Q3 2020 ATN International Inc Earnings Call
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And webcast.
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Ask the question over the phone by that time, you May press the star key followed by the number one.
I'll now hand, the call over to your host.
Financial Officer, Mr., Justin Benincasa, Sir you may begin great. Thanks, Jessie good morning, everyone and thank you for joining us on our call today to review our third quarter 2020 result.
Here with me is Michael prior 18, as Chief Executive Officer.
On the call I'll cover the relevant financial information and Michael will be providing an update on the business and outlook before.
Before I turn the call over to Michael for his comments I'd like to point out that this call in the press release contain forward looking statements concerning our current expectations objectives and underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause actual results to differ materially from those described.
Right.
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 these factors that may affect our future operating results.
I would refer you to our earnings release on our website at 18, I Dot com or the 8-K filing provided to the SEC also.
Also we are now in a quiet period with respect to certain FCC related at auctions, including the rural digital opportunity Fund art off it will not be in a position to answer questions related to these proceedings and with that I'll turn the call over to Michael for his comments.
Alright, Thank you Justin and good morning, everyone.
Our results for the third quarter, our assessment typically very similar to the second quarter, demonstrating the strength and resilience of our core telecom services businesses.
Cash flow from our largest segment continued to improve on the back of good subscriber trends.
Productivity improvements and cost controls.
That said, we are not satisfied with the status quo. For example, we have much more that we can do.
We need to do and that we are doing to improve our retail businesses and deliver an even more positive experience for our customers.
Further we continue to pursue the development of new platforms and services, both within and outside of our historical territories.
Relevant to both the pursuit of growth and the strength of current operations I wanted to say that I am grateful for the dedication and ambition of our people.
I see folks across multiple businesses and markets driving hard to create great experiences for customers and pursuing ambitious strategic goals.
I'm fortunate to be part of this company.
Moving to the segment information starting with international Telecom.
As noted we saw strong double digit year on year growth in EBITDA for this segment and nine months in the pace of our cash flow generation is ahead of last year, which in itself was quite good.
As with the second quarter. This represents generally strong demand for our services at a particularly good job of spending controls and nearly all markets.
Also consistent with the past quarter with the continued expansion of fixed line data subscribers.
Our program of how.
Heavy investment, particularly in 2017, and 2018 thats paying off and we continue to expand the reach of our fiber network and improve resiliency capacity and speeds.
Broadband subscribers for the segment totaled roughly 138000 at quarter end compared to 125000 from a year ago, a roughly 10% growth rate.
A positive development this quarter that we are working to turn into a trend is a pickup in mobile subscribers with approximately 289000 at the end of the quarter.
Against 276000 in the second quarter and 285000 a year ago.
We think there is room to run, but we will need to continue to improve our execution, especially in the area of sales and marketing.
We're adding new retail locations and programs in the current quarter to invest further in this effort and we are expanding the use of new subscriber management tools, including the use of AI.
And video subscribers declined at an 8% annual rate similar to the second quarter, while the percentage decline is pretty significant the impact on profitability is minor.
Also consistent with the second quarter, we saw a slight increase in voice subscribers at about a 2% annual rate as customers continue to add bundled offerings.
In terms of pandemic impacts there was nothing new here in the results and we are starting to see limited signs of tourism recovering in some markets. We continue to monitor the situation carefully and are preparing in case, the pandemic causes macroeconomic conditions to decline further.
In other news as reported in our release, we increased our ownership stake in one communications, our Bermuda and Cayman Islands subsidiary.
Justin will cover this further but I'll just note that we are believers in this business and together.
That team and our outlook is as long as positive as our experience.
Having made the original investment in the predecessor company more than 20 years ago with multiple larger follow on investments all yielding very good results to date.
Investors May also have seen the news and Diana where the government.
Passed new telecom legislation.
That among other things formerly ends our exclusivity in international voice and data.
And local fixed line services.
Im not going to say a lot about this well we are in discussions and considering our options except to note that the government has long failed to act against open inventories with unlicensed activity by our competitors.
So we do not see this as a major change in the market at this point.
We do believe the competitive environment, there will Titan, but also that the overall market will experience significant growth.
We will continue to put most of our attention on delivering a great experience for customers control, which you can control.
Moving to us telecom.
As highlighted last quarter the year on year comparisons were not favorable this quarter as a result of some contract restructuring and the accounting related to that.
It is also expected the results were broadly consistent with the second quarter.
And I mentioned ambitions at the outset and the team here is certainly committed to moving to the next level strategy remains to grow revenues and cash flows outside of our legacy neutral host carrier services revenue.
We're looking to do that in a number of ways.
One growing our private networks business known to the market.
As you averse second growing rural broadband revenues and third growing our fiber based services to carriers and commercial and governmental customers.
Well, we do not break these items out individually, we made progress in all three of these areas. Despite pandemic limitations that impacted certain sales and strategic activities more to do and more to come.
In other developments for the segment, we were successful in obtaining licenses across a wide range of areas in the recently concluded Crs Pal auction.
This activity and investment are part of our efforts in several areas to further develop the platform and services.
We also worked with our partners in the Navajo nation to win nearly $20 million in cares Act funding to support the build of more than 100 additional wireless broadband sites.
We are committed to complete the build by year end and our team is doing a tremendous job towards reaching that ambitious goal, which will have substantial real world impact for families students and educators across a large section of Navajo lands.
We have had a long and successful partnership with the Navajo tribal utility authority and our teams are justifiably proud of their achievements and the momentum created by this latest win.
In renewable energy the pandemic related factory and mill shutdowns in India will reverse during the third quarter, leading to a recovery for this segment from the second quarter.
In addition, repairs and operational improvements led to better production.
However, the annual comparisons were negatively impacted by currency movements and pandemic related delays and settlement.
So in summary, we are pleased with the resilience and discipline of our operations year to date results from our international Telecom businesses represent a significant yield on past investments and we see additional opportunities to grow in many of our markets and build on our substantial asset portfolio.
In the US Telecom segment, we continue to focus on new strategies to leverage our assets and capabilities to drive growth and.
And we look forward to updating you on our progress in quarters to come.
And Thats it from me back to Justin Alright, Thank you Mike.
For the third quarter total consolidated revenues were down 3% over last year at $111.7 million and consolidated EBITDA was 31.1 million down 5% over the third quarter 2019.
Insistent with the first half of the year and as Michael noted our International Telecom segment has continued to show improved profitability offsetting much of the straight line revenue impact that was anticipated this quarter in the U.S segment.
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Looking looking at each of the segments and starting with international Telecom revenues were $82.5 million up slightly from $81.3 million last year, and EBITDA increased 19% to $29.7 million.
Year to date EBITDA growth for the segment was 13% on modest revenue growth highlighting our ability to pivot quickly to gain operating efficiencies in many of our international markets.
As we noted in the release in October we purchased an additional 10% of one communications, our Bermuda Cayman Islands company, which brings our total ownership.
To approximately 70%.
We expect this to be accretive to overall company earnings beginning in the fourth quarter since our 2016 merger to form one communications the businesses performed well across several key metrics, we have significantly expanded our network footprint in the Cayman Islands, we've grown subscribers in both markets except.
We ended the EBITDA margin by eight percentage points and expanded free cash flow.
Capital expenditures for International Telecom segment were $8.5 million in the third quarter and $28.4 million year to date, we still expect the segments capex to be in the $35 million to $40 million range. This year.
US Telecom segment revenues were $28.1 million for the quarter consistent with this year's second quarter, but down 15% from a year ago, and EBITDA was 8 million down from $13.7 million in the third quarter of 2019.
As as I mentioned over the last several quarters, we've expected very very little seasonality in revenue this year compared to past years on the terms of our carrier based on the terms of our carrier contracts.
The year on year comparison is most evident in the in this year's third quarter, which is historically the seasonal seasonally strongest quarter for us in our domestic wireless business.
With respect to our build out in support of first net after certain COVID-19 related delays we've delivered our first two sites this quarter and expect to deliver approximately 25% of the total sites. This year that are to be built under the agreement.
US telecoms capital expenditures in the third quarter totaled $8.4 million and 17.3 million year to date, we do expect to be closer to the high end of our previous capex guidance of $25 million to $30 million as we continue to build sites and backhaul to support the firstnet built.
In renewable energy segment revenues were $1.2 million in the third quarter compared to $1.4 million last year, while EBITDA was 393000 compared to 300 to three.
302000 last year.
We had consolidated net income for the quarter of $2.7 million or 17 cents per share our effective tax rate was 1.5% for the quarter and we expect to be in that range for the overall year in part from the benefit of an NFL carry back as part of the cares Act.
Also included in operating expenses for the quarter was $1.9 million of non cash stock based compensation expense and $1.5 million of costs related to early stage initiatives in the us Telecom segment.
Just quickly on the balance sheet at June Thirtyth September 30, we had total cash and short short term cash investments of 135.5 million total debt outstanding of $83.7 million.
And operator, we'll turn the call back to you for questions now.
Thank you speakers participants we will now begin the question and answer session.
To ask the question over the phone. Please press star one from your telephone keypad bore you May press the pound key to withdraw your request.
Our first question is from the line of Ric Prentiss of Raymond James Sir Your line is now open.
Thanks for you guys.
Morning.
Couple of questions first Mike you called out the CPR assumption, where you guys were successfully was about $20 million in goods have you paid that completely within the quarter mediums.
Doing that might slip so moving into October.
And then also can you talk to us about what you see is the addressable market.
Capital you might put to work through that.
Yes, I'll, let Justin respond on the financial side, but in terms of the timing of the spend but.
On the.
Strategy I mean, we.
I would just say, we it's a mix of.
Deployment in the in rural areas, obviously, you can see from those licenses and private networks support of our private networks business, which is already.
Been utilizing Crs and I think also within its small amount added to the Virgin Islands Spectrum Holdings.
And we did Rick we did pay for it in the in that fully in the quarter.
And when you think about the capex that might put to work to support the spectrum purchases.
Way for us to think about the addressable market.
You might deploy capital we return capital projects would involve.
I can't I can't speak to specifics because of other proceedings and things, but I can say that.
When we as always when we buy spectrum.
We buy it because we believe we have potential use we and we may or may not in the end in the short term.
Sometimes we have turned around and swaps spectrum or sold spectrum, if we can't put it to use.
But the actual use of it we run through our filter like everything else. So its do we can.
Can we.
Earn a reasonable return for the cost of building it out.
What do we think the risks that are associated with.
That so this will be no different but beyond that I can't really get into specifics.
Okay, and the private network at Geo versus that mostly in building type.
Items your management fee.
Our campus campus type thing.
A lot of a lot of the interest level, we see is beyond simply in specific building yes.
Yes.
Okay.
Next question.
The.
It's like you did some stock buyback in the quarter.
Can you talk to us a little bit about your stock buyback program. How you execute it is it set up.
10, B five type when or what are your thoughts as far as putting capital work in the stock buyback.
Yes, we in on.
On the history I think you know this and investors paused as we've been very opportunistic and not looking to put a certain amount of work in a given period, but more.
Looking to move and we had been frustrated in the past by.
Along with.
Long no trade windows. So we did in fact put.
Some of our authority.
Into some of our authority to put in place a tenbfive type plan, which we more or less fully utilized at this point, but.
We we do think that the useful mechanism because of the.
Fairly large gyrations in our stock.
And to report out I don't recall seeing beauty report out in the queues. How many shares you bought or is it just how many dollars trying to keep track of average price you're going to.
I'm not I'm not entirely sure of all.
Let me find that out if we I'm not sure if we put the dollars and the shares are not so.
But ill will.
I will answer the call hands of other calls over.
Okay, that'd be great because just always nice indication.
To work it obviously shows confidence in the stock price when the gyrations do happen goodness knows is in transition years, one or the other.
The company.
And the final question would be doing the islands.
Sorry, we do do both shares and dollars to I just was 12 so.
In the 10-Q in the 10-Q.
You know, we're going to file the 10-Q for this quarter.
I think around the fifth such items.
As my understanding.
Okay.
And final hearing questions for me is on the islands. Obviously is coded hit there was concerns about what it might mean for tourism when it might mean to the employees that support tourism that are your customers. How should we think about what you are seeing you mentioned some tourism recovers organs, how should we think about what you think obviously code it's still unclear.
We should be thinking about in Fourq and as we look into 21 as far as impacts on mobile on fixed on your business as well as your consumers.
Yes, I think first to start on the tourism.
We don't have.
Any.
Insight baseball view, but what I'm told by people in market in the markets. We're in is.
I think the general feeling is the worst has past and they expect.
Buildup from here and they they certainly seen some.
Return.
And there's different reasons, but if you think about where we are where we have tourism. The Virgin Islands is interesting because it you.
U.S. territories, so that.
Makes it more attractive to people who might go to other territories in there can you know the the not allowed to go.
As the U.S. traveler or are concerned about it then.
The restrictions.
And then in a Bermuda and came and are both.
Seen as playing a covert very very safe and conservative.
And you know so.
So there are attracting higher end in particular.
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Some of that first sort of movement back, but they are still it's certainly it's still.
Definitely depressed.
There is still.
Like in the Virgin Islands, there is still some big hotels that are not open and.
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The cruise ships are not out there, which do contribute to those economies.
And so I think when we look at it.
Its possible weve seen the worst but if this lingers long.
And the sort of various support businesses are out of.
Work or under a depressed returns for long that that's going to mean more people are struggling.
And that can have a ripple effect. So I wouldn't say, we feel like okay, we're definitely free and clear now.
Well, that's and that's the best way I can say it I think as long as things are severe or you know I.
I think it's been proven both in our business and other people's businesses that the services, we offer our apps.
Absolutely seen as essential services, so otherwise we expect the demand to continue to be steady.
Okay. Thanks, guys stay woke up for you your calories menu.
Yes, and you as well.
Our next question is from the line of Mr., Greg Burns from Sidoti Sir Your line is now open.
Morning.
In terms of the mobile side of the international business has anything changed in that market to give you confidence to start maybe investing a little bit more there.
Driving growth or is it just a function of maybe your.
Sure.
Focus or attention was in other parts of the business and now you're kind of re re circling back on the.
The mobile side.
I.
I think our most of our investments been made right to the networks are in great shape.
Extremely competitive.
And Theres always some ongoing investment in that but theres, that's not really the trigger there is some vesmen I reference.
In my prepared remarks on the in the retail side and.
Couple markets, but thats not huge it it's really been a matter of putting.
In a couple of markets, putting the right tools and strategy in place and I think.
You know we are seeing some signs that there is a lot of work.
Is is starting to pay off rightly like everybody, we like to see it recur to be confident and we're certainly not going to let our foot off the gas because we see additional opportunity. There. So it remains an area of focus and an area we're targeting to create some growth.
Okay. Thanks, and then the.
Equity to 10% equity and long communications most of the purchase price for that.
We havent disclosed that Greg.
So we yeah, we don't usually at that relies deal, but but we would say it was a good value to us.
Okay, and what was the what was the trigger for that purchase like did they approach you push them or do you have do you have options to maybe acquire the remaining balance whats the structure.
Ownership Stakes there.
Yes, it's.
I don't think we can speak to the future State park, partly because of Bermuda market.
Restrictions and sensitivities, but we were approached party, we knew well and and it was a situation of portfolio.
At portfolio need on their side.
So this is a financial investor.
Not a strategic.
Okay. Thank you.
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Our next question is from the line of Allen Klee of National Securities. Sir Your line is now open.
Good morning for your emerging investments corn and could you tell us how much of a drag they were on them on your earnings for the quarter and.
Thoughts on when that could start to turn positive EBITDA.
I'll, let I'll, let Michael talk to the EBITDA piece of moving forward on the on the.
We've spent about a million and a half on them in the quarter.
So the environment of EBIT or EBITDA drag.
And I assume by Jackson's answer is answering the ones that are going through our PML as opposed to minority any minority investments.
But.
You know.
It's it's interesting because for example, I'll give you. An example, Alan probably the biggest piece of that is investment in private network in scaling up that business.
In the early stages of successful growth there it could be increased costs right, but we would hope that there will be a.
Also increased visibility.
The value generation at the same time, but but so we're not really thinking about it as a near.
Near term EBITDA situation. We're we're focused on building a platform that can be.
With a significant contributor to ATM and for years to come.
Thank you.
We know Theres a lot of infrastructure funds that are looking.
For acquisitions, and paying up for assets, which might be making it harder for you guys.
To try to do that.
Could you talk maybe about anything you've seen in the market of.
Kind of.
Valuations and maybe how we could think about how that might imply.
The value of what you have.
Sure I think a couple of things to remark on there and I think we touched on this a little bit last quarter or the quarter before but maybe it can expand upon it.
First is we certainly watch those deals we've seen those deals and aware of them and I would say hey, you know they would imply a much higher value and our view on our assets and the market is currently giving them. If you look at.
So they are really starting to invest in we of course have wholesale operation fiber operations and towers and various things like that but we also have.
Bulk of our revenue right now is coming from that retail side and you start seeing infra funds more and more in the us and internationally.
Invest and retail operations.
Brought home broadband fiber based.
It's a lot of their liking and high speed high speed services and you look at those prices and there.
They're much above what the market appears to be value loss at today, so that that's noteworthy.
The second.
Thing I would say is.
The first part of your question.
We have shifted.
Really last year and accelerated this year from.
We saw that.
Competing against some of the low cost of capital investors for the types of telecom assets, we have sort of proven established businesses.
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This just doesn't make sense and we.
We in the past have done a lot of those on a sort of GARP approach get in at a good value grow the platform and sort of have benefit of both.
Both boost to return and it's really hard to get in at a value that works for our cost of capital in those types of businesses, but.
What we what we believe is that we can provide a good role and hardest there that interest of cash.
Capital to get into this business because we have a.
A heck of a platform and also a lot of experiencing pulling.
Complex assets difficult area, putting them together and making strong.
Recurring cash flow businesses out of them. So we we think there is.
Great deal upside for us and continue to develop our platforms, both existing platforms and new platforms, and then looking to partner with some of those low cost capital providers to you know to fund additional investment and additional growth. So that's that's really our focus right now.
Hum just this might be the same question, but ask I guess a little differently.
If we look at your businesses or international.
I believe has a nice.
Growth outlook you've stabilized.
US telecom and.
And renewables is just not material today.
You are generating good free cash flow you you had a kind of a record quarter.
And your balance sheet is under leveraged. So you have this question of like what can you do with your cash to to.
Improve your growth outlook.
On a meaningful level.
Versus kind of modest incremental how do you think about that.
Yes. It is somewhat the same side of the previous question, but I.
I think the way we think about that is is we can use that capability to develop did.
Develop out our platforms further right and that can be very meaningful I think if if we're going to take value.
And overall cash flow production to the next level, that's what we need to do and we're very focused on that we're looking at that in.
In both of our telecom segments.
And.
And I referenced a number of ways were doing that in the.
In my prepared remarks.
Okay. Thank you.
Sure.
Again participants it is star one to ask a question over the phone.
The county to remove yourselves from acute.
Our next question is from the line of Hamir Corasanti Vws. Your line is now open.
Good morning.
Good morning, just.
Question on the termination access fees there was a dip this quarter.
Is that sustainable or was that related just to.
Covert and data flow.
I say.
Some of that sustainable some of its related right, it's hard to kind of pinpoint it theres certain things.
We're getting some breaks on programming cost, but then there's a lot of things we've done in there that like I said to kind of pivot our opex quickly.
And take them down and we think they are sustainable.
And lower and lower roaming by our customers certainly.
Certainly impacts that number yep Yep Yep, Yeah, lower hand, you've got lower handset sales you have lower cost of sale to usually down there as well so.
Okay, and then on the international mobile subscriber side.
How are you.
Conceding on.
Pricing to capture new subscribers or is it just more promotions an advertisement.
It's more it's more the latter but it's also retail it's also as I said subscriber management using tools to better manage on the prepaid side, the subscriber base and top ups and things like that.
And.
No I think I think Theres also attractiveness in the markets of our bundled offerings and how we can deliver value that way.
Is there a market that still bothering you on the international side.
Every market, we we expect to do better.
I don't I don't really want to single it out now.
Particularly.
Okay, and then on the first night contract with the deliveries happening.
What would the timing of the.
Capturing revenue for the backhaul be would it be immediate.
It is the yeah pretty much pretty much right. Once you turn a site over it flips it slips into capturing it.
Immediately yes, so I guess to answer that yes.
Okay. That's it for me thank you.
Sure.
We also operator.
Our next question is again from the line of Allen Klee of National Securities. Your line is now open.
Yes, hi.
Can you just remind us on the Firstnet contract.
Theres going to be a time period, where.
You're constructing it out and you are not making any margin on that but once you're done with that.
What will we compare this to to think about what the potential margin.
The margin profile of the business could be and where the potential.
Gross or think of it as stability or how to think about the top line in the <unk> and the and the bottom line for that business. Once we get to that point. Thank you.
I would say on the top line is kind of a lateral move right and from where Weve flipped from a roaming roaming revenue to two of backhaul and lease revenue.
But I would say that probably is a little more of a compressed margin once.
Once once.
We're off once we flip over on that not not not.
Not material, but it will definitely we have more expenses to deliver that service than we do to deliver a wholesale service.
Perfect Yeah Opex.
Thank you.
We also further question no further questions on queue.
Okay. We thank everybody thinks of the quarter and well you after year end, maybe well take care.
And that concludes today's conference.
Thank you all for participating.
You may now disconnect.
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