ATN International Inc (ATNI) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Atlantic Tele-Network's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to turn the call over to your host, Mr Justin Benincasa, CFO. Mr. Benincasa, you may begin.

Thank you, operator. Good morning, everyone and thank you for joining us on our call to review our First Quarter 2015 results. As usual, with me here is Michael Prior, ATN's, President and Chief Executive Officer. And I'll be covering the relevant financial data -- financial information and certain operational data, and Michael will be providing update on the business.

Before I turn the call over to Michael, for his comments, I'd like to point out that this call and the press release contain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause actual results to differ materially from those described. Also in an effort to provide useful information to investors, our comments today include non-GAAP financial measures. For details of these measures and reconciliation to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or the 8-K that we filed with the SEC.

And with that, I'll turn the call over to Michael, for his comments.

Thank you, Justin. Good morning, everyone.

As usual, I will start with some highlights for the quarter. This was a good start to the year. As with 2014, U.S. wireless was the main positive contributor to growth offset by declines in certain legacy voice-driven businesses like long distance in Guyana. The year-on-year comparisons get a significant boost all the way down to net income with the addition of our renewable business, which we closed in the very end of last year.

We also made progress during the quarter in our campaign to restructure and reposition our smaller businesses to ensure any continuing investments are made on the sound basis.

Lastly, we ended the quarter with $380 million in cash reserve and about $37 million of debt. Despite the substantial Ahana investment and significant capital investment towards expanding our fiber in wireless networks and upgrading technologies. We hope to build on the already accretive Ahana investment we've made late last year, as I just noted, with additional investments in 2015, though we will remain patient to ensure that we are following capital at reasonable valuation.

So, now turn to some specifics for the quarter, starting with U.S. wireless. As noted U.S. wireless produced another very good quarter, with solid year-on-year growth. While we continue to anticipate our growth rates to be below those of last year and we've already seen production compared to last year's very strong fourth quarter, we are pleased with the performance of this business and delivering about $22 million and adjusted EBITDA for the quarter. The drivers are consistent with past periods. The biggest factors were growth in the number of 3G base stations and service; and growth in usage, partly offset by declining rates. Data traffic on the usage side, data traffic more than doubled year-on-year and total voice traffic was up about 11% and that's really because of the larger network footprint.

The next few quarters, as we talked about in last quarter and in our press release, will not benefit from the same very favorable year-on-year comparisons of sites and service, plus 3G sites and service. But our capital spending plans should put us in a solid position going into 2016, with extensive investments being made in backhaul capacity and technology improvements and redundancies.

As we discussed at length at year-end, our focus is on fortifying this business for long-term cash flows as a partner and alternative network provider for our carrier customers and as the main provider of advanced wireless infrastructure to the truly rural areas of the country.

Moving on to international wireless. Revenues posted a 9% decline in the first quarter, which echoed a similar pattern in 2014. The biggest single factor in the decline was lower roaming revenue across the Caribbean and Bermuda. And this will continue to affect year-on-year comparisons in coming quarters, albeit to a lesser extent in the second half of the year. Future quarters will also be reduced by the absence of our Turks and Caicos business, which we sold late in the quarter. However, this is a positive move for profitability in cash flows in the Island Wireless segment, although not materially so to consolidated results.

We've taken other steps as well to improved profitability in certain international markets with restructurings and reductions in force where necessary. At the same time, we are making more aggressive moves in some markets, where we think that an opportunity exists to see share and growth.

In Wireline operations, revenues were down slightly, although that was partly the result of the lack of long distance transition service revenues that we earned in 2014. Long distance revenue in Guyana also declined again.

In the Northeast, we've had a number of significant wins lately utilizing our recently completed fiber network and also landed a major deal bringing on a customer to utilize 100% of the initial available space in the data center we are building near Burlington, Vermont.

This will bring added capital expenditures, but also a valuable long-term tenant and customer of our suite of services. In renewable energy, the first quarter for us is real quarter (inaudible) segment. The results clearly benefited from the addition of this business. As we talked about when we held conference call at the end of -- after the acquisition, this is a very predictable business with existing assets.

So results are very much in line with expectations with over $5 million in high margin revenue. And surprisingly the massive snow in Massachusetts that covered a lot of the panels that are here didn't materially change those numbers in a major way.

We are in the midst of a year-long project to fine tune the Ahana platform, so that it is the clear partner of choice for earlier stage solar developers. We want to be smart, transparent, fast, and provide ready access to capital. We are actively looking at opportunities to build facilities in new geographies in the U.S. and elsewhere and there is plenty of competition to fund these builds, so we've had a particular focus on opportunities that we think have the potential to open up new markets and relationships.

In addition, we're looking at a number of strategic opportunities in this space, as with the build opportunities. We look both at basic return expectations and at whether an opportunity has a larger strategic benefit, such as again opening up new geographies or segments within the sector.

So in summary, our first quarter operating results were in line with our expectations and reflected the trends that we've seen over the past five quarters or so in our telecom service businesses. Looking ahead, we see a number of ways to enhance the value of the company. In domestic wholesale wireless, we are offering attractive value propositions to major carriers, which in turn provide us with reasonable risk-adjusted returns. And we continue to look at additional opportunities to expand our footprint and customer base in this business.

In International wireless, we see the potential to increase retail subscribers and gain share in certain markets and improve profitability in others. And in Wireline, we are continuing to invest in our own network fiber platform.

Lastly, distributed solar energy is a type of business, we've been successful in the past, one that has solid cash flows and the potential to expand and yield higher returns through real time investments. We're pleased with the start but aware that there is much to be done to ensure long-term success and viability.

And with that, I'll turn it back over to Justin.

Great, thank you, Michael. So for the quarter, total company revenues were 14% to $85.3 million, which reflected 26% growth in our U.S. wireless business. And for the first full quarter of operations from our renewable energy acquisition completed in late 2014, which added $5.3 million or approximately one half of the revenue increase as compared to last year's first quarter.

Adjusted EBITDA continue to outpace revenue growth, increasing 20% to $35.3 million and resulting adjusted EBITDA margin of 41%. In addition to the strong performance of our domestic wholesale business, overall margins were held by our Renewable Energy segment, which posted an adjusted EBITDA margin of 77% for the quarter.

Continuing down the income statement, this quarter's operating income was $19.2 million, up 18% from the same quarter in 2014. Operating expenses this quarter included $1.2 million of non-cash stock-based compensation expense and that compared to $1.1 million in last year's first quarter.

Reported net loss from continuing operations for the quarter was $3.3 million and the loss for the quarter included a $19.9 million charge related to the deconsolidation of our holdings in Turks and Caicos following the sale of that business. This amount is the accumulated losses that were previously accounted for as minority interest over the last six plus years.

Adjusting for this charge, net income for the quarter would be $9.6 million or $0.60 per share compared to $7.8 million or $0.49 per share reported in the first quarter of last year. Another point I should note, is that for the quarter, net income attributable to ATN's stockholders includes approximately $1.1 million from our Ahana acquisition, which is more accretive to earnings than originally anticipated, as we're able to account for the non-controlling interest with a more generally accepted method that is better aligned with the actual economics of the partnership structures.

Looking at the balance sheet of March 31, we ended the quarter with cash and cash equivalents of $380 million, following the release of approximately $39 million of restricted cash this quarter, related to an indemnity escrow account as part of the Alltel sale agreement. And for the quarter, the company generated $35.5 million of cash from operating activities.

Capital expenditures for the quarter totaled $13.8 million, of which approximately $6.4 million was incurred by our U.S. wireless wholesale business and $2.8 million was incurred by our International Telephony segment. Consistent with what we said last quarter where we expect telecom CapEx -- telecom capital expenditures for the quarter 2015 -- for the full year 2015 to be between $65 million and $75 million and we'll look to provide updates to these amounts if necessary with the second quarter earnings. We still expect that more than half of this amount will be spent in the US wireless segment.

Just some additional operating data for the quarter. We ended the quarter with 786 base stations in our U.S. wireless territories up from 764 at the end of the last quarter and 605 a year ago. International Wireless subscribers totaled 313,500 at the end of the quarter, which no longer include the Turks and Caicos subscribers. And internationally, the fixed lines ended the quarter at approximately 154,000 access lines and DSL subscribers ended the quarter at 2,300, which is essentially flat from a year ago.

And with that operator, we'd like to open the call up for questions.

(Operator Instructions) Ric Prentiss, Raymond James.

Hi. Good Morning, guys.

Good morning.

Couple of questions. First, the US wireless business, have the price cuts been reflected within 1Q at all or are they still expected in the wings?

Yeah. They have been reflected. There is more in fact to come, but we had -- we'll have a bigger favorable year-on-year comparison in total on network side, this quarter than we will have in the next few quarters with the addition of our -- build we did in the Midwest that was really mostly in the latter half of the year last year.

Sure. That makes sense. But the price cuts were in there basically for the full quarter?

Yes.

Obviously, seasonality also plays into it as you look into the middle two quarters of the year.

Right. But there is, you know there will be usage growth and there will be some additional price impact. So it's not -- a big chunk is reflected, but I wouldn't say it's all.

Okay. And then in the prepared remarks and in the press release, you talked a little bit about Guyana and wanting to improve things there, you had mentioned that also last quarter, can you walk us through some of the specific things that are happening in the market and what your responses might be?

With respect to, which part of the market?

Yeah, Guyana.

Yeah, well, I think that from the point of view of the reported numbers that -- the main impact had sent some further hit to the legacy voice revenues, particularly long distance. And there is only so much that can be done about that, unless the government actually enforces the laws and -- or the courts and that's -- we have -- that's a slow process at best in Guyana unfortunately. So, I wouldn't expect a quick turnaround there.

They are known to us bypassers and it's clearly not licensed in legal activities, but it takes more than us to correct that situation. And going to the things that we can control though, there's on the wireless side, I think well, revenues have held up. We really think we should be doing quite a bit better from a point of view of total share of revenues, which is how we look at that market, now we don't know what that total value is, but we think we're getting significantly less than half.

And so that's both sub-acquisition, its penetrating the higher value segments, it's increasing ARPU. And there's things that we need to do to improve the customer experience, while our network is good, the retail experience and some of the customer care aspects, really need some work. And so those are the sorts of things we're doing.

What we'd also like to do, which is again depended on the government, is we've been trying for years to move forward and add mobile broadband. Guyana, is quite a bit behind the region and it's hard for our lack of willingness to build it. We've been waiting years for spectrum and so neither -- our competitor has not received any as well, but it's just kind of sitting there for whatever reason.

Okay. And then you said some other markets, where you might focus on costs or profitability I guess?

Yes, its -- I mean as you saw the -- in Island comment, we really -- we didn't do a good job over a time there, in terms of protecting investors money. I think we invested and refunded losses for too long a period of time. And there were external factors for that, but we could have been more disciplined about that. And so it's -- we just have a charge to make sure that, anything that we don't see is on a good growth trajectory out of negative cash flows that we attack the other side of it. It's not material numbers overall. But it's an important thing and over -- if you do that consistently over many markets, it will have an impact.

Got you. Okay. Thanks guys.

Thank you. Barry McCarver, Stephens, Inc.

Hey, good morning guys and thanks for taking my question. I guess, first of on the energy projects, sounds like you're doing a lot of work there to optimize the pitch for first getting new projects and you said it was going to be a year-long project. Can you give us a little more color around the opportunities to secure new projects this year and it's a fact that you are optimizing. Is that pushing out any potential deal flow here?

Yes. Good question, Barry. Maybe I can make it a little clear. It's hard as always to predict, the M&A side and the nature of growth in this business for us is somewhat a conduit, it's both acquiring build project, as we talked about before, which were already in production and that's really M&A. And then its capital expenditures in the sense, it's acquiring projects that haven't been built but have been worked on. So they're there ready to be built, there is a customer, there is -- arrangements have been made utility and so on and so forth. And the competition for that second group, if you want to call that the organic group and what would show up as CapEx for us, it's fairly active market, right. There is a lot -- there're more funding sources than there used to be. And there is -- in some areas there is a flurry to put that money to use.

And so part of what I talked about isn't just -- isn't going to take full year to do, but part of what you want to do to make sure you are attracting the more promising projects from both a return standpoint and relationship standpoint, as you want to -- you want to be a very good partner. And you want -- so you want it to be a very smooth, seamless experience and fast, right, and if you succeed there, I think you can get in a little earlier, get slightly better returns.

And so that's what the team at Ahana is working on, on that front. So from the point of view of trying to look forward, it is hard, I think we have some tax appetite, which we'd like to offset and that helps drive returns in those organic projects. But at the same time, we were very disciplined about looking at total return (inaudible) looking at the risks. And as I noted in my comments just to add further color to that we're -- we're really taking a long view, so it's not just what we do now and the return on that, that incremental use of capital it. What does that open up? Does it open up new relationships or geographies or segments within the business that we think ultimately will drive even higher returns and more growth for us. And I think, we're pretty bullish on that happening, it's just timing -- it's hard to predict timing in the short-term.

Okay. That's really helpful. And then on the U.S. wireless business, I appreciate the CapEx guidance here. Could you break that down between just upgrades versus new base stations and kind of get an idea of what base stations could look like at the end of the year?

We haven't -- I mean, we've haven't really given that kind of -- you know, how much guidance, but there definitely is some base station growth in there as well as capacity.

I would say that more than last year, it's more about strengthening the network then adding to overall revenue capacity if you will.

Yeah, footprint, maybe. I don't know if that's right.

Yeah. It's a very good example that is, just the areas where we think we need some build in, some additional redundancies or capacity or areas where we think, we need to improve the technology a bit. And I think that's got good rewards, in terms of being -- really being that long-term alternative network provider, but it's got less of a short-term kick.

Got you. Directionally that's helpful. And then just lastly on the sale of the Turks and Caicos business, I am curious kind of what led to the final decision to cut that business lose and is there any other pieces of international wireless that are kind of up for the bait?

I think that the, what happened there is we were the third provided in the market when there was some segments in the market that were much more robust including at that time roaming rates were very different and of course it's the high tourist place, that was a hurricane and some other things, really changed and the recession changed the nature of the market. The market in fact lost, a third of its population, from when the moment we invested a lot of -- there were lot of guess work, there's another activity in expats in there that left with the recession and hasn't really recovered. So number one, the market opportunity looked a lot less attractive than we originally invested we had been continuing, because we continue to gain share. We had a very good quality network, we had a good reputation. But in the market by the way, they had no number portability and we just looked at it and in less we got even more aggressive with investment. We either had to get a lot more aggressive investment with the high uncertainty as well as be successful, to get it to a level of free cash flow positive comfortably so or we get out and we basically cut our losses. And when we are able to sell it for a reasonable price, under the circumstances and find a home for our customers, find home for some of our employees and so all those things together with the right moves.

And (inaudible) markets, I mean we don't ever want to predict any of that, I think just ultimately long term that we -- every market we have ultimately, you're investing in it for a reason to get positive cash flows. And if you don't and if you start seeing that, that's going to be too long a path or too uncertain, then you have to make changes. And sometimes those changes are often freight adding, strategically investing more in network, but sometimes they are defensive than retreating.

(Operator Instructions) Hamed Khorsand, BWS Financial.

Hi. Good morning. (technical difficulty) Can we or can you just decide for how much of the decline in U.S. wireless was from seasonality of Q1 versus the rate decline (inaudible).

The year-on-year was probably not what you're asking, but the year-on-year is not seasonality, it was rate decline, even though we did have an increase overall because the network was larger as we talked about.

The Q-over-Q though but there is seasonality, isn't it.

Consecutive quarter rate decline has the big impact.

Yeah. And then -- but keep in mind that the fourth quarter does always have a seasonality. (multiple speakers) it's not hard for us to quantify those amounts honestly.

Okay. And on the Sovernet business, the U.S. Wireline, in the last several quarters you have been talking about just the expansion of fiber and adding more fiber customers. How big is that customer pool in that market for you and why hasn't it really translate into much revenue growth for the same period?

Can you say that again, Hamed?

On the U.S. Wireline (technical difficulty) the expansion of customer base for the fiber lines, I just want to know how big is that customer pool, that you can track the market potential? And why that hasn't translated into revenue growth for that sector?

Okay, well there is a potential (inaudible) in overall, it's not material, but it is for that segment for that business. I think there is a lot of opportunity to grow that on fiber customer base, but what you've seen today and we'll start to receive, as you've seen some of that legacy revenues dropped. All that sort of traditionality-like business, really get reprised more than losing customers and that curve will end up below the curve, the increase of this on network business.

And so I think we're heading into that inflection point now and you'll start to see, if it perceived that's we hope and where you will start to see increases all the way down.

Okay. And My last question is, on the island businesses since Turks and Caic were sold towards the end of the quarter. How much of a benefit will that segment see going forward and how much will we see in Q2 (inaudible) profitability.

Yes, I mean I would say that, it's a business that does about -- it did about $5 million a year in revenue. But as Michael noted that it was slightly negative on the cash flows.

Okay. All right. Thank you. We do have a follow up. Ric Prentiss, Raymond James.

A couple of follow ups, if I could. On the U.S. side, there's been a lot of DC happenings, with Comcast deal getting turned down titled to net neutrality. How does all of that play into the U.S. landscape for your current businesses or any potential future businesses?

Yes, I think we're not directly in the path of any of those things. And I guess I was a little bit, I wasn't ultimately surprised any more than anyone else was. But I, initially I was expecting the Comcast deal to go through. So that was an interesting turn, but I think what had to say was much more about very large deals on the distribution side.

And net neutrality, it remains to be seen where again we're not right in the cross heirs of that, but I can't say we like it. I think that our concern as an investor and operator, smaller businesses in US telecom, is that it's going to add a lot of uncertainty and it's going to add cost, right. And so that disadvantage is the small guys compared to the big guys, because so far what we're seeing to that Title II, it looks like a lawyer's dream, right because nothing seems 100% clear. It seems like somebody can say, were you acting reasonably.

And the reality is admittedly with the telecom carrier buyers. The telecom carriers isn't to be crazy to discriminate based on content. that's not the business we've ever been in and when government says, ask telecom carriers to do that, nobody wants to be in that business. But managing your network to handle these just, amazing increases in good demand it just seems reasonable. So I am not a fan, but I don't think we're directly in the cross heirs there either.

And then the broadcast auction seems to be getting a lot of attention, the FCC chairman talking about first quarter T-Mobile yesterday on their call being very energetic and excited, they'd like to see it in the first half of 2016. What are your thoughts on the broadcast auction timing and would you be participating?

Yes, I think we will certainly look at it, it's a good chunk of what spectrum that should be valuable, it's going to be acquired by the big carriers and therefore you expect it to be put into the (inaudible) fairly quickly and other equipment. We don't have that, the same pressing need in most places, that some of these carriers do, but we will look at it and I thought I agree with you, just sort of set aside but that was interesting comments by T-Mobile. So, clearly that plus there are less than full attack on the recent (inaudible), indicates there at least seem to be lining up to be aggressive. So, it could be another fairly robust option.

And then if you guys were to participate, I would assume you'd be able to go into the reserved area, so you wouldn't have to compete against T and Verizon for pricing?

Yeah, I think that we were obviously very aware of and had some participation in -- and we really appreciate the SEC has taken a lot of efforts to help, make this option, had some potential for the smaller carriers. So, yeah that means that there's a better chance for us to acquire spectrum at a reasonable -- at a price we can afford, let's say.

So, betting then, does it happen before President, Obama is gone?

I don't want to bet on that. That one is a (inaudible) bet, because my bets would have been wrong in the past.

Thank you, and I'm not showing any further questions. Please proceed with any closing remarks.

That's all we have everybody. Thank you, and we'll see you in another quarter. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.