Q3 2019 Earnings Call

October 24, 2019

No.

At this time I would like to turn the conference over to your Speaker today, Mr., Justin Benincasa, Chief Financial Officer, Sir Please begin.

With me here as Michael prior ATM, Chief Executive Officer.

For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may or may affect our future operating results. Please refer to our earnings release on our website at 89 Dot Com, where the 8-K filing provided to the FCC.

And I will turn the call over to Michael first comment.

There was a lot to like about this quarter, we feel good about the current direction of most of the businesses in our portfolio, though there are always some challenges and there's still.

International Telecom continued to deliver on our 2019 expectations of substantial cash expansion and solid underlying growth.

You had telecom took a big step forward towards the much discussed repositioning and stabilization, though there's more to come.

And so you know good highlights good quarter and I'll move onto the additional detailed starting with our largest segment international telecom.

Trends here very consistent with the first half of the year, which are expanding cash flows. After the completion of major network expansions rebuild and upgrade in recent years.

And the return to normal operations and the Virgin Islands.

We expect these positives to continue into the next quarter and of course, the fourth quarter GAAP comparisons will be better than this quarter, because last year's fourth quarter.

Did not have the benefit of special FCC support.

While we are still examining plant that opportunity for next year, we do not see any significant near term expansion current capital expenditure levels to support the existing book of business in the segment.

Similar pace the second quarter.

Now this had a very modest impact on wireless revenue as they were largely low ARPU subs.

So we believe we should be doing better in some markets and we'll hope to.

See some of that in future quarters.

Video and voice sounds also declined though at lower rates than in the past.

Exceed pre storm levels, and we do think the Virgin Islands as a whole will benefit from the reopening of many hotels in the coming high season.

Turning to U.S. telecom or the third quarter.

In this segment, it's typically seasonally strong but results also benefited from the broader firstnet transaction.

And as a reminder, on that in late July we entered into a building maintenance agreement with 18 team to build a portion of their first net network.

We also agreed to provide tower space and backhaul to 18 t. across much of our operating footprint.

The significant to us of this transaction is the visibility it gives us over a large revenue stream for the next 10 years and likely longer.

Under demanding timelines.

We're proud to see calling that selected for this important project.

It's also an important step towards our goal is stabilizing and growing the segment.

On the gross side, we're pleased with the progress of some of our initiatives and investments.

Without getting into details.

We see 2020 as a potential inflection points, one way or the other for several of these initiatives.

And we expect to provide more insight next quarter as we look ahead to 2020.

In the renewable energy segment, where operations are much smaller than the comparable period, given the fourth quarter 2018 sale.

The U.S. business.

We are examining the potential of partnering to execute on the considerable pipeline the vibrant energy team with a masked in the commercial industrial sector of the India solar market.

In the meantime, as noted we are building out some additional facilities for tier one commercial customers and expect to have those online in the early part of next year.

So in summary, very nice progress in multiple segments and businesses. This quarter. It was it was especially important to see the rebound in U.S. Telecom result.

And to have the visibility that comes with long term contracts.

The continued strong cash flow from international Telecom as was the organic opportunities that we see in certain markets is also encouraging.

Do you want Telecom segment also showed significant improvement this quarter over averages in the first half. The year, then if benefiting from a full quarter of Caf two federal support revenue and for the first net transaction that Michael mentioned earlier.

Consolidated adjusted EBITDA for the quarter was 33 million below the 38.9 million in the prior year. However, adjusting for the onetime FCC funding and the solar sail adjusted EBITDA would have been up 14% from last year.

Excluding last year's FCC funding revenues would be up 6% from 76.7 million and adjusted EBITDA would be up 16%.

And as we make additional progress growing market share in reducing expenses in the U.S. Virgin Islands.

Capital expenditures in the segment are expected to be approximately 50 million this year, which would be a 110 million dollar reduction from last years levels and <unk> and represents significant free cash flow improvement for the segment.

In the U.S. Telecom segment revenues totaled 32.9 million for the quarter up from 31.8 million a year ago and adjusted EBITDA was 13.8 million up slightly from the 13.5 million in the third quarter 2018.

With the restructuring with with respect to the construction piece of the first net agreement we expect a small portion of the approximately 80 million of construction revenue to start showing up in the fourth quarter.

And these revenues to continue through mid 2021.

However, these revenues will be mainly offset by construction costs and should have minimal impact on EBITDA and operating income.

Adjusted EBITDA for the quarter dinar did reflect higher than normal professional fees, but it was relatively stable year on year.

Consolidated net income for the quarter was 1.4 million or nine cents per share and other <unk> or some other income statement items to note the effective tax rate for the quarter was 27% benefiting the impact to some discrete tax items that had a positive impact on the quarter.

We currently estimate an overall effective tax rate in the low 30% rage for the full year.

Also included in operating income was 1.5 million noncash stock based compensation for the quarter, which includes approximately 300000 recorded in the international Telecom segment.

[noise] [noise]. Thank you, ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone to withdraw your question. Please press the pound cake.

Please standby we've compiled the Q when a roster.

Our first question or comment comes from the line Ric Prentiss from Raymond James Your line is open.

Good morning right.

It was a good quarter on the U.S. Telecom side, you called out a couple of items there.

Can you help us understand the magnitude of what the person that transaction benefited in the in the third quarter, given the [laughter] maintenance contract and the tower backhaul piece.

I think I think well adjust and add to it but it's not really that part it's just really related agreements in terms of.

Moving that out of the way. So it's I think I would think of it is sort of interim roaming revenue.

How you're going to report that or help us from the outside model that how should we think about what happens to the number of base stations and therefore, the roaming business versus how we think about modeling out the.

The maintenance and tar backhaul from the person that contract.

I think you'll see I mean as its towers come online as part of the construction right. Then you'll have we'll have the main then you know and the leasing and transport start to kick in in the end the roaming wind down.

But the nature, but the nature of the arrangement doesn't have a lot of you know volatility in that it did you know it's not it's not perfect, but there's not a.

You know theres not going to be a lot of moving around their sort of.

Relatively we anticipate at least a relatively smooth transition from a revenue cycle right.

Overall.

Yeah, I think that that you know the there's there's a different layers of economics related to it I mean, I think you know from or.

You know and some direct costs in the in the build periods like that but the sort of.

Operating income EBITDA impact is not going to be.

Very volatile it should be pretty steady.

What we're really saying is.

As we work to stabilize this segment and this is a big step in that direction.

It also puts us in a position to spend more time on and get more and see more of the impact of.

Growth initiatives, if they're successful so it's it's really it's really when we say that were not referring to this contract congrats.

Okay.

And then I think in the quarter, there was like a $2 million write down for a non controlling equity Adam can you help us understand a little bit about what that might have been or what segment. It was involved with.

Sure it's really it.

I'm not sure segment matters that much but it's it's it's one of our minority investments that we made a couple of years ago, It's where required under the way we hold things under the accounting too.

Mark to market and so there was a significant new round of money was.

Strategic and Big financial Investor in one of the things we invested in having a minority position.

And that came in at a level that required us to mark down our original investment but.

Ah coming in and it's the nature of that accounting that just kind of gets a little lumpy right you write them down you're right I'm up you're right down to write them up kind of stuff, yes, yeah, hopefully hopefully more of a latter hopefully more of a better [laughter] right right. Okay. And then there also was a comment a about.

Discussing preliminary discussions with strategic partners.

The renewable energy side can you update as I've, obviously, it's been talked about for seeming like quarters in years as far as what might be happy there, but does this feel like a little more from discussions or how should we think about what what you're talking about with the renewable energy side.

I will tell us how you really feel Rick.

Primary funder of a large scale solar build in India and so always in this model we were looking for capital partners and.

Potentially easier to execute on but there's you know as always no guarantees.

Okay, and then there millimeter wave auction forms Richard and I don't think I saw you guys in the millimeter wave I assume that's possibly related to millimeter wave doesn't work that well off in the.

More rural areas, but what about other interest like CBRN server. We also have a what the Rudolph the rural digital opportunity fund how should we think about how you're looking at spectrum and other FCC auctions.

Yeah.

We're like everyone looking at it.

It is somewhat of a changing.

A moving target but still.

There's always value and we have to look at at all.

In terms of mill meter wave.

You're right about the recent auction, although I will point out then in a couple of our.

Key markets.

For example, the Virgin Islands, and we have quite a big holding of mill metric.

It's a little bit of.

Stretch at least for us to see to see the value proposition.

And Crs is different Crs, we're very active.

In the Crs, obviously examining the GE a piece.

You know, which I think you understand but for other people on the call it sort of.

Sort of dynamic licensing of spectrum on a location and use basis priority basis, we expect to make use of that.

Particularly in our in building business and we're looking at a you know looking at our options with respect to.

Future auctions of the specific licenses I related to that spectrum, So I think that.

At mid band looks attractive for a lot of the applications and business models, we have.

Right anything on the Rudolph.

Say that I'm not sure I understand yeah. So their exit the rural digital opportunity fund lot of discussion of the FCC recently in China.

Helping rural areas.

Well I think thats going to take some time, we look at every one of those funds sorry, I didn't realize the acronym but.

We have people looking at that in addition to you know.

The whatever you want to call Cathree, there's some state initiatives that we're looking at in places we serve news.

There's a lot going on there I think some of its going to take some time to sort out.

But.

Alright, thanks, guys.

Yeah.

Thank you. Our next question or comment comes for a line of Greg Burns from Sidoti and company. Your line is open.

I just wanted this morning follow up on the the.

Oh, yes telecom segments.

And our understanding of.

What's happening today.

So that business so.

And its revenue going forward or is there any kind of.

Nonrecurring or.

Is it stepped down from here or is this kind of a new level.

So Greg I'm, not going to get into specifics I'm not sure we can even under our agreement with our customers and im not sure material in terms of exactly what they're doing with there.

Traffic and so on but I think that.

The way to think about it is there is some seasonality and this number.

In future years that seasonality may decline, we'd expected to decline as the you know certainly with respect to that customer as right as the as the person that agreement kicks in which which will move it from from you know kind of a roaming to a two.

To to backhaul and maintenance too so as you mentioned.

Okay.

Thanks, and then.

Internationally.

Revenue growth is outpacing subscriber.

You just talk about that dynamic and.

Yeah.

Can you say that again or speaker was kind of thing would you say it again great yeah.

Just a internationally just looking at the revenue growth, you're you're generating there.

Mhm it looks like subscribers were down revenue growth as you just talked about that dynamic what's driving that.

Well.

But really the important subscribers are up and that's the yes, that's the data subscribers and broadband work on mobile right, Yeah, that's fair, but but in terms of all our recent investment that a lot of that was heavily focused on.

You know fiber networks and the like and so we're pleased with the broadband.

Sub growth and so that's up but as Justin rightly interjected to the mobile numbers are down and as I said.

It's really not any big economic impact but.

We'd like to see that go the other way.

And we do think theres potential have to go the other way, but we have to execute better.

Okay, sorry, confuse the to kind of startups, okay. So so that that.

You do they have other projects that are being deployed or is that kind of one of the early wins and what's the pipeline of opportunity looks like it's things.

In terms of talking about it we that's why I alluded to talk about next quarter to date. We are we feel very good about the positioning of Geo verse.

Positioning so we're we're building.

But the real big growth, we think is to calm and what it's really about is.

Yep.

Thank you.

Yes, Hi, just following up on U.S. telecom in the roaming revenues.

Can I can you help me understand if this was something that.

It's kind of one time, it it's kind of increases where you're kind of expect the kind of higher run rate over the next couple of quarters on that roaming rate revenue.

Yes.

I think you know I think just move a little beside the nomenclature I think if you look at the segment.

Financial type that the broad target of financial results, we'd expect from the segment than the last two right. That's the easy easy part and we do think there was some seasonal benefit in this quarter that that may be made it a little higher than we did the in the third quarter is always our seasonally strong quarter.

But it didn't have any one time items.

Okay. So if you look at the third quarter, it's there was little bit better than the.

Well, a little bit better when the year ago quarter.

So is it fair to kind of think that's kind of the run rate going forward like a little bit better than the quarters the year over year quarters.

Yeah, it's kind of what we laid out in the in the press release that we do expect it to kind of that trend to continue.

We had with the Dan the ups and downs of that seasonality, yes, right right.

Well likely kind of where they stay or that the cause of everything you're doing that you think doctoring kind of go up overtime.

I think that overtime right. We what we said in the past is we have we move slowly in these markets because we need to move slowly in these markets I still think there's room to expand the margins for sure in the U.S. Virgin Islands, which is a big piece of revenue. So I do think weaken we'll see them it won't.

The dramatic in any one quarter, but it'll be slowly increase overtime as we just get yes.

We say they're back to normal down there, but there's still work to be done.

[laughter].

Right.

Okay, and then could you maybe just talk just conceptually when you think about kind of allocating capital of.

Ideally you would love to be looking for.

Markets, where we feel like we have a very good competitive position and.

And so those are the kinds of investments will continue to make us as we see the opportunity.

Earlier stage investments, because we think allied there's there's areas in communications side of the business that are.

Right for change and that presents.

Take advantage of some of those opportunities and and find some growth initiatives. So the way we would view those types of.

Okay. Thanks, and then yeah, well one last fingers in U.S. telecom in the wire line piece for the.

That does yeah. It that's probably the new run rate that's our wholesale.

Business, that's mostly internal that we use it for has some third party revenues associated but it's very low margin. So you see is kind of comment on it if it goes down. It also takes a lot of expense out with it so.

Okay. Thank you.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

So so there so there is some potential in the other side, if you're looking at the entire segment.

But if you pull that out you can take Michaels comment and it shouldn't affect the construction think shouldn't really have much impact on the absolute numbers on operating income exactly just more of a margin.

Where they compete with us.

It's just interested in some markets is it. Unfortunately, it's really basic execution on sales sales velocity marketing, you know and being creative and.

You know, we're clearly not doing enough to win over new customers with the value proposition that that they recognize in those markets and.

Value proposition. So we think it's primarily distribution and marketing.

Do you think you got to reduce prices at all.

Okay.

Thank you.

Yep.

Thank you we have a follow up question for Mr., Rick Prentiss from Raymond James Your line is open.

I wanted to come back to make sure I Didnt catch the number I think.

Justin you mentioned, what the early stage drag was in the quarter that Michael you kind of refer to it so much rather right number what the early stage investment drag wasn't three too.

Right, but last quarter was more like one and a half million. So it's already getting a little better on a sequential basis it sounds like done.

Okay.

Yeah, Yeah, we definitely well that's going to stand out so we really need to.

For 2020 thoughts but that.

I think a lot of white.

We talked about in terms of the on the U.S. side is is we've already been talking about that equation of construction costs versus.

You know payments, so I think it falls into that a lot of the rest of it falls in a different buckets, but my comment was focused on international I think.

The way to think about it is you know those major investments we made in particularly in the wireline network, but also some wireless.

Right and that some of the cost for this tower backhaul with.

First that construction will be expense, but.

Feels like I guess, then that as you look into 2020 that 10 to 15 million for domestic could still also be kind of a good planning tool.

Well.

Q3 2019 Earnings Call

Request a DemoDemo

ATNI

ATN International

Earnings