ATN International Inc (ATNI) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Atlantic Tele-Network to report first-quarter results. (Operator Instructions)

As a reminder, this conference is being recorded Thursday, April 30, 2009. I would now like to turn the conference over to Justin Benincasa, CFO. Please go ahead, sir.

Great. Thank you, operator.

Good morning, everyone, and thank you for joining us on our quarterly investor call as we review our first-quarter results. With me here as usual is Michael Prior, ATN's President and Chief Operating Officer. During the call, I will be covering the relevant financial information for the quarter, and Michael will be providing the operational updates.

Let me just first start with the cautionary language concerning forward-looking statements. This call may contain forward-looking statements concerning our goals, beliefs, expectations, strategies, objectives, plans, future operating results and underlying assumptions and other statements that are not of historical fact.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including the factors referenced in the earnings press release issued yesterday and those described in item 1A, risk factors, in our Form 10-K for the year ended December 31, 2008, and in our other SEC filings. We undertake no obligation to update the information contained in this call to reflect subsequently occurring events or circumstances.

Now let me talk a little bit about the financial performance for the quarter. The first quarter was a solid first quarter for us. The growth drivers of the quarter are consistent with past quarters, with Commnet delivering strong year-over-year revenue and operating income growth.

We continue to see both strong MOU and data revenue growth from this business. Our wireless revenue growth, however, was partially offset by a decline in Guyana's international long-distance revenue as we continue to believe traffic is being negatively impacted due to illegal bypass and the overall current economic conditions.

During the first quarter, we generated revenue of $56 million, up $10.4 million or 23% from the same quarter of 2008. Wireless revenue totaled $31.7 million for the quarter, up $11.9 million or approximately 60% compared to the first quarter of 2008. I should note that 2009 includes the consolidation of Bermuda, which accounted for $5.2 million of that increase.

Local telephone and data revenue totaled $13.1 million, which was an increase of $900,000 or 7%. And ILD, or international long-distance revenue, was $10.4 million compared to $12.6 million in 2008, which was a decline of 17%. Operating income for the quarter totaled $16.8 million, up from $15.7 million from the same quarter in 2008, and non-cash stock-based compensation expense was $300,000 for the quarter.

Net income or net income attributable to Atlantic Tele-Network, as it is called now, for the quarter increased approximately 11% to $7.9 million in the first quarter from $7.9 million in the first quarter of 2008 to $8.8 million this quarter, giving us earnings-per-share of $0.58 compared to $0.51 in 2008. Looking at capital expenditures, CapEx totaled approximately $10 million for the quarter.

This breaks down as follows. Commnet spent about $6 million of $10 million on the US wireless business. Guyana spent around $3.5 million and our Island wireless operations and Sovernet accounted for most of the remainder.

In the first quarter, we added 11 new base stations in the US. However, there were a number close to completion at the end of the quarter. Thus we anticipate a greater number of base stations to come online in the second quarter. The $3.5 million of CapEx in Guyana this quarter was mainly divided between wireless, landline and spending on the construction of the submarine cable into Guyana.

Turning to the balance sheet, which has not changed much from year-end, as of March 31, we had a cash balance of $84.8 million, which includes $3 million of long-term certificates of deposit that are accounted for in other assets. Our term loan continues to be the only debt we have outstanding, leaving us in the net cash position of about $10 million.

Lastly, I will provide some of the supplemental segment information in advance of the 10-Q filing. Segment revenue and operating results for the quarter were solid.

Rural wireless segment had revenues of $21.6 million and operating income of $10.3 million., which included $3.2 million of depreciation and amortization. International integrated telephony generated revenue of $22.7 million and produced operating income of $9.3 million, which included $4.2 million of depreciation and amortization.

Our Island segment, which includes Bermuda and Turks and Caicos, had revenues of $5.2 million, operating income of $210,000 and depreciation expense of $711,000. The domestic telephony segment had revenue of $4.6 million, operating loss of $494,000 and depreciation and amortization expense of $719,000.

Wireless television and data revenue was $1.8 million and had an operating loss of $564,000, which included depreciation expense of $278,000. And I would now like to turn the call over to Michael for operational updates.

Thank you, Justin. Good morning, everybody.

As you have heard, we -- financially we had another strong quarter, particularly in light of the economic downturn. Also our overall progress is reflected in many of the operational metrics, which I will run through in a minute.

So a lot of the things we saw in the quarter were really a recurrence of trends that we had in many of the previous quarters other than the fourth, where we also had some one-time items impacting results. So I will start with wireless, first the US rural wireless business.

In that business, we generated about 144 million MOUs in the US for the quarter, and that compares to about 85 million in the first quarter of 2008. So that's an almost 70% increase. On a consecutive quarter basis, minute volumes increased by about 19%, which is also strong.

The MOU growth benefited from a number of things, but principally from the buildout and acquisition of base stations. We ended the quarter with 484 base stations compared to 328 a year ago. Obviously also there was an overall increase in minutes volumes similar to the entire industry.

Data also, we thought we would give a sense of that because there's been some questions about how big that is in our revenue. And data represented about 70% of revenue for the quarter. That compares to about 11% a year ago.

Now I think we expect both minutes and megabytes to increase, continue to increase. We continue to build and overall we continue to see increases just in general.

But we also expect rate decreases to cut down the pace of the growth in the near-term. And as Justin mentioned, we don't expect our base stations in 2009 to increase at quite the pace that they did over the past year. And we also have noted previously that there's a some scheduled rate reductions that will reduce the rate of revenue growth.

Additionally, another point to talk about related to how to extrapolate from that growth is that there has been some recent acquisitions in the US wireless market from consolidation. None of that, we expect currently, to have a severe impact in any way on us, but we do think it will cause a reduction in traffic and revenue in certain areas by the end of 2009.

And again, we don't expect that to cause a negative -- a contraction overall, but we do expect it to limit the rate of revenue growth. But on the flip side, we continue to build, which will benefit revenue growth. We also continue to look at other transactions that could expand our coverage areas and traffic volumes.

Moving onto Bermuda wireless, there the subscribers ended the quarter a bit above 20,000. That is up about 5% from the year earlier but flat on a consecutive quarter basis. The BlackBerry launch helped pick up some subscribers, but not quite the level we're hoping to see and we hope to see going forward.

Turks and Caicos should also add to the subscriber count farther out. It's probably not going to add anything meaningful to this in the next quarter or two, but maybe by the end of the year and into 2010.

The UMTS launch in Bermuda that we talked about in the last call was delayed until the current quarter. So that is not in the mix of subs. But we still expect it to contribute to adds in 2009.

Moving on to the wireless business in Guyana, our prepaid subscriber business picked up slightly from the fourth quarter after declining all year in 2008. Because of the losses in 2008, however, total subscribers were still down about 16% year on year.

So we ended the quarter at about 255,000 subscribers. This is now -- I guess this is now clearly the smallest of our three wireless businesses, but we are working on new approaches to grow the subscribers and revenue. And we were somewhat encouraged -- I wouldn't say jumping up and down -- but we were somewhat encouraged by the break in the recent quarters of subscriber losses and we hope we can build on that.

Moving on to other elements of our business in Guyana, local and international access lines were up to 140,000. That compares to 134,000 access lines a year ago. That is a 4% increase.

Rates still remain at regional lows, without even an increase for inflation in a number of years. So that continues to hold back the local business somewhat there.

And as Justin mentioned and we're clear in our results, on the international long distance side, traffic declined by 11% year on year. That is consistent with the rate of decline in recent quarters and in addition to the bypass activities we mentioned, we also suspect macroeconomic conditions had a negative impact; remittances and things like that, other ways to track that are down in general to Guyana and similar countries from the US, Canada and other places.

For our local telephone and data business in the Northeastern US, we ended the quarter with about 38,000 business lines. That is an 11% increase year on year and a 3% increase on a consecutive quarter basis.

ION, the early-stage fiber-based transport business in New York State, continued to grow revenues and we still currently expect its operating cash flow to turn positive by the end of the year. In the US Virgin Islands, in March 2009, we sent a notice to our wireless television customers, what used to be called an MMBS wireless business, as most of you know.

We sent them a notice that we were going to discontinue that service by the middle of this year. We simply did not believe that the business or technology was viable for the long term and we believe over time that this unit will perform more strongly if focused on its growing data business.

So the discontinuation of this service will have a very minor negative impact on revenue and it will have a negligible, totally negligible impact on operating income and net income, we expect. As a sign of the potential in the data business, our wireless broadband subscriber business in the Virgin Islands continued to grow. It is up about 22% year on year.

And I think with that, operator, we are probably now ready to take questions.

(Operator Instructions) Ric Prentiss, Raymond James.

A couple questions for you. First on the Commnet side, pleasantly surprised by the volume increase and thanks for the data percent of revenue. It helps us start to get a handle on that.

We had thought going into this year and quarter that the economy would have more of an effect on the roaming business, maybe less people driving, less people going skiing, less traveling. Were you surprised by the volume increases and have you seen anything as you have gone into the April month that maybe gives a little more cause for concern from the economy?

So we haven't seen -- to answer the last part first, we don't have any concern yet that -- other than the general concern everyone has, to wonder if there's going to be some effect. But we haven't seen an effect.

And it is kind of hard to measure because we have continued to expand and tweak the business and the model. So that is clearly driving some gains. It may be we are feeling the effect of the economy, but it is really -- it's limiting the opportunity.

In other words, maybe it would have grown faster without it. But we were somewhat surprised by the level. I will say, I was wondering what would happen. And it could be, if you think about the tourist areas, which they are nice places we have, but we also do a lot of just really rural areas where this is just necessary coverage.

But when you think of the tourist areas, the one caution would be in all those areas is it could be that people had prepaid or booked vacations this winter but won't book them for next winter; for example, in the ski areas. So that's possible. I don't think we have a great cause for concern, though.

Great. I mean, watching kind of the Utah and Colorado ski resorts areas, they definitely were down on attendance, and yet you still put up some pretty good numbers.

Right, right. No, so as we say, maybe they would have been better if the economy hadn't held back that kind of -- the visits.

Okay. And then in Guyana, the improvement in the operations in the first quarter, did you notice the scaling back of Digicel as far as aggressiveness now that they've kind of entered the market? Is it more status quo?

We have also wondered with their balance sheet, would they slow down some of their aggressive behavior in some markets. Can you talk about Digicel, what you saw competitively in the first quarter and so far in April?

Sure. I think their marketing is still very aggressive. I think that's just their approach. In handset subsidies and that kind of thing continues to be -- promotions continue to be aggressive.

There is a sign they scaled back. They in fact cut some staff throughout the Caribbean. But I think that is modest.

We really don't -- I think we could give ourselves some credit. I think we hit upon a few promotions that were more effective in the quarter and I also think that when you have a situation where you have one big player, one big incumbent and a very deeply resourced, well-run competitor comes in, they're going to go to a level even -- no matter what you do as the incumbent.

Now, I'm not saying we couldn't have done better and can't do better. But it may be that that low-hanging fruit has all been harvested and that maybe that the market will kind of settle in to something with less movement between the carriers. But it's probably too soon to say that on the back of one quarter.

Sure. And then final question in Guyana on the ILD business, if you had to think through what you think the split was in the year-over-year decline on revenues between the illegal bypass and the macroeconomy, how would you kind of gauge that about $2 million I guess revenue reduction?

You know (multiple speakers)

Tough to tell.

It is tough to tell. I mean, you could kind of say -- I think the economic thing is -- it's not just 10% of the decline. It's -- is it 25%? Is it 50%? It's hard to tell between that range, it really is.

But I think we have heard numbers that said -- I think I heard a number that said remittances were down by 17% according to the government figure or some figure. And I don't -- somebody -- you should look it up to verify. But I have heard that verbally. If that were the case, that might be a marker for order of magnitude for what the economic impact might have been on the international.

Okay, great. Thanks, guys.

Chris King, Stifel Nicolaus.

Two quick questions for you. First of all, I hate to ask you this question again. I'm sure you're tired of answering it at this point, but just was wondering if there was any change in the broader regulatory environment in Guyana either from the standpoint of the government issuing another international long-distance license to another carrier at some point or with respect to the bypass activity, whether there was any successful give-and-take with the government on that front or any action by the government to alleviate that.

And then secondly, just wanted -- I know it's too early to tell and things remain somewhat in flux, but just wanted your kind of 40,000-foot, broad-based reaction to the -- at least the seeming opening up of the US relationship with Cuba, particularly as it relates to the telecom industry and whether or not you would view that as an attractive market to get into at some point if things continue to head down that path.

Sure. To answer the first part, I think the most recent disclosure that we had in probably in our annual report, our 10-K, is still really the status, which is the government continues to move forward in some ways towards an eventual change in the regulatory scheme and they have hired an outside firms to prepare a draft of that.

So there is movement there overall. But there is no change to report on in terms of our negotiations or discussions about what that means for our contract rights and the license and how that would go in and exactly the shape of it.

It continues to feel to us that it will happen. It is a matter of time and we are accepting of that.

I think we are willing to do that, provided that it is reasonable and it is a fair and reasonable result for our shareholders and for going forward, kind of a workable solution we think for the country and for our operations. So that is really to say that it is somewhat the same that we have been talking about, there is no major development there.

Maybe it matters less with some of this reduction, but of course we care. I mean, we care a lot about the (inaudible) scheme going forward. We care a lot about our rights.

As to Cuba, we have had contact from a number of people because of our position in the Caribbean and our access to capital and our willingness to go into those kinds of markets, underserved markets, somewhat more challenging market, sometimes politically. I don't -- Cuba, the one caution I would have in terms of our involvement is Cuba is very big.

And so something -- even though it is the macroeconomic conditions are low and disposable income is very low, it is still very big. And so it might be too big for us to go in ourselves in a nationwide way because we look very hard at the competitive environment and who would be there. But it is something we'll certainly look at, like any opening of a market in the region.

Thank you.

Gregg Hillman, First Wilshire Securities.

Could you talk about the submariner cable from Guyana to Trinidad and what is kind of the rationale for that, the expected return on investment and how does that fit into your overall strategy?

Well, the rationale from the 40,000-foot level is fairly simple, which is Guyana may be a less developed country, but it continues to move forward. And we see at some point that it will move into an area like more developed countries, where data becomes more and more important, where the demand for data and services becomes bigger.

And so when we got involved in getting the Americas-II cable run through The Guyanas, that was really a voice-driven situation, and we have had satellite backup to deal with the fact that that is not a redundant link. And so now you have a situation when you get the data, satellite gets prohibitive as data really grows.

And we believe that with the cable, we may also be able to help spur some additional economic growth. Some additional businesses locating in Guyana could be as simple as call centers and the like.

But it is really a belief in the future that we need a higher capacity redundant -- fully redundant fiber link to the Internet, essentially and that satellite won't do it. So everything we do, we think about return on investment.

This one, it is a little bit softer in your prediction. We know some cost savings on satellite, but it really depends on where that revenue ramps. But we think strategically it is very important to the value of that asset and to the long-term potential.

Okay. And in terms of -- would this be used to be part of the Internet backbone going into the country, and could you benefit from the Internet cafes with this submariner cable?

Yes. I mean, we can benefit. This will be -- this will mean that the overall potential cost of bandwidth and the reliability of it will all improve substantially and we will pass that along to the market and try to help the market grow.

So it does help us too with the Internet cafe in the sense that they are not going to be able to compete if they are trying to do resets or something like that. So to some extent, we would love to see them compete.

They are basically on the data side. They are an entrepreneurial way to deliver data services to a population where not everybody has a PC in their home. That is fine, as long as we bring in any unlicensed activities, bring them out from the cold and into the light; that's fine. We have no problem with the wholesale relationship.

Michael, also the value of your Guyana assets on the balance sheet, what were they at March -- at the end of the month?

I don't have that to hand. Justin will look that up.

What was (multiple speakers)

The value in March of Guyana assets.

And then also, you mentioned an acronym in relationship to Bermuda, UMTA, I think it was. What does that stand for?

It was UMTS. That is a 3G technology in the GSM world. And really for us it is -- to give you another one, I think it's -- I always get this wrong -- HTSTA, or HSDPA, I usually flip them around the wrong way. But that just means that it is a higher speed data version of that UMTS.

So in a way, it is actually 3.5GG. So what it means is it's a higher speed mobile voice and data that will -- that is from the GSM side. So the significance in Bermuda is a couple things, is one, it allows us and most importantly to offer a 3G service, a high-speed mobile service that -- where the device and the user, our subscriber, can roam and Europe, which is all on the GSM side.

There's world phones and things like that, but it is kind of awkward on the CDMA side, which was our existing technology and still strong. So that is the main significance, is the attractiveness to particularly the corporate community. There's a fair amount in Bermuda that travels frequently to the UK, for example.

Oh, okay.

And just to answer your question on the assets in Guyana, we have about $300 million gross and about $115 million net of fixed assets down there, net of depreciation.

$115 million?

Right, net.

Okay. And then finally, Michael, about the towers for Commnet, at what point does a wireless carrier decided to go in with its own towers? Has that happened to you to date and do you expect it to happen anytime soon?

Just to correct, it's not necessarily towers, right? So we are not -- you really have to think of in terms of network; so as we report it, base stations. We have plenty of our own towers, but we are also often on existing towers.

So it is really when they decide to expand their network into some of these areas and it has happened to us. Of course, it definitely happens to us. But for the most part, what drives it if it's -- to us it is logical. What drives it when it is a logical decision is that we are in an area that is on the outskirts of a suburb or right between two big areas of subscribers and so the retail opportunity is expanding nearby or there.

At that point, a carrier often wants to have its own network there because it's just they believe they will get the volumes and they are ready to full-on go in the area. Many of the areas we go in, it is hard to see that ever happening and that is part of how we look at areas.

But occasionally, carriers do build in areas where we don't think it makes sense. In other words, when we think about a single carrier trying to do it, we think to effectively outsource that is a financially and strategically better decision.

But it still happens sometimes. And some carriers seem to be more strategic in that way and some seem to be driven more by local managers and not necessarily the same analysis.

Then in the 10-K, you mentioned that I guess Verizon would have to divest some of its assets from Alcatel and that might affect you. Could you comment on that?

Yes. It's -- if some of the assets that overlap us are acquired by a carrier that we currently serve in that area, then we have the potential to lose the revenue from that carrier in that area. But there's also -- you know, there's also potential on the other side because there's potential (inaudible) we become more strategically important to some carriers. But there is certainly that risk in terms of the first part of that.

Okay. Okay, that's great. Thanks very much.

(Operator Instructions) Hamed Khorsand, BWS Financial.

I just want to get an understanding, what are your intentions with Nevada this year and CapEx?

It is rolled into our CapEx plans. I think we don't break it out for every little market, but it is rolled into our CapEx plans and it is certainly a good part of it. A good part of our build plan will be in Nevada this year.

Right and then the 11 base stations we reported, probably about half I think came from Nevada.

Okay. And then would it be fair to assume that about $2.5 million, $3 million, the increase that you saw on the comment side of the business, was that Nevada related or was that some sequential builds coming from the -- already business that you had?

Nevada definitely contributed to the increase, just like any new area we build. It's really not much different.

So instead of building those sites, we acquired them. So it happened faster. So that is really -- it's not really much different than anything else.

It's just basically adding a new territory and adding it quickly. But it definitely had a very positive impact on the first quarter.

Okay. You can't break out what that was?

No. I mean, these markets get somewhat blurred and I think it's not going to be helpful ultimately for us to break it out market by market.

Okay. That was it. Thank you.

Sir, there are no further questions at this time.

I think we are all set, operator, then.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

All right, thank you.