Q2 2020 ATN International Inc Earnings Call
At this time all participants the Oneq listen only mode. Later, we will conduct a question answer session and instructions will follow at that time, if any once it requires different turn the conference. Please press Star then zero on your test tone telephone.
As a reminder, this conference is being recorded.
I would I like to turn the conference over to your host Mr., Justin Benincasa, Chief Financial Officer. Please go ahead sorry.
Thank you operator, good morning, everyone and thank you for joining us on today's call to review our second quarter 2020 result, with me here as Michael Prior Ats, Chief Executive Officer during the call I'll cover the relevant financial information and Michael who will provide an update on the business an outlook before I turn.
On the call over to Michael.
His comments I like to point out that the call in our press release contains 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 could 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 on these measures a reconciliation and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our operating results. Please refer to our earnings release on our web.
<unk> ATM, <unk> dot com or to the 8-K.
Filing provided to the FCC I'd also like to note that we're in a quiet period with respect to certain FCC related auctions and as such will not be in a position to answer any questions related to ongoing FCC auction and with that I'll turn the call over to Michael.
Thank you Justin extra Dick Disclaimers this corridor always fun.
So.
Second quarter results show that DTN fairly well position to whether this ongoing health crisis.
But of course, we are conscious of the personal and economic toll.
It is taking on our country and on the communities we serve.
Back to quarterly performance. It was really quite good we've we've seen demand for communication services remains strong, particularly and not surprisingly from home users of high speed Internet.
And we're well positioned to meet that demand.
Our extensive investments in recent years has given us the capacity and reliability that is critical to support our customers and community.
This is about much more the network investment however, our ability to succeed admits difficult operating circumstances is due in large part to a sense of urgency and I can do attitude on the part of our operating teams.
They adapted remarkably well and are continuing to deliver for our customers.
Looking forward, we think there was more we can do to improve our operating efficiency meet demand and win share.
We're not waiting for the situation resolved we are moving forward in the new environment.
I should note that we are well aware that things could get worse, particularly in terms of the local economies, where our businesses are located.
We are preparing for that likelihood and will further adjust our operations and spending as necessary.
And now let me turn to or individual operating segments, starting with international Telecom.
[noise] segment revenue for the second quarter here was relatively flat year on year, but we reported a significant increase in EBITDA and operating income.
Both trends I think reflects some pandemic impacts.
The pandemic caused some downward pressure on mobile revenues, particularly prepaid revenue and overages enrollment.
Also we experienced lower revenue due to travel restrictions in multiple markets.
Offsetting those factors was very high demand for home broadband as already noted as well as for cloud services and connectivity solutions to enable relo working.
For business customers.
On the expense side, the pandemic reduced sales marketing travel and roaming costs and we took additional measures to reduce spending.
We will continue that vigil [noise].
Looking at subscriber numbers fixed data subscribers rose by more than 10%.
Year over year somewhat faster rate than previous quarters, consistent with the pandemic induced increase in demand.
Mobile subscribers dropped largely reflecting lower end pre paid losses.
We think this is roughly equal parts pandemic related and losses the competition.
Video subscribers declined an 8% annual rate.
An uptick in linear videos subscriber losses that was largely driven by the loss of some large hospitality and condominium customers.
Voice subscribers actually increased again due to the success of bundled offerings in some markets.
And our first quarter call. We said that we were concerned about the negative impact of lower tourism activity in many of the markets we serve.
In the second quarter, we saw some signs of that is some hotels and restaurants and other tourism driven businesses shut down and cut services.
However, the impact on our overall business was relatively minor.
Sitting here today I think it is likely the next couple of quarters will be worse in that respect.
If there is no resumption expected soon on tourist visits.
But we've handled downturns before including the financial crisis, and recessions that impact tourism in these markets.
This one may bring new challenges.
So we'll continue to be cautious on spending and we'll look for ways to enhance free cash flow as part of our contingency planning.
As Justin will discuss we expect capital spending for this segment to be below our initial full year forecasts, though we're continuing to invest in our networks and services.
As discussed last quarter. We're also actively working to adapt the business in other ways and to develop service offerings and capabilities that help our customers manage through this environment.
We made a lot of progress on the past few months with digitizing, our customer and employee interactions.
And there is more of that that can be done.
Moving to the U.S. Telecom segment, there was another good quarter here as well.
Well the year on year comparisons are not likely to be as favorable over the second half of the year. We expect continued consistent performance on a consecutive quarter basis.
The driver for that consistency is longer term carrier service contracts and government subsidy programs like Caf two.
And we have also seen steady and increasing demand for our retail offerings.
Particularly the rural broadband services, we have deployed as part of the Caf two program.
This segment is less sensitive overall to krona virus related pressure than our international Telecom segment, although that pandemic did cause delays in our first net build as we've noted and there is of course, some risk with more significant impacts if the environment worsens.
Furthermore, while we do not currently see a great deal of downward pressure the pandemic has curtailed certain operations and sales activities.
Making it harder to complete large initiatives or grow customers in revenue.
Our teams have been doing a great job coping with the restrictions and the changes, but it's certainly slows us down.
[noise] and renewable energy our operations were negatively affected by pandemic and restrictions as some large industrial customers were forced to close factories and mills due to government restrictions and India.
Those customers renewed operations once they've made changes to their facilities and processes in the revenues have recently returned to normal.
So moving back to 18 as a whole I wanted to take the moment to add some comments about our people.
Our business leaders and their teams across all of our operating subsidiaries and supporting operations at the parent level really stepped up in a very tough environment.
They found ways to enhance services for customers with changing needs by increasing data speeds to many homes without charge and by extending grace periods for payment.
They moved quickly to add additional resiliency and capacity to our networks.
They distributed temporary home broadband solutions, using our mobile networks and capabilities.
They held businesses move to remote working environment and they worked with governments to help deliver health monitoring and movement solutions.
And one specific example, these aerobics among many that stands out to me was the effort to rapidly deploy new fixed wireless broadband nodes and Wi Fi hot spots across some underserved areas of the Navajo nation.
To support students working from home and that hard hit community.
This resulted in the upgrade of over 50 sites and more than a doubling of speed and capacity into the existing network supporting a 50% increase in traffic.
Our engineers and others worked tirelessly to get that Don and in Great collective Spirit. We also were assisted in that effort through temporary spectrum license brands from some national carriers in turn we helped other carriers with temporary grants do you spectrum in places outside of our main service area.
And it wouldn't be on customers. There was great work to support our employees and great work in turn by them and adapting to the changed environment.
Our IP folks were able to securely and effectively enable remote operations and collaboration.
Our customer care group maintained crucial support while at the same time relocating people and systems.
Our financial and operational staff ran through rapid resiliency assessments and took measures to further strengthen our position.
It was really great stuff and fellow investors and ATM should be grateful.
And of course, the work does continue we've learned to do many things well, but there are some areas of challenge.
In particular, it is harder to win new customers I mentioned before and it's harder to launch new strategic initiatives are relationships.
But it is by no means impossible and our ambition for growing shareholder value is great now as it was before the pandemic.
So to summarize we executed well in a difficult environment. Our telecom services are in demand in both our international or domestic markets.
We are concerned about the effect of the pandemic on the economic well being of our markets, particularly the island economies given their dependence on travel and tourism.
That said, we have the people and financial resources to manage through this difficult period and potentially find opportunities to extend our platform.
And that's it for me just effective alright, Thank you Michael.
Just to cover some of the financial.
Numbers for the second quarter total consolidated revenues were up slightly over last year at 109.1 million and consolidated EBITDA was 29 million up 19% over the second quarter of 2019.
Consistent with the first quarter the recovery of our newest telecom segment increased demand for our fixed services and cost savings in the international segment were the primary contributors to the strong year on year EBITDA comparisons.
Looking at each of the segments and starting with the international with International Telecom revenues were up 80 were 80.1 million up slightly from 79.9 million last year, and EBIT increased 17% to 28.7 million.
As Michael noted the strong EBITDA performance reflected a change in our revenue mix with increased demand for our broadband services and cost reductions across several expense categories.
As we noted that unreleased approximately 1 million of the savings were onetime in nature and unrelated to the overall operating cost reductions we saw in the quarter.
International Telecom segment capital expenditures in the quarter totaled 9.4 million and $19.9 million year to date.
We now expect the segments full year capex to be between 35, and 40 million approximately 10 million Bill.
Below our original forecast due to project deferrals and delays and we'll continue to monitor any potential project delays as we move through the year.
In the U.S. Telecom segment revenues were 28.2 million for the quarter up from 26.4 million a year ago, and EBITDA was 7.5 million up from 7.1 million in the second quarter of 2019.
Similar to the first quarter and as Michael noted these increases were primarily from the Caf two federal support revenue that began midway in the second quarter of 2019 and increases in carrier service revenue as part of the first that transaction.
Michael mentioned this as well, but I'll just noted again.
We talked about our first quarter call, we expect very little seasonality in revenue and either this year compared to past years.
Based on the terms of our carrier contracts. This will be most visible in our third quarter comparisons as Q3 2019 was the highest seasonal revenue quarter last year.
With respect to site construction and related revenue onto the Firstnet agreement. The overall timing has been pushed out due to permitting and construction delays caused by the pandemic. We currently expect construction revenues to began in late 2020, but this could be further delayed by the current corona virus resurgence in parts of the comp.
Sure.
As we've previously mentioned the delays in construction revenue should have little impact on operating income as revenues will be largely offset by construction expenses.
The segments capital expenditures in the quarter totaled 6.9 million, an 8.9 million year to date.
Similar to the International Telecom segment, we expect capital expenditures and view us newest telecom to be lower than what we originally forecasted we now expect to spend approximately 25 to 30 million versus the original 35 to 40 million.
With approximately 10 million versus 20 million of that on towers and backhaul to support the first net buildout.
In renewable energy segment revenues were 900000 in the second quarter compared to 1.4 million last year in EBITDA was a negative 134000 compared to a positive.
805000 last year.
As we noted in the release pandemic related restrictions resulted in some of our customers having to shut down operations in the second quarter as it today most of those operations are back to normal.
We had consolidated net income for the quarter of 4.7 million or 30 cents a share and this includes a 2.3 million tax benefit in the quarter.
We now anticipate in overall effective tax rate.
Of approximately 5% for the year.
As we expect to benefit from that oil carry back as part of the cares Act.
Also included in operating expense for the quarter 1.6 million of noncash stock based compensation expense and 1.8 million of costs related to early stage initiatives in the U.S. Telecom segment.
Just quickly on the balance sheet, we had total cash and short term cash investments of 126 million and total debt outstanding of 84.6 million.
And with that operator, we'd like to open the call up for questions.
Ladies and gentlemen nature has a question at this time. Please press Star then the number one key on your tone telephone. If your question as many actor arguably could move yourself from me can you. Please press the pound.
Our first question comes from the line of Ric Prentiss with Raymond James. Please go ahead.
Thanks, Good morning, guys.
Morning.
Okay.
Thoughts are with everybody out there families employees yourselves to this code 90 world. So glad to hear things are doing well and you're helping the global situation.
Thank you agree.
Thank you.
Good good one it looks like maybe the re categorization of the financials between mobile and fixed in carrier services et cetera might have changed.
We get those.
Believe it we've got a lot of earning some of that blurry, but if that is true that it looks like some of the numbers change could we get the 2019 quarterly numbers restated also re categorized as they are now.
Yes, I think we did we did correct to the original one on that but I'll find out where that when I thought we filed the rec already just but let me let me check on that I thought it was out there okay, just because it looked like our our twoq numbers, we're matching up but you have you just checking on that they'd be great.
For Wantonly, Michael and I apologize I was on an earnings.
On.
In the.
Prepared or in the press release, you talked about a concern about the economic impact at long delays.
In a return to tourism in travel could affect your international markets.
When would you typically see that because to be blanton too few you came in quite strong.
Things were better than than we thought they would be so as you think about a potential concern on travel and tourism, what kind of seasonality or quarters should we think that might manifest itself.
Well you know in our markets they have deferred hi.
Periods. So we have.
The sort of.
More southerly latitude Caribbean markets have.
It's more score concentrated in the winter and early spring.
So.
Mostly first quarter or some a little second and a little fourth.
And then.
Place like Bermuda, It's it's actually.
Between second second and third quarters is most of it and.
So some of that would have been already the.
And the different economies are are different have different impacts from tourism. They all the island economies as I said.
Some real impacts from tourism, but it's what's more significant in a place like the U.S. Virgin Islands.
It doesn't have the same financial service and other.
Side of the economy to the extent of permit or came in.
So what would what has happened so far though is businesses do have some short term resilience and some ability to adapt.
And weight and in some cases, particularly in the U.S. markets, including units territories. The federal government of course help bridge that.
So.
Just a concern is that if it extends and if therefore and if they are looking forward to prolong period, where they won't see the traffic than they may make further adjustments down to their business from reducing jobs, reducing their own.
Purchasing an economic activity and so there can be a ripple effect and we did see as I noted in my comments, we did see aspects of this.
In the financial crisis in the recession, the followed it.
You know it took a period of time it didnt take things to zero by any means but it had an impact.
Okay.
Another quick one.
Justin you mentioned, a onetime 1 million dollar benefit what was that.
Related to.
I would call them Blake either onetime credits, we got we got a power credit for example, there was one of them and so until some or that we resolved a few.
Disputes that we had outstanding so they're just not going to be recurring so I wanted to point them out.
Okay.
Rick just a follow up on the we filed an 8-K on June Eightth with the with correcting those 2019 quarters. Okay. All right will double check all those inputs.
And then for quite well, obviously, you guys have been making some investment into new businesses.
Always with the illusion that at some point, you'll be able to share with us some more thoughts.
Cobot 19, maybe has changed some of the timelines but.
How are those business is doing what was the burn rate.
The corridor.
When do you think we'll be able to gets more insight into what the opportunities that might be for those new businesses.
Yes, I'll cover the burn the burn rate was the what was 1.8 million on those on those companies, which is just is slightly up call. It a couple hundred thousand over a year ago.
And now I'll, let Michael talk about kind of status, Yeah I think.
In terms of the ones that.
Runs through the top part of our income statement the.
I think you saw it you can see in the segment information.
That our managed services investment.
Is picking up steam and doing well and I think it has more definitely more room to run quite a bit more room to run so weve timely really for the pandemic and demands of our commercial and government customers. So that's positive.
On the other side of this sort of consolidated piece of those kinds of businesses you have.
The in building business at universe.
It's still it's still early for what we're trying to do which is not das if it's a true active new neutral host environment sort of next generation.
So you know as a whole it's still early we are we are getting momentum we are getting places to build out.
That was slowed a bit by the pandemic.
Sales activity was slowed and.
Owners of real estate have obviously pause, particularly in.
Some of those sectors hardest hit like hospitality and commercial.
But we still we're still very invested in that and believe there to the opportunities that significant.
And we've seen things to like the commercial customers coming to us for solutions.
Using.
A connectivity our connectivity platform as a way to do tracking and things like that too.
Able safer usage of facilities so.
We're very positive there.
But but early and then you know on the balance sheet.
Side of it in a two thirds of that number is really represented by our investment in Australian Towerco and neutral host provider.
And that initially got off a little bit of a slow start but it is it is also picking up very positive momentum lately.
Wielding winning build to suits and pursuing larger opportunities. So.
So we feel pretty good about it but it's.
Thats I guess, that's probably all in there.
The color I hope you guys stay well.
Alright, Thanks, and you too.
Your next question comes from the line of Greg Burns with Sidoti and company. Please go ahead Sir.
Morning.
A couple of follow ups pertaining to the Geo first I'm, just hoping to better understand that business and the opportunity there. So.
Just talking about why.
Why are they.
And enterprise.
One building, operator or or maybe a construction company might want to deploy this type of service as opposed to maybe just using Wi Fi or some other conductivity like what is the benefit.
Have a.
Geo verse.
Prime LT service over other solutions.
Sure.
The deployment will.
Utilizing some of the technologies that are coming around fiveg.
So that means you can deliver many more connected devices at one time.
Lower latency.
When compared to Wi Fi the other thing when you compare to Wi Fi is.
Yes.
It's a much more secure speak you know, it's a carrier grade carrier class.
Protocol, which is inherently much more secure than the Wi Fi environment. So.
That's and then the last part is that enough. It also integrates with.
Activity to the macro cellular environment right. So in building coverage. So it's it's really a combination of all that and being able to put out.
A much more robust and secure platform.
To take advantage of.
What we're increasingly seeing is people really building solutions for that.
And and and we think those solutions are going to run over that type of platform increasingly rather than Wi Fi.
Okay, and then can you just help me understand how.
Universe.
Poised to service was the.
The model there are the building out infrastructure or is it a site by site.
Case and from a customer's perspective, how does the economic model work is there a capital upfront capital expenditure and a return services all bundled could you just maybe talk a little bit.
Sure I can talk about a little bit, but let me caveat it to say that in terms of is particularly the last part in terms of the economic models I would say, it's early innings and I think that will evolve. So I don't think we can speak with certainty as to the way it will work.
What we feel strong about is there's a value proposition and we and we understand the building owners.
And tenants I understand that value proposition and increasingly are looking at it. So that's sort of my answer and the pricing model.
The second the first part.
We are doing two things really we that one of the key things we provide.
To call. The Geo core is a is the network platform that makes all the connectivity work right and.
That.
We have some cases, where we are partnering with.
Hopes who has the ability and want to deploy the fixed.
Infrastructure on site.
And they but they want to.
Connected and have our platform.
Basically operate have us operate that network platform and connected to.
Other providers and devices and so on so that we call that network as a service and I think there's there's a lot of interest in that and there's a lot of discussion about that but we're also doing and have done.
Buildouts, where we were happy to build it out ourselves soup to nuts, a turnkey solution for our customer basically a completely connected environment, where we build out the wireless nodes and connect them to that platform. So both.
We're we're open to both and for some partners.
They want to own that.
They may have a lower cost of capital and they want to invest in that and for others.
They would just assume we do all that.
Okay, and I guess.
Like.
The pandemic as maybe slowed the ability to.
So some of these newer solutions, but.
One is there a point where maybe.
More investment will be required or how should we think about the investment requirements of.
Early stage startup business like this that maybe starts to gain some traction what point might you.
You'll need to commit more capital to this business.
Success, I think success drives that right that there is not that there is no preparation capital and we've already invested significant capital and.
Developing the capabilities of the product of technical capabilities developing.
Strategic relationships and.
Customer relationships and things like that but but success is really going to be the main driver. So.
On contracts to connect to either either on the NASS front or or bills and of course, the build side, if we're doing more.
Complete.
Turnkey complete network delivery that will require more capital but.
We think.
We think that is not we're not concerned about that we would that we think that be a nice.
Situation, because we think we will have plenty of access to lower cost of capital to do that.
So.
I think.
Just following the news I think the industry generally not just us.
Bigger.
The sort of larger momentum and build builds I think our most likely in 2021 and beyond.
It could pick up a little steam in 2020, but we're still we're still in somewhat of a restricted environment and we're still early on some of the technology adoption.
Great. Thank you.
Yep.
Your next question comes from lineup Allen Klee with rational FCC Corp. Please go ahead.
Yes, Hi, my apologies because I joined late if this was asked but.
Just if you could clarify too little financial things on the cash flow statement.
Because the purchase of intangible assets and strategic investments under cash flow from investments and then well. So you were repurchasing some of your non controlling interest up as the tune of close to 4 million could you could you just explain those two items. Thank you.
The latter one is actually subsidiaries are subs buying back some of their own.
Dock.
Right so from our noughties, yeah, and the than the first one Alan imports I could tell you were subject to confidentiality restrictions on that.
And we'll hope to share further information next quarter.
Okay. Thank you.
And again, ladies and gentlemen, if you will like to ask your question. Please press star one of your telephone keypad and again that's Star Wars.
Your next question is from the line of course.
You bet you asked tightness.
Uh huh.
So first question I had was related to your comments around international segment are you seeing actual disconnects related hospitality right now or is this just a warning of what could happen. After this is a prolonged kind of a.
Tourist depression.
Both I think really we did see some I mean, most of the we would say the strat as of the condominium complexes hospitality is there.
Did did did did disconnect.
Some of those are not as high a profit margin as our residential customers, but we did see some in the quarter.
And.
Do you really comment and for the situation that's going on in Guyana does not affect any of your business right now.
And the political around what's going on.
Yes.
Okay.
Feels like us.
More craziness politically in lot of places, but it's it's just.
It's it's an unfortunate situation there there's been.
As I think we talked about it last quarter, but there's been.
Uh huh.
Contested issues around.
The election, and the U.S. and UK government and others have questioned it and spoken out quite forcefully about it.
And the government there has its own own physician in response to it so it's definitely.
I would say its inhibited some of the.
Really.
That and that pandemic and to some extent that.
The severe oil pipe.
Change in.
The first quarter, but I would put that is the smallest the factors has definitely inhibited the sort of.
More rapid ramp up of investment and economic activity in Guyana, we expected and I'll add I still expect it I think it will come it's it's just hard to look at the math and not not see it coming.
Have you changed your business strategy and Guy enough for now last quarter. Unlike the last couple of quarters actually you guys have been talking about trying to.
We strategized go to market strategies as far as getting new subscribers and growing the mobile market Sir.
We have we're working on that were not performing the way we want to in that that piece of business in other areas.
We've done quite well.
But towards that thing I think we've made some moves that will be helpful. We expect to be helpful time will tell and and there's more we're working on it so.
But I hate to.
I can promise too much there my view is fluids, let's let's see it let's let's see let's see actual objective.
Gains.
So we're.
Thats hopefully to come.
And lastly, given the delays and construction do you think you'll have any.
Towers.
In the U.S. for the first not not work up anytime.
Second happier.
I think we're going to we'll have some up it later in the year yes.
Okay. So we definitely well so we're probably a couple of quarters behind where we thought we'd be.
You would generate terms or revenue from that beyond just the construction correct.
We would we would but in the in the in the in the short in the meantime, we collect.
We collect wholesale roaming revenues on it so it did.
It doesn't necessarily lead to additional revenue once we flipped the tower over.
Okay understood. Thank you.
And we have a follow up question from the line of Ric Prentiss with Raymond James. Please go ahead.
Thanks.
My first call and early so far today, but.
I wanted to wonder what's the M&A environment out there looking like you guys. Obviously have a large cash balance cobot 19 kind of backed us on the face but have investor.
Sellers changed their opinion or is there are opportunities out there what's the M&A, we're all looking like.
I think it's early in terms of sellers really changing except you know in some businesses that are in real distress.
And some of those are not attractive to us either.
But the other thing Thats still happening I still see.
A fair amount of low cost of capital.
In for Cotwo in for fun type money.
Active in the in that market that in the market that we like.
And the types of business models, we like so.
You know, we're increasingly talking to some of those folks and trying to figure out how we work together because I think there's there's opportunity for us.
To to be it.
Real value added operating in investment partner there so.
So I think that that will take a little time, but but that's that's really where the environment as it's not been theres not been some.
See significant reset of values down that I've seen and in some cases.
Maybe in the opposite direction because of a flight to safety.
Okay. Then also FCC has an upcoming auction the rural digital opportunity fund.
We'll talk spectrum since.
You can't talk that side of it but what are your thoughts about that what the hard off.
Rudolph and how you want to pronounce his.
Opportunities might be.
Yeah, I don't think Rick I don't think we can talk about that either other to say that other than say were registered.
And whats the timeline is that still October for the auction to started probably could talk to that.
I believe so that's the last I heard was you know.
Things have been moving on a couple of fronts, but that that if that if my latest understanding is correct that then that's right.
All right. Thanks, guys.
Yes, correct.
I'm showing no further questions at this time I like to turn the call back management for closing remarks.
Alright, Thank you operator, and thanks, everybody appreciated the well wishes and we extend them to all of you. Thanks again everyone.
Ladies and gentlemen, this concludes todays conference. Thank you for your participation and have a wonderful guidance you may all day.
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