason for being here is to reward our investors, right? That's our primary objective. And in the economic environment we're in and the prospective environment, I think there are more questions from shareholders about, okay, what's your spending? Is that level of spending appropriate? How do we ensure that we see adequate returns as investors? And so, I think what we're saying is, we have the flexibility to - in our capital allocation, to do things for shareholders. And we will weigh that against the other point which you raised, which is, because of our flexibility, a lot of our competitors don't have the same flexibility. So, we do see an opportunity to seize first-mover advantage, generate nice returns, perhaps including M&A, and perhaps including bolt-on in particular M&A that can accelerate or enhance our existing strategy. But what we're really saying is, we're going to be very conscious of the environment. We're not going to get too far ahead of our skis and we're going to adjust as we need to ensure shareholders’ benefit.

Okay. That's pretty clear. Appreciate it. Stay well, guys.

Thank you for your question. Now as we prepare for the next question. Our next question will be coming from Gregory Burns of Sidoti. Please go ahead. Your line is open.

Morning. In the international segment, what was the - how much FCC support revenue were you still getting, and what's the timing of the winddown of the remainder of that?

We're still getting about 1.4 million a quarter right now - a month, I should say, a quarter, sorry, a quarter. It's $5 million a year. And the winddown, I don't know, Michael, do you want to talk on the schedule of the winddown?

Yes. I mean, we're still talking to the FCC about that, and trying to understand it with respect to how that market is served and whether it will be adequately served. So, but that's about all I would have to say on that.

Okay. And then on the mobile side, excuse me, churn is still going up, but you're spending more to acquire the customers. So, but they're staying around for a shorter period of time. Can you just talk about maybe that dynamic and the return you're expecting to get there? Or are you - do you have plans to try and bring churn down?

Yes, Greg. So, churn on mobile, the first thing I'd note, it is up a little, but recognize that we have a very high prepaid base, right? So, the percentage of our base that is prepaid is quite significant. So, I don't think those churn levels, that the blended churn number are bad. That said, of course, lower churn is always better. And there is some - probably some of the slight uptick is because of promotional activity, right? So, if you grow gross adds, you're going to see some of those will stick. Some of those won't, particularly in a prepaid basis, or when promotions roll off. But net-net, we like the economics around it and we'll continue watching carefully, but we like the economics around it.

Okay, great. And then lastly, are you still funding your private networks business? What is the status of that?

It's really a much smaller business. It is subsumed within our US segment, within Commnet, and it had de minimis funding requirements in this last quarter and probably positive contribution going forward, but small.

In terms of your kind of refocus strategy around first-to-fiber and Glass and Steel, does that still fit in with the strategy, or is that something that maybe is no longer a focus of the business?

Are you - Greg, you're asking if we still - the private network fits within our first-to-fiber and Glass and Steel strategy?

Right. Is it like a non-core asset now that maybe does not fit anymore?

Yes. So, I think, and just maybe for everybody listening, because some people might not know what we mean by private networks, so private networks is essentially campus or in building or customer premise advanced wireless connectivity, just to keep it simple. And so, we still are offering that service. We're offering that service in multiple markets, but we really view it as a service add-on to our existing business. It's not a core part of our strategy to expand that service.

Okay, great. Thank you.

Thank you. One moment for our next question. And we have our next question is coming from Hamed Khorsand of BWS Financial. Your line is open.

Hi. This is Hamed Khorsand. Just want to ask you about the subscriber growth commentary. How sustainable is this growth, and what are you doing in terms of trying to upsell that customer to get into the more fiber and the higher end of the broadband spectrum that you're providing?

So, Hamed, just to be clear, and good morning, you’re asking about, really about the broadband subscriber side?

Yes.

Okay. So, I think it's very sustainable. In fact, we're - with our plan, we expect to continue to grow both the percentage of our customers who are on higher speeds and the overall number, I think. So, and in terms of upselling, we have seen, as many operators have seen, a continued interest in existing customers to take - to upgrade to higher speeds and higher capabilities, or add mesh solutions and things like that. So, we continue to have success there. And we've also seen in a lot of our newer fiber builds, if we look at our plans and sort of demographics, we are typically seeing take-up at higher plan levels than we had built into our business plan, so - which is great. So, I think as we see this growth, I think you'll see some positive impact on ARPUs from that, from people buying more speed and then, of course, the growth in subscribers. So, I think we're quite bullish on it.

Okay. And then my other question was, as far as the mobile side is concerned, what is the competitive risk here as you add more and more subscribers, seeing more of a degradation in pricing?

You always worry about that and you always keep an eye, you’re always sort of paranoid about competition, paranoid about pricing, and you keep a careful eye on it. It's not really something that's front-of-mind worrying at this point, either on the competitive or the pricing. I think, if anything, we expect to be growing ARPUs over time in mobile. So, and I spoke to churn before as well. We all - we’re not concerned about that expanding within the two segments of prepaid and post-paid. But it's something we'll always keep an eye on and react too quickly if we see a change

And did the growth in these two segments, the broadband and mobile, will that help you at all get to a free cash flow positive state in ’23, or is that still further out?

Yes. So, the growth in overall revenue of course flows down and benefits free cash flow. Free cash flow, again, is somewhat discretionary. So, we have high operating cash flow today. We have a relatively low sort of what we would call maintenance CapEx. So, if we wanted to start - stop expanding or slow down expanding, our free cash flow would grow, right? We would start taking that high operating cash flow and have excess, right, relatively easily. So, I think that's the main feature, and I don't know if, Justin, you want add?

No, I think you covered it. Think we have strong free cash flow today, and a lot of our CapEx, as Michael mentioned, is kind of forward-looking. So, we have the ability to control that as much as we want to control the CapEx spending.

And the other point Hamed, on that though is, it is true, if you look at our market and as a core part of our strategy, there is a layering effect in any market as we add subs, and as we add customers, whether it's mobile or fixed, whether it's consumer or business or government, there is an economy of scale benefit. So, as we grow those revenues within that market, you see higher margins, contribution margins, and free cash flow expansion.

Okay. That's it for me. Thank you.

Thank you. One moment while we prepare for our next question. And our next question is coming from Ric Prentiss of Raymond James. Your line is open.

Yes. Hey, I wanted to come in with a follow-up if I could. A lot of discussion on satellites lately. We've had T-Mobile and SpaceX Starlink, we've had Apple and Globalstar, as far as putting satellite capabilities, satellite communication capabilities in the iPhone port team. We get the question a lot from investors. First, how do you guys view the potential competitive threat from satellites into your differing markets? And then associated with that, you guys have had a relationship established with OneWeb. Where's that at? And if they complete the merger, which we think they will with Eutelsat, what does that bode for you guys?

I think we think satellite is largely complementary to our businesses. As I noted before, we're always paranoid, right? But we think it's largely complementary where - because of the inherent capacity differences, along with some performance characteristics and costs, we view it mostly as an attractive fill-in. And so, that's where we partner. We’ve partnered actually to deliver to people in our broader operating area where satellite is a good solution and it's a more economical solution than something we could provide by building network ourselves. And we'll continue to do that. In fact, we're continuing to look at that, and we're looking at wholesale relationships too, providing back-haul and transport for the satellite companies. So, I think there's clear value to what they bring, and I view it - I think we view it as largely complementary to what we have

And from a standpoint of any competition on the mobile side?

Yes. On the mobile side, I just - I think that is largely hyper competitive markets trying to me too for now. I don't see it as a major factor, certainly for us. I can't speak to those players, but in our markets, I really don't see it as a major factor, and should it become important to our subscribers to provide some capability like that. I think there's going to be multiple satellite operators to choose from, to partner with to provide that solution when it's really ready. So, I don't think there's more impact that I can see.

Okay. And you touched on a little bit the macroeconomic environment. Help us understand a little bit about how inflation is affecting your companies and operations directly. Are you feeling anything from a recessionary impact potentially out there? And with a high interest rate environment, any change in thoughts of all those items? Inflation turns to maybe recession and then high interest rates as far as what this all might mean for your guidances?

Yes. So, like everyone else, we’re seeing inflationary pressures in certain areas such as labor, materials, equipment. We're also keeping an eye on potential economic churn around the low end of our subscriber base, but we haven't seen any meaningful there. And so, what we're doing about it is, at the moment, it's not really had a material impact on our business. But we are actively monitoring local, national, global economic factors, and we're working hard to make the business more efficient, reduce costs. And we've also raised prices on our services in select markets where it makes sense. And we do this, Ric, typically by delivering additional value such as higher speed in return for higher monthly service fee. So, we're continuing to evaluate it, but that's - so far, that's what we're seeing and that's what we're doing.

And on the interest rate side, any changing thoughts on what you might do with your guidance?

No. I mean, we've given the EBITDA guidance. So, right now, we’re pretty confident where we are in terms of our ability to - on our loan facilities and whatnot. So, we feel confident with where we are now, Ric.

Okay, very good thanks.

Thank you There are no further questions at this time. I will now turn the call back to Michael for closing remarks. Go ahead, sir.

All right, thank you, Operator. So, ATN continued to execute at a high level this quarter, with steady momentum across our markets. We're serving our customers well, advancing our strategic broadband build-outs, and making excellent progress toward our three-year growth objectives. In addition, we are proud to be working with our partners in Alaska and the lower 48 to help bridge the digital divide. So, thank you all.

Take care, everyone.

This concludes today's conference. You may disconnect. Have a great day.