MachTen, Inc.

What they do

MachTen is a holding company for Upper Peninsula Telephone Company (UPTC), Michigan Central Broadband Company (MCBC), and Alpha Communications. Through these subsidiaries, it provides regulated and unregulated broadband internet, local telephone, long-distance, cable television, and network access services to residential, commercial, and governmental customers in rural Michigan.

Revenue drivers

• Regulated revenue (A-CAM and USF support) — Regulated revenue was $3.04 million in Q2 2023, largely from FCC A-CAM support of about $2.2 million per quarter, plus local access and other regulated services.
• Non-regulated broadband and competitive services — Non-regulated revenue was $950,000 in Q2 2023, driven by broadband internet customers in competitive markets outside the incumbent network.
• Video and managed hosting — The company offers cable television, OTT video, and managed hosting services as part of its broader communications offerings.

Recent performance

For Q2 2023, MachTen reported regulated revenue of $3.04 million, down slightly from $3.07 million a year earlier due to the elimination of a Michigan USF program. Non-regulated revenue rose to $950,000 from $885,000 on new broadband customers. Operating profit was $1.44 million and net income was $1.06 million, both roughly flat year over year.

Strategy

MachTen is investing in fiber optic expansion, having spent about $6 million over two years to pass over 5,000 locations, with 600 contracts signed as of June 30, 2023. The company accepted Enhanced A-CAM offers in September 2023, which will increase annual support by about $1 million starting January 2024 and require 100/20 Mbps speeds to just under 9,000 locations. It also plans to build more than 1,500 miles of fiber by 2028 to meet buildout requirements. ReConnect America grants totaling about $46.0 million, $19.9 million, and $19.5 million for UPTC, MCBC, and Alpha will fund additional fiber builds.

Risks

• Dependence on USF support — A significant portion of regulated revenue comes from FCC A-CAM and other USF programs, which could be reduced or eliminated.
• Regulatory compliance and buildout risk — Failure to meet A-CAM or Enhanced A-CAM buildout deadlines could result in penalties or loss of support.
• Competition in non-regulated markets — The company faces competition from other broadband providers in areas where it has invested in fiber.
• Financial reporting reliability issue — An 8-K filed on November 14, 2023, stated that previously issued financials should not be relied upon, indicating potential accounting or disclosure concerns.

Outlook

Management anticipates receiving Enhanced A-CAM support starting January 2024, which will increase annual revenue by approximately $1 million and extend support through 2038. The company expects to complete fiber buildouts by the end of 2028, passing more than 17,000 locations across its three subsidiaries. These projects are supported by ReConnect America grants and require significant construction.