ATN International: Forging A Fiber-Fueled Future In Niche Markets (ATNI) - ATNI Stock Research Report

## Executive Summary / Key Takeaways * ATN International is strategically pivoting its business, particularly in the U.S., away from legacy and subsidized services towards higher-value fiber and fiber-fed solutions for enterprise, carrier, and consumer markets. * Despite a Q1 2025 revenue decline driven by the expected wind-down of U.S. government subsidy programs, the company demonstrated improved operational efficiency, leading to a 2% year-over-year increase in Adjusted EBITDA and a significant 55% increase in operating cash flow. * A key differentiator and growth driver is ATNI's success in securing substantial government grants, with over $370 million in broadband infrastructure projects underway, enabling fiber expansion with reduced capital intensity and positioning the company for future monetization in 2026 and beyond. * The International Telecom segment continues to be a strong contributor, showing revenue growth and significant margin expansion through operational efficiencies and increasing demand for high-speed data and business services, serving as a blueprint for the U.S. transition. * Management is focused on stabilizing the U.S. business, enhancing cash flow generation, reducing capital intensity post a three-year investment cycle, and prudently managing the balance sheet with a medium-term goal of lowering the net debt ratio towards 2x. ## A Strategic Pivot In Rural Connectivity ATN International, Inc., founded in 1987, has built a long history providing essential digital infrastructure and communication services, primarily targeting underserved rural and remote markets in the United States and across the Caribbean region. This focus has necessitated developing deep operational expertise tailored to the unique challenges and opportunities of these geographies, allowing ATNI's subsidiaries to leverage greater economies of scale and specialized capabilities than typically available in smaller markets. The company's business model spans fixed, carrier, mobile, and managed services, supported by a strategic approach that includes evaluating investment opportunities and focusing on generating sustainable operating cash flows. The telecommunications industry is characterized by an ever-increasing demand for high-speed data and reliable connectivity, a trend that is ubiquitous across both urban and rural landscapes. This demand is driving significant investment in next-generation infrastructure, particularly fiber optics and advanced wireless technologies like 5G. ATNI operates within this dynamic environment, competing with a mix of large national carriers and smaller regional or local providers. Larger players like AT&T (T), Verizon (VZ), and T-Mobile (TMUS) possess vast scale, extensive network coverage, and significant financial resources, enabling them to deploy advanced technologies like 5G with superior processing speeds and efficiency in many areas. However, ATNI's strategic focus on niche, often less competitive, rural and remote markets allows it to establish strong local positions and leverage its operational expertise. ATNI's competitive positioning is further defined by its core technological foundation centered around its "First to Fiber and Glass and Steel" investment strategy. This multi-year initiative, which concluded its intensive phase in 2024, focused on accelerating capital expenditures to build out fiber and physical network infrastructure. The tangible benefits of this technology include enabling high-speed broadband services, supporting the growing demand for data, and providing the necessary capacity for higher-value enterprise and carrier services. While larger competitors may boast faster speeds in urban centers (e.g., AT&T's 5G potentially 50% faster in urban areas), ATNI's fiber deployments are designed to bring gigabit-capable speeds to markets previously lacking such connectivity. This targeted approach, combined with streamlined network upgrade processes, contributes to lower operating costs per unit in its rural deployments compared to the broader, higher-cost infrastructure of national carriers. The company's investment also included deploying 5G networks in two international markets, positioning it to capitalize on increasing mobile data consumption and drive higher average revenue per user (ARPU) through data plans. While specific R&D programs or future technology targets were not detailed, the strategic intent is clear: leverage this enhanced infrastructure to deliver superior services in its target markets, thereby strengthening its competitive moat, supporting margin potential through operational efficiencies, and enabling future growth. ## Performance Reflecting Transition and Efficiency Gains ATNI's recent financial performance reflects a business in transition, particularly within its U.S. segment, while its International segment continues to demonstrate resilience and growth. For the first quarter of 2025, total revenue stood at $179.3 million, a 4% decrease compared to $186.8 million in the prior year period. This decline was largely anticipated and primarily driven by the expected wind-down of COVID-era U.S. government subsidy programs, specifically the Emergency Connectivity Fund (ECF) and the Affordable Connectivity Program (ACP), which had provided revenue through early April 2024. Despite the top-line pressure, the company showed progress in operational efficiency. Adjusted EBITDA for Q1 2025 increased by 2% year-over-year to $44.3 million. This improvement was supported by continued growth and margin expansion in the International segment, which helped offset the anticipated decline in the U.S. segment's profitability. Operating income, however, decreased to $2.7 million in Q1 2025 from $4.6 million in Q1 2024. This was due to cost management actions being offset by increases in transaction-related expenses, losses on asset transfers, and restructuring and reorganization expenses incurred as part of ongoing efficiency initiatives. The net loss attributable to ATN International, Inc. stockholders widened to $8.9 million, or $0.69 per diluted share, compared to a net loss of $6.3 million, or $0.50 per diluted share, in the prior year period.

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Looking at the segments, the International Telecom segment continues to be a source of strength. In Q1 2025, International Telecom revenue increased by 1.5% to $94.5 million, driven primarily by growth in carrier services revenue, including increased roaming, project-related, and ancillary services. Operating expenses in this segment decreased by 2.1%, reflecting improved operating efficiency and the impact of cost savings initiatives. This resulted in a significant 26.5% increase in International Telecom operating income, rising to $14.8 million. Management highlighted improved operating efficiency leading to an 11% increase in adjusted EBITDA for the segment, noting steady demand for high-speed broadband and business services and improvements in ARPU driven by increases in postpaid mobile subscribers and mobile data consumption. The U.S. Telecom segment faced greater headwinds, with revenue decreasing by 9.5% to $84.8 million in Q1 2025. This decline was primarily attributed to a $6.2 million reduction in Fixed revenues due to the conclusion of the ECF and ACP programs, a $0.9 million decrease in Carrier Services revenue resulting from the transition of legacy roaming arrangements, a $0.6 million decline in Construction revenue as the FirstNet build progresses, and a $0.8 million decrease in retail Mobility revenue following the exit from providing retail mobility services under the company's own brand name. Operating expenses in the U.S. segment decreased by 6.3%, partially mitigating the revenue impact, but the segment's operating income shifted to a loss of $2.4 million from income of $0.6 million in the prior year period. The segment's adjusted EBITDA decreased by 15.4% to $17.5 million.

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For the full year 2024, consolidated revenue was $729.1 million, a 4% decrease from 2023, reflecting the U.S. segment's challenges. The full year 2024 operating loss of $0.8 million included a non-cash goodwill impairment charge of $35.3 million taken in Q3 2024, reflecting underperformance and compression in market multiples in the U.S. segment. Full year 2024 Adjusted EBITDA decreased by 3% to $184.1 million. Despite these challenges, net cash provided by operating activities expanded by a notable 16% year-over-year in 2024 to $129.2 million, driven by improvements in working capital management and gains from asset dispositions. This positive trend in operating cash flow continued into Q1 2025, with cash provided by operations increasing 55% to $35.9 million.

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## Strengthening the Balance Sheet and Capital Allocation ATNI maintains a focus on disciplined capital allocation and strengthening its financial position. As of March 31, 2025, the company held $97.3 million in cash, cash equivalents, and restricted cash. Total debt outstanding was $562.4 million, resulting in a net debt ratio of 2.52x. This is a slight improvement from the 2.54x net debt ratio at year-end 2024. Management has stated a medium-term objective to bring the net debt ratio closer to 2x.

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The company's debt structure includes the 2023 CoBank Credit Facility ($125.1 million outstanding on the term loan and $64.6 million outstanding on the revolving loan as of March 31, 2025), the 2024 Alaska Credit Facility ($300 million outstanding on the term facility), the FirstNet Receivables Credit Facility ($42.6 million outstanding), the Sacred Wind Term Debt ($24 million outstanding), and the Viya Debt ($60 million outstanding). The 2024 Alaska Credit Facility, refinanced in August 2024, extended maturity through 2029. The Viya Debt matures in July 2026, representing a key near-term maturity focus. The company was in compliance with all financial covenants under the 2023 CoBank Credit Facility as of March 31, 2025. Capital expenditures are undergoing a planned reduction following the conclusion of the intensive three-year investment cycle. In Q1 2025, capital expenditures totaled $20.8 million, net of $22.4 million in reimbursable capital spending. This is a decrease from $36 million (net of $13.5 million reimbursable) in Q1 2024, reflecting the strategic shift towards supplementing internal investment with available grant funding. For the full year 2025, net capital expenditures are expected to be in the range of $90 million to $100 million. A significant factor in ATNI's capital profile is its success in securing government grants. The company has been awarded approximately $155.2 million in construction grants as of March 31, 2025, and has been identified as a sub-recipient of grants totaling $237 million under programs like TBCP and ReConnect, where it expects to construct and operate networks under long-term leases. Additionally, the company was fully funded in December 2024 for an aggregate of approximately $517 million under the Replace and Remove Program, with a project deadline extended to Q2 2026. These grants enable fiber footprint expansion with reduced capital intensity and provide long-term optionality for growth and monetization. ATNI has consistently returned value to shareholders, declaring quarterly dividends since Q4 1998. In Q1 2025, $3.6 million in dividends were paid. The company also has $15 million available under its 2023 Repurchase Plan as of March 31, 2025. Management's focus on improving cash flow and reducing leverage is intended to enhance optionality for future capital allocation decisions, including potential shareholder returns. ## Outlook and Key Considerations ATN International is reaffirming its 2025 outlook, signaling a year of stabilization and strategic execution. The company expects full-year 2025 revenue, excluding construction revenue, to be in line with the 2024 result of $729.1 million. Adjusted EBITDA is projected to be essentially flat with the prior year's $184.1 million. Net capital expenditures are guided to be between $90 million and $100 million. The net debt ratio is expected to remain flat compared to year-end 2024, with a slight potential for improvement by the end of 2025. This outlook is underpinned by several key assumptions. In the International segment, continued growth in high-speed broadband and business services, coupled with ongoing operational efficiency and cost containment initiatives, is expected to drive margin expansion. In the U.S. segment, the outlook anticipates progress in the strategic shift towards fiber and fiber-fed revenue streams, with efforts focused on improving sales execution and pipeline conversion for enterprise and carrier services. The advancement of government-funded broadband infrastructure projects is crucial, with over half of the approximately $370 million in projects expected to be completed in 2025, positioning the company for monetization in 2026 and beyond. Management expects the second half of 2025 to contribute a larger share of full-year results, reflecting the timing of U.S. stabilization efforts and the continued ramp-up in international markets. While the strategic direction is clear, several risks and challenges could impact the company's ability to achieve its objectives. Regulatory and litigation matters, including ongoing disputes in Guyana regarding spectrum fees and tax assessments, and the settlement related to the Alaska Communications (ALSK) RHC program, pose potential financial and operational risks. Macroeconomic factors like inflation could increase operating expenses, particularly impacting fixed-budget construction projects. Developments in trade and tariffs, while currently assessed as manageable within the 2025 outlook, could introduce cost pressure on network infrastructure components. Delays in government programs like BEAD could impact the timing of future fiber deployments and monetization. Competitive intensity, including the emergence of fixed wireless access offerings from large national carriers and competitive pressures in international mobile markets, requires continuous adaptation and execution. Execution challenges in the U.S. segment, as highlighted by the Q3 2024 goodwill impairment, remain a focus area for improvement. ## Conclusion ATN International is navigating a pivotal period, transitioning its business model towards a more resilient, fiber-centric future. The company's strategic investments in digital infrastructure, particularly fiber and 5G, are foundational to its ability to deliver high-value services and compete effectively in its target rural and remote markets. While the U.S. segment faces near-term revenue headwinds from the conclusion of government subsidies and requires focused execution to stabilize and grow, the International segment provides a strong base of profitability and a blueprint for operational efficiency. The significant leverage of government grants to fund infrastructure expansion represents a key differentiator, enabling ATNI to expand its fiber footprint with lower capital intensity and positioning it for substantial monetization opportunities in the coming years. Management's commitment to cost management, disciplined capital allocation, and reducing leverage underscores a focus on enhancing cash flow generation and creating long-term shareholder value. The 2025 outlook reflects a year of transition and stabilization, with the success of the U.S. strategic pivot and the continued strength of the international business being critical factors for future growth.