ATN International, Inc. (NASDAQ: ATNI) is a leading provider of digital infrastructure and communications services, with a focus on rural and remote markets in the United States and internationally, including Bermuda and the Caribbean region. The company has developed significant operational expertise and resources that it uses to augment its capabilities in its local markets, allowing its operating subsidiaries to improve their quality of service with greater economies of scale and expertise.

In the fiscal year ended December 31, 2023, ATN International reported annual revenue of $762.2 million and a net loss of $14.5 million. The company generated annual operating cash flow of $111.6 million, but had negative free cash flow of $51.7 million as it continued to invest in its fiber-rich network infrastructure.

For the second quarter of 2024, ATN International reported revenue of $183.3 million, down 2% year-over-year, and net income of $9.0 million, or $0.50 per share. Adjusted EBITDA for the quarter was $48.7 million, up 6% from the prior year period. The company's International Telecom segment saw a 4% increase in revenue to $95.4 million, while the US Telecom segment revenue declined 7% to $87.9 million, primarily due to the discontinuation of the Emergency Connectivity Fund program.

Business Overview

ATN International operates in two primary segments: International Telecom and US Telecom. In its International Telecom segment, the company offers fixed services, mobility services, carrier services, and managed services to customers in Bermuda, the Cayman Islands, Guyana, and the US Virgin Islands. The US Telecom segment provides fixed services, carrier services, and managed services to business customers and consumers in Alaska and the western United States. As of March 31, 2024, the company also provided mobility services to retail customers in the western United States.

A key focus for ATN International has been to advance its "First-to-Fiber" and "Glass & Steel" investment strategies, which aim to enhance the quality, value, and longevity of the company's fiber-rich digital network. This is crucial for positioning ATN to better serve its customers, defend and grow its market share, improve the mix of its business, and maximize growth opportunities over the long term.

In the International Telecom segment, the company has made notable progress, increasing the number of gigabit-capable high-speed data homes passed by 2% year-over-year to 257,000 at the end of the second quarter. International high-speed data broadband subscribers grew by 9% during the same period. The company also completed the launch of its new Brava business solutions brand across its international markets and saw revenue growth of over 10% for its International Business Solutions unit, including 40% growth in international business mobility revenue and nearly 9% growth in international fixed business revenue.

In the US Telecom segment, ATN International increased broadband homes passed by high-speed data by 85% year-over-year to more than 146,000 homes at the end of the second quarter. The company noted that the impact of the discontinuation of the Affordable Connectivity Program was in line with expectations and has been factored into its guidance.

Financials

For the full year 2024, ATN International is reaffirming its guidance, expecting revenue in the range of $730 million to $750 million, adjusted EBITDA between $190 million and $200 million, and capital expenditures of $100 million to $110 million, net of reimbursed amounts. The company also expects to exit the year with a net debt ratio of 2.25 times to 2.5 times.

ATN International's focus on prudent cost management has been a key driver of its improved financial performance. The company has realized benefits from cost-cutting programs implemented in late 2023 and the first quarter of 2024, and it continues to pursue near-term cost management actions to better align its cost structure with the current operating environment. Additionally, the company is identifying longer-term operational efficiency opportunities to drive lasting margin improvement in 2025 and beyond.

The company's balance sheet remains healthy, with a net debt-to-adjusted EBITDA ratio of 2.45 times as of the end of the second quarter. ATN International generated $53.5 million in net cash from operating activities in the first half of 2024, down from $60.3 million in the prior-year period, primarily due to higher interest expense. Capital expenditures, net of reimbursements, totaled $61.8 million in the first half of 2024, compared to $89.5 million in the same period of the prior year.

Risks and Challenges

While ATN International is well-positioned for growth, the company faces several risks and challenges that investors should be aware of. These include:

1. Regulatory and legal proceedings

The company and its subsidiaries are subject to certain regulatory and legal proceedings, some of which involve claims for substantial damages or taxes. An adverse outcome in one or more of these proceedings could have a material impact on the company's financial condition and future operations.

2. Competition and pricing pressure

ATN International operates in highly competitive markets, which could lead to pricing pressure and erosion of market share.

3. Reliance on government funding programs

A significant portion of the company's revenue is derived from government-funded programs, such as the Universal Service Fund and the Connect America Fund. Changes or reductions in these programs could adversely affect the company's financial performance.

4. Integration and execution risks

The company's growth strategy includes strategic acquisitions and investments, which carry integration and execution risks.

5. Macroeconomic and geopolitical factors

The company's operations and financial performance could be affected by global economic conditions, inflation, supply chain disruptions, and geopolitical events.

Conclusion

ATN International is well-positioned for sustainable growth, leveraging its fiber-rich network infrastructure and prudent cost management initiatives to drive improved financial performance. The company's focus on high-speed data, mobile data, and enterprise services, coupled with its strategic investments in its international and domestic markets, positions it to capitalize on the growing demand for reliable, high-quality communications services. While the company faces some risks and challenges, its experienced management team and disciplined approach to capital allocation and cost control provide a solid foundation for long-term value creation for shareholders.