Q4 2019 Earnings Call

Fourth quarter, two <unk> earnings conference call into that.

At this time, all participants listen only mode. Later, we'll conduct a question and I say session and instructions will follow at that time, if anyone should require actually some of the conference. Please press star Joe touched on telephone.

A reminder, these conference calls me might be recorded.

During the conference over to your host Mr., Justin Benincasa, Chief Financial Officer.

Thank you made a good morning, everyone and thank you for joining us on our call to review, our fourth quarter and full year 2019 results.

As usual with me here as Michael prior eighteens Chief Executive Officer, and I will during this call I'll be covering the relevant financial information and Michael provide an update on the business and Oh look.

Before I turn the call over to Michael for his comments I'd like to point out that this call in our press release contain forward looking statements concerning our current expectations objectives, our 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.

[music] also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures for details on these measures and 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 <unk> ATM <unk> dot com or to the 8-K filing provided to the FCC.

And with that I'll turn the call over to Michael first common alright, thanks, Justin Good morning, everyone.

Well, our operating unit continued the positive performance of the third quarter and as a result of the second half of 2019 as a result second half 2019 was a major improvement.

Over the first half and we expect these tailwinds to carry over into 2020.

International Telecom posted another solid revenue increase an even stronger EBITDA growth.

And we believe there's room for improvement thing competitive performance.

You S. Telecom was a very similar story to the third quarter as more progress was made on solidifying wholesale revenues, while we work on developing growth opportunities in other areas.

Unfortunately, this progress was not reflected in our reported earnings per share.

Based on market developments into year end review, we concluded that we needed to write off.

The goodwill ever India renewable energy business.

So that business continues to make strides and landing new customers in developing further pipeline.

Currency losses in Asia Pacific did not help either.

With that let me get into some additional details starting with international Telecom and then I will conclude with some thoughts about the year as a whole.

And the outlook for 2020.

So again, starting with international Telecom.

As I said, our largest segment continues to perform well revenue and EBITDA were up both year on year and on a consecutive quarter basis.

We're reaping the advantages of the substantial network investments from previous years, particularly in fixed data services for consumers and businesses.

Operating margins are getting stronger.

Capital expenditures for the segment were $120 million lower for 2019 to 2018 for an annual capital intensity would be about 13% for this segment.

Well planned an expected the benefit to free cash flow was important and.

And outside of the opportunistic growth investments, we would expect 2020 to follow suit.

The acquisitions, we made in 2016 and the investments that followed have added valuable scale the segment, which we can see in the operating marshment margin and save for the large rather large pickup of the 2017 Hurricanes. They're also producing the cash flows we expected.

Where we've had less successes in growing mobile revenue in subscribers.

For the quarter, we ended up with roughly 284000 mobile subs, which is down from about 300000 a year ago.

And well this had a negligible impact on wireless revenue as they the losses were mostly in the low end of ARPU subs.

We are determined to reverse that trend this year.

And video subs as in many markets continued to decline about 8% year on year as did voice subscribers, though at a lower rate.

Data subscribers of course were the key here and ended the quarter in the year, just shy of 130000, which represents an increase of roughly 8% year on year.

Looking forward, while we have room to continue to grow data subscribers and broadband households, we think the larger opportunity.

In enterprise data services, where we see potential in multiple markets.

Moving to U.S. Telecom voice [laughter] first thing to notice is what a difference a half year makes well well not as good as the unusually strong third quarter, which benefited from seasonal factors results for this segment. This quarter were well above results from the fourth quarter 2018, and the quarterly performance from the.

First half of 29 team.

And we have a lot going on in this segment, we're working hard on the large and complex requirements of our piece of the Firstnet build out.

And we're continuing to focus attention on growth initiatives, both in and outside of wholesale.

We've touched the most of these before but they include enterprise high speed data services neutral host opportunities than our traditional rural operating areas and private LP solutions elsewhere.

Broadly speaking.

Divide these opportunities into those that are focused on building networks, and providing services to wholesale and retail customers in rural areas and those that are focused on the in building or enterprise onsite market for secure carrier class wireless connectivity.

In some cases were more in a build and physician mode and another's we're in a straightforward customer acquisition mode.

We will look to provide more detail is these things develop over the course of 2020.

And with respect to private LP I know, we've had questions from investors about that sort of just give a little more color.

We're going after this through our Geo verse subsidiary and universe has begun deploying into several verticals.

And is also partnering with multiple players interested in taking advantage of its network layer solution.

What we see as the next stage of industry development of in building and Enterprise solutions is this still early in its development.

But we and many other participants expect things to move fairly quickly in 2020, and certainly 2021 with the advancement of the CBRN and Fiveg technology up Eco systems.

And as building owners and occupants realize there was a much more powerful secure and reliable solution then why fi available.

In renewable energy.

While the revenue was relatively immaterial on a consolidated basis. The team is busy pursuing to large builds for top tier corporate off takers and we hope these activities.

Lead to a larger contribution as we get deeper into 2020.

And as noted in our press release, we have invested approximately $32 million over the past three years and for early stage companies with telecom technology.

Core services business models.

In rough order of investment size. These include it in International Communications Tower neutral host company to wireless technology companies and a developer of a new satellite Internet technology.

[noise] well these company feature or still in relatively early stages of development, we are optimistic about creating shareholder value here so through financial returns.

Through the contribution in some cases of technologies are solution.

That leads to other business success at ATM.

We've also made controlling investments in several other businesses, including a private LP in building company, a managed cloud services business and along all fiber initiative.

The managed services business fire mines is growing nicely for young company in is contributing to the product set of both our international in U.S. Telecom businesses.

The fiber business isn't protracted discussions with customers and what not surprisingly is proving to be a long sales cycle.

Business.

The end building company do universe, which I just discussed has developed a strong solution and positive momentum.

[noise] so to summarize for the quarter I think the key takeaways are well operating income in net income were negatively impacted by some impairments and other losses related to certain of our minority in overseas investments.

Our largest businesses performed well and we were able to continue the positive momentum in our telecom segment through year end.

And our visibility is quite a bit better today than it was a year ago, we like where these businesses are right now and we expect continued positive comparisons as we move into 2020.

And with that all kinda back can you just great. Thank you Michael just begin to somebody they all the financial data or for the fourth quarter. Total consolidated reported revenues were 112.1 million up 4% from last year's report a total of 107.8 million adjusting for the sale of the U.S. solar portfolio.

Completed in late 2018 revenue increased 7% from last year.

Throughout the here, we consistently reported steady revenue growth improving profits from the international Telecom segment.

The U.S. Telecom segment also showed significant improvement this quarter over last year and its revenue and EBITDA performance in the second half of the year was up 27% in 140% respectively from the first half of 29 team.

This reflects the benefits from the Caf II Federal support award that we want and 2018 and increased wholesale revenue as part of the first that transaction consolidated adjusted EBITDA for the quarter was 28.5 million an increase of 22% over 2018, adjusted EBITDA of 23.4 million.

Adjusting for the sale the U.S. solar portfolio adjusted EBITDA increased 39% year on year.

Looking at the segments and starting with the international Telecom, starting with International Telecom fourth quarter revenues were up 6% to 83.1 million from 78 million last year and adjusted EBITDA increased 29% to 26.6 million from 20.6 million [noise].

As Michael mentioned in his comments much of the year on year growth come from post hurricane recovery in the U.S. Virgin Islands, and continued high speed data subscriber and revenue growth in the markets, where we've made investments upgrading and expanding our fiber networks.

Capital expenditures in the segment totaled 42 million for the full year coming in lower than the 50 million. We expect it is timing of some of the spend has pushed forward into 2020.

We currently are we reduced capital expenditures by 118 million in 2019, or <unk>, which represents a substantial free cash flow improvement for the segment segment, which was one of our main goals for the year.

For 2020, we expect capital expenditures to be similar to 2019 levels at 45 to 50 million [noise].

Huh.

In the U.S. Telecom, a telecom segment fourth quarter revenues totaled 27.8 million up from 24.9 million a year ago and adjusted EBITDA was 8.3 million up 28% from 6.5 million in the fourth quarter 2018.

While we had expected a small portion of the construction revenue from the first net agreement to start this quarter. The construction schedule was pushed out slightly we now expect a small portion of the approximately 80 million of construction revenue to be reported in the first quarter 2020 and continue through mid to late 2021 I should.

I'd note again, a though that this revenue will be offset by construction costs and therefore have a minimal impact on EBITDA and operating income over the build area.

Capital expenditures for the segment were 17.5 million for the full year 2019 slightly above our estimate.

We were expecting higher capital expenditures and 20, we are expecting higher cap expenditures and 2020 for the segment at 35 to 40 million, which includes approximately 20 million for tower construction.

And building backhaul that we will own and leaseback as part of the first that agreement.

Year on year EBITDA for the quarter included approximately half a million in additional operating costs associated with the early stage businesses.

In renewable energy segment revenues were 1.2 million for the Corp. fourth quarter down slightly from third quarter in the prior year after adjusting for the sale the U.S. portfolio adjusting for the sale the U.S. portfolio I mentioned earlier.

Adjusted EBITDA was 146000 for the quarter.

We reported consolidated net loss for the quarter of 9.8 million or 61 cents per share.

Included in the loss for the quarter was 5.8 million of goodwill impairment charges and a loss on disclose assets from our India solar operations, given the changing market conditions in our in related delays and execution.

Other expenses of 1.8 million included approximately 3 million of currency losses in the quarter. The majority of these losses are from the currency devaluation of our 2017 investment in the Australian Tower Company. In addition to our initial 2017 investment. We recently made an additional investment in January that.

Look our ownership above 20, 20%, which will require us to change our accounting method the equity investment method and 20 Twond.

Our income statement or what other income statement items to note the effective tax rate for the year was 67%, reflecting a mix of country operations in the impact of several discrete book tax items, including non deductible losses that impacted both the quarter in the year.

We expect the tax rate to revert to more normal levels. In 2020 also included in operating results was $1.5 million noncash stock based compensation expense for the quarter.

Looking at the balance sheet, we ended the quarter would total cash and short term investments of 162.8 million and total debt outstanding 86.4 million.

And we mentioned as we mentioned in the press release cash from operating activities was down this year compared to last primarily due to the $27 million tax payment. We made this year on that on the 2018 gain on sale of our U.S. solar operations.

And with that operator, we'll open the call up for questions.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has to be an acid or your recently moved yourself on the Q. Please press the pound Keith.

First question is from the line of Rick Prentiss or sorry, Allen Klee from National Securities. Your line is now Wilson.

Yes, Hi, Hello.

Hello.

The first question is.

When you were talking about the U.S. business.

I thought I heard you say that maybe there Watson construction revenue in the quarter.

Related to first Mad and that maybe you get some in the first quarter of 2020 did I hear that rights to present in the touch I thought that.

Yeah. We ended we thought we might have some in this quarter, but the schedules pushed out so we'll have a small amount in the first quarter 20, and then it will kind of ramp from there. So.

So it is there was not in the fourth quarter.

So almost gains in that segment really came.

Well I mean do you you have the cap to but what else would you point to further benefits and.

You S.

Business for the quarter.

Just improving wholesale revenue.

Okay, and then when you talked about 'em some of the opportunities in that segment for two.

2020, you listed areas, where were you thought you could sell more within retail and wholesale could you maybe just to expand a little bit into opera, how that would work.

Yeah, I think retail in enterprise just to be clear too. So yeah. Yeah. Yeah, I think there I think there's also opportunities. It also but that's maybe takes a little longer.

And so the main issue as Jeff said is retail and enterprise are the main focus.

And a lot. The main driver there is high speed data services, whether its.

Fixed.

Fixed wireless solutions to households, or.

Businesses, and sometimes fiber to businesses so with.

It's you know well under the cap too we had to build out and support and offer those services.

In a lot of these areas.

We have you know we had the backhaul we have the network we have those people in place and so we've been ramping up the selling and ER.

And I think while we made some progress in 2019, we see we see we see an opportunity to improve upon that in 2020.

Would that suggest a outside of.

Firstnet and and cap to that the segment overall.

Might be more like stable in 2020, excluding those two things rather than being in decline.

Right.

Yeah, I think so I think that fit I think that this definitely should we expect some positive contribution from this initiative.

On to the revenues for the segment for sure and I think.

We don't see major pull down sort of where we are today. There are some there are some.

Areas that are that will decline puts and takes but I think it's so I think the short answer is that fair to say.

Okay.

Okay. All this one more question just relating to the renewables business.

I sort of heard two different things one I'm, you know a goodwill write down which implies.

Look as are the is not quite as good. But then also that you're winning some potential or that you have some to new customers to add on.

Yes.

It's the way to think of that business now that this quarter's run rate is kind of reasonable for for the first half and then maybe it modestly increases in the second half but.

It's hard to know like to what degree that could potentially increase if he could add any color on that thank you.

Sure Alan It's Michael I don't think we're going to forecast, we don't you do that anyway, but but I also think that the movements are not.

Likely to be material to the company as a whole I think.

What we're trying to say is there is there are some good development and good.

Reasons to expect some growth there it takes time right. So you land the customers you build.

You build out so it takes time for the revenue to follow.

The sort of.

Customer acquisition success.

And so that'll.

That will mute the near term.

Benefit and the difference between that and the write down is really.

It's a lot of our initial investments.

You know took too long to monetize if you will and that really that's really underlying what.

Hurt that analysis.

And why we chose write off.

Okay. Thank you I'll get back into queue.

Sure.

Your next question is from the line all Ric Prentiss from Raymond James Your line is El pen.

Hey, guys, sorry about the head fake.

A couple of questions for is that first I missed the never sorry been busy earnings morning already what was the impact of the early stage companies in the fourth quarter numbers.

It was an additional half a million dollars over last year.

And what was last year, just a little guys. Yeah, yeah, it's probably a million last year. So it's probably about a million and a half this year.

Okay.

And then the first that project as we had been expecting a little bit in the fourth quarter for the construction side you mentioned, how it's pushed off and then be small once you. What's led to that delay was it weather was a timing from 18 and see first night equipment, what kind of led to almost like a half year delay maybe.

I think it was just a combination of stuff really it's just you know site work. It. It just typical stuff honestly I don't think they said because I I would add it's it's a big overall program.

And you know so there's.

That complexity to to get that.

Starting momentum both on our side and on the customer site.

So big project there. Thanks, a lot to get the wheels running and then what you do it starts rolling.

Any issue with permitting zoning.

We keep hearing obviously, the FCC and others are trying to get small cells going in urban areas, but are we seeing pushed back and many permitting and zoning in the first net target area.

There is in our area Theres out you know I think we feel pretty good about where we are there, but there's always you know theres always some that are taking longer and others. It it's not easy so yes, you're right that is always.

Ken can be the long hole in the 10, but I don't think we have Uh huh.

Particular concern there in our areas I mean, we know them well and we know the process well.

Okay.

I don't bounce around a bit here, but in India.

Renewable energy is not telecom, but while the telecom or department telecom in the telecom fees that are getting imposed and interest in India any concerns about.

As of U.S. based company operating in India, because a lot of foreign companies are starting to get nervous about the telecom side of India.

Yeah, I mean, I think I think indeed.

Is is a very promising market and exciting market and a lot of ways, but there is.

Hi tendency to.

Do right turns left her and sometimes even you turns by government.

You know just has a history of that.

Not not you know keeping a steady path that that really encourages investment in really honestly lowers their their cost of capital if the way I think of it. So I don't think it's helpful to the pace of foreign direct investment that they need and want to to grow that economy, but I still.

I think.

It'll it'll get through that it will just continue to have growing thing and you know in the solar area, we've seen a little bit of that I think the I think the main feature in solar honestly in renewable energy has been.

Massive amount of interest in it which continues and so.

So.

In some respects, it's a buyers market but.

But we still see real value in the assets that are being built.

Okay, and you touched on it a little bit and your comments about geo verse, but we get the question a lot about.

Why do you need private LTE why do people, maybe what enterprise five G solutions inside of a a factory or a different business as opposed to using Wi Fi. So could you elaborate a little bit on kind of why building owners or enterprise people would want a private LTV or.

Private fiveg networks, but built by some neutral host.

Sure and I think and I think I'd add to that it's also watch I know I didn't really mentioned in my remarks. It's also you know I also think we're moving to a much less cumbersome much more cost effective solution than the dad solution to so it also effects. So there's kind of two aspects which is.

A better solution then why five presents today and then the second aspect is so called sidebar coverage indoors, bringing.

Macro.

Network coverage indoors.

So on the first aspect.

Why is.

Inherently not as safe as protocol as the.

Cellular protocols, if you will it's it doesnt allow nearly as many connected devices as the emerging Fiveg technologies will allow.

And.

You know, it's not in and it's not nearly as robust in terms of what you can put in it.

I don't know that there are network slicing technology is involved with Wi Fi so.

It's you know why five has its purpose and we'll continue to have its purpose, but I think it's just if you're really going to go to.

The next level and put mission critical systems on your wireless connectivity.

I think Wi Fi is not a great answer right and if you look at other places in the world like Europe has been.

Actually well ahead on this in terms of industrial Aiotv.

And you can see that you need you need to know you you've got a very reliable very secure.

Solution, you want to be able to connect multiple.

Devices and sensors and you want to be able to do it at low latency. So yes, I just think there's a tremendous amount.

To offer and what Didnt exist before I mean, I think part of what's enabling this is also regulatory innovation right. So the so the whole Crs.

Development or the FCC led in other jurisdictions are now looking at or copying are doing similar things.

Really enables you to have that licensed.

Spectrum indoors.

That the enterprise can drive as opposed to waiting for a macro carrier to get around to it.

And the other advantage you have on that respect is it.

Without setting up and having to.

Do RF coordination with multiple carriers, you can set up a multiple carrier capable solution. So as occupancy change in their preferred carrier changes you don't have to to make any changes.

So I think there's there's there's a reason there's a lot of excitement around this but it's still early right. The.

No that devices are just starting to roll out sort of the the mainstream devices like the iPhone 11 are starting rollout with.

CVR asking bedded.

They are there other areas. We can we produced since that we can put in customer devices.

Today, but.

That the eco system is still developing.

Yes last one for me is then obviously the minority interest has continued to grow 25 million into 2019 32 million over three years, you laid out a couple of them, but how should we think about how much of your checkbook could you saw the pretty.

Flush checkbook, how much more of your check book are you looking to put into minority interest.

And then when would we get a sense of how best from us on the outside valuing what you've already invested.

Yes, we sitting here, we do evaluate things as they come as you know well rack rate. So everything has that caveat, but sitting here today I wouldn't expect the minority investments to be that large in the next three years as they were in the last three years, just because there's some unusual items.

In that and because we have we think we have.

Ample opportunities ahead of us with some of these.

Some of the existing investments controlled investments we talked about.

To put money to work.

[music].

But you know if an exciting opportunity comes along yeah, we're going to look at it.

So I think it was unusual because you really had to.

Two of those investments really drive that number and.

And both are not.

Sort of normal you know that the Australian neutral host business is.

You know one where in a lot of other areas. We would have done it is controlled investment if we did it.

And and the ex calm investment.

Just kind of what we thought it was a special opportunity.

All right and the new satellite technology was that the Oneweb one that exists.

No. This is a this is an antenna technology oneweb was quite a bit longer ago.

This is a new antenna technology and its a relatively small amount of money.

Is it a steerable antenna flat into what kind of satellite antenna technologies and thinking about flat passive multi band, it's pretty interesting, but but I don't you know, it's small investment for us and it's I don't really want to be there.

Disclosure vehicle.

Alright, thanks for the orders.

Sure.

Your next question is from the line of Greg.

And your line is.

Good morning I'm.

When it's on the.

Telecom had mentioned.

The growth in the wireless.

Part of that business has been.

Fixation.

<unk>.

Yeah.

How do you intend to maybe turn that part of the business around and get some girls out of that business.

Yeah, I think the the first one is.

Do a better job on sales and marketing right.

That.

In a couple markets.

You know, we know and the leadership teams know that they can.

And should be doing a better job on the customer acquisition in the marketing side.

And then there's an element of recovery I mean, some of that was the Virgin Islands, where.

It just was not our focus we didnt want to focus on.

Growing a new mobile product, while we were building the recovery of the core.

Fixed line.

Data business and.

With that Don.

You know, we're now in a position to put more attention on the on that growth side. So it's a it's a combination thinks but but frankly, it's not.

It's not rocket science, we just we just simply haven't executed.

Okay, and then we look at the.

Operating margin.

Still segment.

Obviously, you get more scale there.

Nice margin expansion this quarter.

Oh, how should we think about.

Do you have a long or medium to long term target or where do you think the operating margin on that business. These are further room for for.

Any leverage on the international side of the business.

Hi, Greg It's just an i. I think we definitely have room to keep moving that up if you go back back when we first bought those properties in 2016, we said, it's just going to take US. Some time as you go back and look at you know the kind of the quarter before the hurricane we've moved those margins up on Internet.

National.

Pretty significant amount I think we still have room to go it's just going to be slow. It's just a slow kind of process to kind of work your way through it in a in the small market.

Okay.

And then.

Telecom you'd mentioned 20 million.

For.

Oh.

Bill.

It was that part of the 18% or is that.

Actual like Capex.

It's our it's our capex.

In relation to that contract, but it's our capex our assets.

Okay, Okay and.

And lastly, just on some of the investments like Geo versus others.

Richard asked about making some.

Further equity investments.

[music].

Putting operating capital or increasing spend to grow some of these businesses, what's what's your view on that.

Should we expect.

Increased investments.

So much opened up you know this year to get those businesses.

The growth of those businesses.

Yeah, I think he used case by case in some cases I don't expect it because there's other funding sources and particularly in some of the minority.

Investment.

That's meant in other cases I think the answer is yes, but largely success based I don't I don't see.

A big increase in the pace.

You know one the on the control things outside of success based.

Solution you know deployment.

If you will.

Okay. Thank you.

Yes.

Ladies and gentlemen, if you have a question at this time piece.

The number one can you I touched on telephone if your question have you been arguably stream of yourself. If you. Please press the pound.

Your next question is from the line.

VW as financial your line is.

First off on the first not related question is because of a push out does that mean anything from a maintenance.

<unk> revenue standpoint does that get pushed out as well do you think anything that gets recognized in Q1.

No we would need to.

Due to the construction before we flip over to the maintenance, but in the meantime, we pick up the roaming revenue.

Okay, and because that roaming revenue is that what drove the Q4.

Yes.

Revenue hired this is perhaps before.

Yes, the wholesale in the cap to yeah.

Okay, well I'm trying to understand that says that you know recurring in a any aspect or are you able maintain pricing or see any kind of volume increase beyond just what do you have with 18 to you on the first not deal.

I think there things we're pursuing but there are puts and takes in that area. So, but I think I'd refer to the answer before.

On that I think on the on the first that side, it's outside of construction revenue, which is really not meaningful economically.

There's no we're not expecting any big movements it it should be fairly steady state.

Okay alright, thank you.

Sure.

We have one follow up question from Mr. Alan fees.

It's confirmation your line is now open.

Yes, Hi, So earlier, you said that in the quarter that the adjusted EBITDA loss for emerging investments was around one and a half million is it your thinking that it kind of stays at that rate on a quarterly run rate in.

2020, or it moves a higher or lower thank you.

I would say it kinda it'll it'll hover around their rate, but I think as we gain success ill it could grow before we you know.

As we continue to invest but I don't think could be materially you know.

In the short in the short term.

So when you when you say grow you mean, if it could become a larger a little bit of a larger loss in oh on a quarterly basis in 2020.

It could but its lending a into the way. We're operating we're we're really landing those operations now you know with our other operations and you had telecom so with its a little hard to do a perfect allocation.

By but I think what Justin is trying to say is theirs.

They are as you're ramping up a new product.

And as you have success the expense can.

Can expand faster than the revenue in the early days right. So there there could be some of that's what we're not necessary expecting that to be.

Material into in the 2020 numbers.

Okay. Thank you.

Sure at this time I would like.

The speakers for any further comments.

Oh, we have no further comments everybody. Thank you everyone and we'll see you in a couple of months for Q1, thanks, everyone take care bye.

Thank you presented ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.

[music].