ATN International Inc (ATNI) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ATN International Q3 earnings conference call and webcast. 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 Justin Benincasa, Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on our call to review our third quarter results. With me here is Michael Prior, ATN's President and Chief Executive Officer. And we'll be doing the usual. Michael will be covering -- I'll be covering the relevant financial information and Michael will be giving an 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 our 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 the reconciliations 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 filing provided to the SEC.

And I'll turn the call over to Michael.

Thanks, Justin. Good morning and welcome, everyone.

This quarter was a great first step towards seeing our recent investments start to take shape and reaping the benefits of putting our balance sheet to work. Those benefits are most clear in the International Telecom segment where we invested cash, assumed debt, and contributed subsidiary-level equity into two businesses that are centered on markets we know very well, namely Bermuda and the U.S. Virgin Islands.

During the quarter, we completed most of the work involved in integrating the teams and businesses and synchronizing key processes and functions. We are also moving quickly on areas we have identified both pre-close and post-close as needing attention or requiring investment to improve the customer experience. There is certainly plenty more to be done in all areas, including network, care, and systems, but there's nothing we have seen that we believe will stand in the way of taking these businesses to the next level of performance.

Meanwhile, we saw the results of some good and smart work improving operating efficiencies in some of other businesses including the balance of International Telecom and in U.S. Telecom. In the former, this added to the year-over-year growth in EBITDA and in the latter it offset part of the impact of the anticipated year-on-year revenue decline.

In Renewable Energy, we enjoyed the benefits of an unusually dry summer in the United States, as well as some contract escalators, and continue to pace with our investment in building in India.

Lastly, we managed to pay lawyers and bankers a bit less this quarter, which helped the bottom line. As investors may recall, we incurred very high transactional and related expenses over the past three quarters and we viewed those levels as unusually high even with our history of transactional activity.

Alright, with that, I'll turn over to some more specifics by segment, starting with U.S. Telecom.

In U.S. Telecom, we continue to work with our major carrier customers to help alleviate the margin pressure they're under while, at the same time, ensuring there is a future path for our wholesale business that makes sense for us. This past quarter was quite consistent with our expectations of where we expected to be in that process and the impacts on revenues. Revenues and profits were lower compared to last year although, as I noted, our team did a good job of finding additional operating efficiencies to help us adapt to the current climate and offset a portion of that impact.

The trends behind this business remain the same. Data volumes continue to climb, but rate adjustments and other concessions more than offset the revenue benefit of those volume increases. Those impacts on year-on-year comparisons will continue to be felt, consistent with prior guidance, for another quarter or two. And, after that, while there may be some lingering effect, we expect that overall comparisons will become easier. We continue to work on additional revenue streams and further cost reductions, but there are not a lot of easy wins and, therefore, it is far too soon to judge whether we will be successful in that regard.

On the wireline part of this segment, in August we announced an agreement to sell our fiber and other wireline operations in the Northeast to a larger player in the region owned by Oak Hill Capital Partners. This business simply did not have enough scale and we believed an exit for ATN made good strategic sense. We made our first investment in this business more than a decade ago and we are very appreciative of the efforts of the leadership and employees over the years to expand and upgrade the business, including extensive fiber builds in underserved towns and communities. And we are confident those benefits will be enjoyed by customers for years to come and, indeed, enlarged and expanded as part of the new company.

We expect the transaction to close by early 2017. And just to give you a sense of the size or impact, this business generates about $21 million in revenue annually, but current EBITDA margins are much lower than our consolidated margins. And thus, we expect the deal to have an immaterial effect on EBITDA and, because of the level of capital spending involved in it today, to be accretive to free cash flow and net income.

Moving to International Telecom, as I covered in the overview, the main news here is seeing the impact of the two transactions. While there will be puts and takes, we believe there is plenty of opportunity to improve these businesses and their financial performance.

Right now, we are working on a number of areas; customer care upgrades and improvements, retail operations and branding, network quality assessments and improvements, network expansions, and operating efficiencies and synergies in all areas. Our approach is to move fast on the clear needs and biggest improvements from the customer standpoint and move more deliberately and carefully on the efficiencies and synergies that don't provide a significant near-term benefit to customers. And we recognize that our plans and expectations will inevitably have to be modified as market realities, such as the competitive environment, evolve.

So, what does this all mean from a financial standpoint? Well, it means getting these businesses into an area of healthy and sustainable operating margins will take a little time, but if we are successful there will be signs of progress in 2017. It also means that capital expenditures may be higher in the near term, but will level out as the critical elements of the network plan are addressed.

I note, as well, that network investment will vary by market, but there is a common element at the moment of mobile network 4G expansions happening in multiple markets in the same timeframe, carrying into the middle of 2017. And Justin will cover this in a little more detail when he talks about capital expenditures. In terms of growth, the main opportunity will be in growing data revenues, whether wireless or wireline. This primarily will come through higher data penetration rates in places like the Cayman Islands, Guyana, and the U.S. Virgin Islands.

And some simple subscriber information across our International Telecom segment to understand where things were at the end of September. We had approximately 94,100 high-speed data subscribers. We had 61,200 video subscribers. We had 187,600 voice lines, that's fixed, and 313,500 wireless subscribers. And the first number I gave you, the high-speed data, is fixed. We are also looking at providing additional operational metrics, but, at this point, I think it's a little too soon to get more granular, having just absorbed all these systems and databases.

One other thing to mention before we move on to the next segment; as some of you may have noticed, Hurricane Nicole went right over Bermuda in October. In fact, the eye of the hurricane, which I think was Category 3 at that time, passed --

Yes.

Yes, yes. Passed over and surrounded the territory. Bermuda is a remarkable place and, despite this engulfing, there was no loss of life. And I would like to thank the KeyTech Group employees for their dedication and hard work in swiftly restoring service to our mobile, video, and high-speed data customers despite the damage and massive power outages. So, we don't expect the storm to have material impacts on the segment results for the fourth quarter. And, again, we're grateful both that our employees and customers are safe and for the excellent work in quickly restoring service.

In Renewable Energy, revenue from existing domestic production facilities was up nicely over last year due primarily to the severely dry and, thus, sunny summer weather in our areas of operation. But, as I mentioned before, there were other benefits as well including contract escalators.

Meanwhile, development of new solar facilities in our Vibrant Energy business in India continue to pace. We remain optimistic that we will have the first 11-megawatt facility ready for service and generating revenue in the current quarter and that we will have at least 50 megawatts in total of facilities ready for service in the first quarter of 2017. We will provide a better sense of the incremental revenue and other impacts on our P&L with our fourth quarter results.

While the operating team continues to acquire critical land and grid connections where we have clear indications of customer demand, the next phase to achieving our broader goal of building and operating hundreds of megawatts of facilities in India will be securing the project debt financing on the initial sites. And this is a process we would like to complete in the first quarter of 2017 or soon thereafter.

In summary, this was a great step forward in understanding the composition of our business and revenues following our recent investment activity. We have much work to do and much opportunity in the months and quarters ahead.

As investors will note, despite all of this activity, we still have significant balance sheet capacity. In Telecom, we are always looking at potential investments, but we are spending a little less time on that today given our focus on integration and internal investment. In Renewable Energy, while we are similarly focusing most of our attention on the new business in India and our existing facilities in the U.S., we are still active in the market. This is a business where development and strategic investments are (inaudible) ordinary course.

Also, as I noted, there was some good work done in select areas of the U.S. and International Telecom segments on identifying and realizing cost savings to help maintain a sound competitive footing and sustainable model. We are appreciative of those efforts and they will continue.

Lastly, we were very pleased with the current configuration of ATN's business. In Telecom, we have a balanced mix of domestic and international services and of wireless and wireline. In Renewables, we have the experience of a solid base of producing assets domestically that we are leveraging in what is probably the world's fastest-growing market for solar power. And, in both Telecom and Renewables, we are bringing services primarily to underserved markets and that is something of which we are all very proud.

And now that I've avoided ending my talk with a preposition, I'll turn the call back over to Justin.

Okay. Thank you, Michael.

For the quarter, total consolidated revenues were up 43% to $138.8 million compared to the prior period, while consolidated adjusted EBITDA increased 17% to $46.4 million, representing a margin of 33%.

In Telecom Services, our financial results for the quarter were impacted by several organic and acquisition-related factors. First, our U.S. Telecom segment revenues declined 12% from the prior-year period to $47.6 million. And adjusted EBITDA was down 19% to $24.3 million. This performance was in-line with our expectations and, as we previously discussed and as Michael noted, this is due to the impact of the renegotiated wholesale roaming contracts with lowered rates; an impact that was partially offset by higher roaming traffic volumes.

With nine months completed, we slightly increased our revenue guidance for the segment to be between $170 million and $180 million and are still expecting adjusted EBITDA margins in the mid-40s% for the full year 2016, as some of the rate reductions took effect a little later in the year than we had originally anticipated.

In the International segment, revenue significant increased by 125% or approximately $47.4 million and adjusted EBITDA increased 118% to $24.7 million. These increases in the year-over-year period reflected the full quarter impact of our acquisitions in Bermuda that closed in early May and the USVI acquisition that closed on July 1st. In addition, EBITDA also benefitted from lower operating expenses in Guyana this quarter compared to earlier quarters this year and the comparable period last year. We plan to make investments in these acquired businesses in the short term, in areas such as marketing and network support, that should ultimately benefit revenues over the long term, but we'll continue to focus on driving margin improvement over time through our benefits of scale and shared service efficiencies.

In the Renewable Energy segment, revenues increased 17%, while adjusted EBITDA was up 4% to $4.1 million. Revenue growth, as Michael noted, was particularly strong this quarter due to a better-than-average production quarter, particularly in the Northeast markets, along with contract rate escalations. As we noted last quarter, EBITDA growth lagged revenue growth due to the increase in operating costs incurred related to our India investments as we work to bring those facilities online late in the fourth quarter and into 2017.

Operating income for the quarter was $22.1 million. As forecasted last quarter, we incurred $2.1 million of transaction-related charges mainly due to banker fees associated with the USVI acquisition. Also impacting operating results this quarter was $21.9 million of depreciation and amortization expense, which included $7.3 million of additional expense related to the Bermuda and USVI acquisitions. We expect to see this level of quarterly D&A to continue throughout 2017.

Included in operating results for the quarter was non-cash stock-based compensation expense of $1.4 million and that compares to $1.2 million in the third quarter of last year. And our effective tax rate for this quarter was 45% and in the range of what we would expect for the full year 2016. Net income for the quarter totaled $7.2 million or $0.44 per share.

Turning to the balance sheet, we ended the period with cash and short-term investments of $288 million after using approximately $60 million of cash on hand to close the USVI transaction. Year to date, cash provided by operations was $92 million and total debt outstanding is $118.9 million, which does include the additional $60 million of debt negotiated at what we believed would be favorable terms as part of the USVI acquisition.

Capital expenditures for the quarter totaled $35.7 million, which puts us at $78.5 million year to date. Of the $35.7 million for the quarter, approximately $10.3 million was incurred by our U.S. Telecom operations, $14.3 million by our International Telecom segment, and $10.1 million in the Renewable Energy segment.

As we noted in our release and Michael also commented on as well, there's several concurrent telecom network expansions and upgrades are underway in several of international markets. All of these investments were considered and planned for as part of our acquisitions in Bermuda and the U.S. Virgin Islands, but they do result in a higher-than-normal level of capital expenditures in the near term. Exact timing is always difficult to precisely predict, but we're currently estimating that Telecom capital expenditures in 2016 will be between $95 million and $110 million and our projected 2016 bill spend in Renewable Energy segment remains at between $40 million and $50 million.

So, summing up, this was the first quarter in which our results reflect ATN's new profile and we're pleased that these results were very in-line with our expectations and provide a solid base from which to build revenues, profitabilities, and returns.

And, with that, operator, we'd like to turn the call over for questions.

Thank you. (Operator Instructions). Ric Prentiss, Raymond James.

Thanks. Good morning. Can you hear me okay, guys?

Yes.

Yes. We couldn't hear the operator, but we can hear you, Ric.

Okay, good. I was a little worried there. Well, first, glad to hear your Bermuda operation has made it through safely through the hurricane. Our thoughts are always with people and, being a Florida boy, we're always watching those storms. So, I'm glad to hear everybody made it through okay.

Yes, thank you.

Also glad -- kind of a clean quarter and so it makes it a little bit easier this quarter. When we think about the new acquisitions that you've brought on, that they're in there for a full quarter this time, what kind of seasonality is there in the businesses that you've bought?

Not very much at all because most of what we have bought is fixed line, which doesn't really have the same seasonality. There is a little bit of increase in accounts in summer months in a place like Bermuda, but it's really immaterial.

Okay.

When roaming used to have, the roaming revenues used to have a bigger impact, you had a little bit more of that, but that's been kind of a shrinking revenue stream.

Plus, it wasn't part of what we acquired, really.

Yes, exactly. So, there's not really any seasonality from landline people turning off their phones or any -- like sometimes colleges or tourist destinations. But it looks like pretty normal business that can just grow as you invest in it.

That's right.

Okay. With the fiber in the Northeast, the Sovernet sale, any thoughts -- and I think you said closing early 2017 -- any thoughts on when you might move that to a discontinued ops type item? Or would you just, it would happen at the sale?

It doesn't technically -- they've tightened up the rules on what qualifies for that and what doesn't. And it really doesn't qualify.

Okay. But you've given us that -- historically we would have been able to get out some of the stuff, but it does $21 million a year in revenue, ballpark. And the EBITDA is pretty minor, if I remember right. It was like kind of plus or minus on the rounding points.

Yes, that's right.

And when you say CapEx could drop, how much CapEx have you been spending in that area and what might we think the reduction or removal of that business next year might mean?

On CapEx?

Yes.

We scaled it back on the CapEx. So, it's down a couple of million, probably, this year. So, it's not a big number. Prior to that it was a bigger number in years past.

Right. It was maybe $7 million last year, something like that.

Yes, yes.

Okay.

But this year, not that much this year. It's not a big number within the U.S. Telecom piece.

Good. Okay, yes, I was just remembering back when we used to get more specificity on that one.

And then, final question is, in general, CapEx, it did raise from the prior guidance I think about $15 million for Telecom CapEx this calendar year. Talk a little bit about what's happening in the change there because I thought the change already reflected the thought of what would be in the acquired companies. And then as we look forward, I think I heard you say D&A, and this is a good run rate, but what should we think about CapEx levels in 2017 versus this year given just a part year of the acquisitions this year?

Yes. I'll answer one piece of that and then Justin will answer most of it. I think one of the things that happened in the capital expenditures this year, so far, and with our updated guidance, is some of the projects we're looking at in Guyana, there's judgement of how much you can get done in a year and we're actually getting a bit more done than we had expected. We've got major wireline network improvements as well as a wireless UMTS HSDA network going up relatively rapidly and will be mostly completed this year or will be completed this year.

And some of that --

But --

Sorry, Ric, I'll just add some of that -- so, some of that increase, as Michael just discussed, comes out of a market like Guyana. Some of it just shifting timing, right? And that's what I'm trying to get across. We can easily swing big amounts just by when a vendor P.O. gets sent out so that it can move around a lot within quarters.

Yes. And quarters could then slip into which year does it pop into, which is why just trying to gauge, as we look at a full clean quarter in third quarter in CapEx was in the $36 million range, but it seems to be going up. How should we think about, given what you've said for CapEx this year, how much would we think that roughly, ballpark, or some kind of estimation of what CapEx might look like on a normal course of business next year, then, given what the guidance is for this year?

I think we will -- let's break it into segments. I think on the U.S. Telecom segment, we should bring CapEx down on that segment. If we're in a position where revenues are flattish, then we can't spend the CapEx we've spent. So, that needs to come down.

On the International Telecom side, I think we'll still see elevated levels into 2017 because there is going to be parts of that are going to have to carry into the first and second of the year, for sure. And so, they'll continue high into a good part of 2017 and probably trail down towards the back end.

And then, the wildcard -- not the wildcard, but, really, the balance is then on the solar side. They will still be heavy going into 2017 depending on -- and I almost look at that as more as M&A than I do as CapEx because it's the entire investment going into India to build those markets.

Okay. Alright, that helps. I appreciate it. Thanks, guys.

Sure.

Barry Sine, Drexel Hamilton.

Hey, operator. Your mic is not working well. Can you to try to just jiggle it a little bit? Because we can barely hear who you're introducing.

Yes. Barry Sine, Drexel Hamilton.

Hey. Good morning, gentlemen. I think I heard my name so I think my mic is open. I wanted to continue. You've owned, now, the Virgin Island and the new Bermuda properties for a quarter now so I wanted to get a bit more visibility now that you know those properties a bit better.

Could you go into some specifics in terms of what you're spending on capital? Is it network? Is it 3G? Is it 4G? Are there back-end operating systems, billing systems? What are you specifically spending on, on those markets?

Well, we're spending on really all of the above. But, thinking of the big numbers, the big numbers are, in both markets, LTE network rollout, which, to some degree is not really, especially in Bermuda, not really triggered at all by the acquisition or the transaction. And so, that's a fairly big number.

And then, on the wireline side, we have things we knew of and things we found, as you do, post-close in the network that needs work in terms of remediating issues on the video network or systems underlying the data network. And then there's builds, fiber builds and extensions to increase speed and make the network more competitive and more attractive and the customer experience better. And that's really more in Bermuda and Cayman than the Virgin Islands.

On the Virgin Islands, the biggest thing is wireless and then fixes to network. But there is some wireline expansion as well. Just more (inaudible) --

In terms of like billing systems and stuff, Barry, we don't have any wholesale rip-and-replace kind of projects underway. There's definitely some costs associated with incorporating and integrating systems, but it's not -- it's nothing like what we had to deal with when we bought the Alltel properties back in 2010.

Okay. That's very helpful. Just continuing on those markets, if I think about what you talked about before you closed on those, if I recall correctly, those were a bit lower, quite a bit lower EBITDA margins than your other properties. There's obviously synergies when you consolidate in and I think you had some ideas on operating synergies on the ground. Could you talk about where we were pre-close EBITDA margins and what you think you and get those new acquisitions to and over what timeframe?

You want to do the first part?

Yes. I mean when we bring those on, those margins were kind of low 20s% to -- high teens to low 20s%, if you will, in those markets. We do think we can bring them north to more in the --

Mid to high --

Go ahead.

I would say, near term, mid- to high 20s%. And that's not next quarter. It's not going to happen instantly. And then, longer term, looking around at these businesses, healthy margins would be in the 30s% and maybe even 40% depending on what your capital spending profile is.

But I would say the high end of all that is a ways away. And we're going to be cautious about it. And, as I said in my remarks, I mean a lot of that is you've got be careful. We're really much more focused on making sure we get off to the right start and have and build a network and processes and team that can, in some cases, continue and, in some cases, for the first time, really deliver a very high-quality customer experience. And that's, to me, by far the most important thing to do to preserve the value of the business and the investment.

Okay. And then, moving over to Guyana, you mentioned a little bit lower cost, margin improvement there. I think you talked about lower marketing expenditures. It is my recollection that a year ago marketing expenditures were elevated due to a response to competitors in that market. So, could you talk about what factors are driving spend there and what the competitive situation is looking like now and has that changed?

I could take part of that and I'll let Michael talk about maybe the competitive. But a year ago, we rebranded that market so we had a lot of kind of rebranding costs that were -- and some kind of one-time legal costs that were running through that. And I think that was where we saw, basically, a year ago period and then really did carry into the kind of first half of the year. I think where we're running now on expenses is a maintainable level going forward. And I'll let Michael talk a little bit more about the competitive side.

Well, yes, on the competitive side we have more to do there on the wireless side to make sure we're -- I think we've started to see real improvements in our competitive footing and some improvement and some of that reflected in share. But it's early days and I think there's more to do.

Wireline is different there because it's -- while, in theory, there is exclusivity, it's not really. And there may be more to come there. So, we just kind of have our head down on that side to say; look, we think there is real overall growth in this market potential and we're going to continue to roll out faster and better data services on both wireline and wireless.

Okay. And then, my last question is on the Renewables margin and expenses. I think you said in the script that expenses were down a little bit. You spent a little less money on lawyers this quarter. If you look at it going forward, I'm trying to get a sense on what the development spending is, do you have an appetite for additional projects, perhaps additional countries? Are we going to still see elevated spending as you look to expand that portfolio? Or do you have enough on your plate now for the next couple years to get India built out?

I think we do have enough on our plate, in some respects. We're fine with where we are. But our view on transactions, and the Renewable team, is that you've got to keep your eyes open and be opportunistic. You can't -- you don't want to pass up something that's a good strategic fit and good value. So, I think we look at those.

I think that if you look at us over time, we've always looked at a lot of things. So, we always have some sort of dead-deal costs and walking-around transactional costs. They were really extraordinarily high in those past three quarters through an unusual set of circumstances that I don't think are likely to repeat themselves unless we're really doing very, again, multiple deals at the same time, very significant size. But even our kind of busted-deal expense we were really extraordinarily high and I think we've taken measures to make sure that that's hard to happen again. I can't say never, but I don't expect it to rise to those levels easily.

Okay. Thank you very much, gentlemen.

Sure.

Barry McCarver, Stephens Inc.

Hey. Good morning, guys. I think you've got most of my questions have already been answered. But on the -- I guess on the U.S. Telecom, if I think about your guidance for full year there, you are expecting a turn down in the fourth quarter. How much of that is driven by just seasonality of the wireless business versus the ongoing kind of repricing of rates?

It's a little bit of both, but I think, as these contracts have come -- gotten renegotiation, seasonality is less and less of an impact. And it's probably somewhat less -- the third quarter used to be a big seasonal high for us. And then, I think, as these rates and volume tiers kick in, that gets less and less of an impact.

So, I think that's a long answer to say that, yes, fourth quarter definitely is usually a lower quarter for both traffic volumes, but it's also the lowest rate tier. So, you got a little bit -- it's probably more rate-driven than seasonality that's bringing the fourth quarter down.

Okay. And then, I guess, Michael, you mentioned the cash on the balance sheet and the strength there and the fact that you are still integrating some assets and probably not too focused on deals. But, thinking about your three business segments, looking out over the next couple of years, where are we most likely to see you do a deal? Or what are you seeing in the marketplace today that might become attractive?

You know, I think there's a mix, Barry. The best way to look at it is there's two things. It's are there businesses' assets that look attractive in terms of fit with us? We understand them, we like the business, we want to be in them. And what the values are in the market on those.

Right now, I would say there are a fair amount of attractive assets from all but the value point in both telecom and renewables; more so in renewables, definitely more activity there that can fit with our size because in telecom so much has been consolidated. But because of the asset values, there's a lot of people looking to sell businesses that either are private equity owned and they're looking for an exit or are smaller players and they're just looking to capitalize on where market prices are.

So, for right now, I feel it's hard to find things that are going to be worth us moving our focus. But I would say in any quarter we're certainly looking at something. We're not -- so, something could move along to the point where we're interested.

Going longer term, it feels today less likely that U.S. Telecom would be, in terms of acquisitions, where we'd put the money, but I'm not sure there might not be some interesting organic opportunities there. So, I've learned over time not to forecast that too far because markets can change pretty quickly.

Very helpful. Thanks, guys.

Sure.

(Operator Instructions). Hamed Khorsand, BWS Financial.

Hi. Good morning.

Good morning, Hamed.

My question was you said, you had a comment earlier about the U.S. wireless business and how it was actually trended higher for you as far as where discounts happen, if I remember properly. Does that mean that volume -- I remember this was volume discount based. So, does that mean that volumes have been trending at a slower pace for you than expected? Does that mean the carriers are bypassing your network in some way?

No. No, that wasn't it. I think maybe you misheard, Hamed. But I think what we were referring to was the fact that some of the price, in terms of the guidance we had given, some of the price reductions kicked in slightly later than we thought. So, that's all that was. Otherwise, it's really been consistent, broadly, with our expectations on volume and price.

Okay. And do those discounts continue on into 2017?

Yes. I mean you know there's been a reset in -- there's been a reset in terms of rates and volumes. And so, if you think about the revenue we'll get for a given network size, that's gone down, really, for each carrier.

Okay.

There are areas where there could be increase in some, but the overall is kind of a reset down.

I see. And then, as far as the acquisitions are concerned, now that you have a larger presence in Bermuda and U.S. Virgin Islands, are you managing this business from a cash flow perspective versus growth?

I think we always look at cash flow. It's a question of whether it's near term or long term. And I think one reason we're careful on our balance sheet is we always want to do what's best for the long-term returns.

So, that's a way of saying that we -- there's a mix, right, where we think growth -- there's risk-reward looks good from a return basis, we invest in growth. Where we don't see the growth, we're careful. And we just try to run these businesses in way that's sustainable over time. Right now, I would say we're clearly focused on making sure the customer experience is strong so that the brand is strong and so that we lower risk and increase the, I would say, lifetime value of the asset.

Alright. Thank you.

Sure.

Thank you.

I am showing no further questions. I would now like to turn the call back over to Justin Benincasa for any further remarks.

No further remarks, everyone. Thank you for joining the call and we'll be talking to you again in another couple of months. Take care.

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.