U.S. TelePacific Holdings Corp.

Overview Key strengths Key risks The ongoing shift of its customers to more efficient and cost-effective technologies will likely lead to some longer-term margin improvement. Revenue declines as the company transitions its business away from legacy products and services to managed services, including software-defined wide area network (SD-WAN) and unified communications as a service (UCaaS). Liquidity is bolstered by equity infusions from its private equity sponsor. Exposure to business customers could pressure top line trends if economic conditions deteriorate. Despite a pay-in-kind (PIK) feature on the company?s term loan through 2023, we expect free operating cash flow (FOCF) deficits will contribute to higher leverage in the near term. Aggressive competition from larger, better-capitalized incumbent telecommunications and cable providers. During the

...We expect TPx's top line will remain pressured through 2023. During the third quarter of 2022, total revenue and reported EBITDA declined 10.6% and 52%, year over year. The sharp EBITDA decline was due to higher personnel expenses given a tight labor market, as well as rate increases from the incumbents. Managed services revenue was essentially flat while legacy business services revenue fell over 50% from the prior-year period. While we expect some improvement in managed services revenue in 2023, this will be largely offset by continued declines in legacy products. To expand EBITDA margins, TPx will need to successfully execute its cost reduction plan, including the ongoing decommissioning of circuits leased from the incumbent providers. In addition, S&P Global Ratings economists forecast a shallow recession in 2023 with GDP declining 0.1% during the year. Unlike many other U.S. telecom and cable providers, TPx derives all its revenue from small and midsize business (SMB) customers, which...

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