Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the ATM International second quarter 2019 earnings Conference call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time.
If anyone should require operator assistance. Please press Star then zero key on your Touchtone telephone now like to introduce your host for today's conference Justin Benincasa, Chief Financial Officer, Sir you may begin.
Great. Thank you operator, good morning, everyone and thank you for joining us on our call to review our second quarter 2019 result.
With me here is Michael prior eighteens Chief Executive Officer, and during the call I'll cover the relevant financial information and Michael will provide an update and outlook on the business.
Before I turn the call over to Michael for his comments.
I'd like to point out.
The call in our press release contain forward looking statements concerning our current expectations objectives and underlying assumptions regarding our future operating results.
And are subject to risks and uncertainties that could cause actual results to differ materially from those described.
Also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures for details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results.
I would refer refer you to our earnings release on our website at 18, I Dot com or the 8-K filing provided to the SEC and I'll turn the call over to Michael.
Thank you Justin good morning, everyone.
So.
Just some highlights I would say from our perspective overall this quarter was quite consistent with the first quarter as to both the financial and operating trends.
And those trends included the continued strong organic growth of our largest operating segment international telecom and ongoing weakness in the smaller us Telecom segment.
As noted in the release, we have reasons to be cautiously optimistic that we can improve that situation.
And we have even more confidence in our expectation that the international telecom direction, we will continue to be favorable.
Overall again, we see more opportunity on the upside than the downside from here.
And now I'll move on to some additional details starting with international Telecom.
So the good news in this segment falls into.
Four major buckets data subscriber and revenue growth.
Expanding cash flows following heavy network spending in recent years.
The return to normal operations in the Virgin Islands.
And opportunities to continue this growth through 2020 and potentially beyond.
So first on the data growth you can see that of course, partly in subscriber numbers with data subscribers ending the quarter about above 125000, which is 9% higher than a year ago.
In addition, we've seen growth in certain enterprise and commercial accounts that are reflected in the results.
Where we have not seen enough growth quite frankly is in mobile data subscribers and revenues.
We have to do better on that score and I think it's an opportunity moving forward.
Partially offsetting the wireline data growth are lower legacy voice and video revenues, which is something the entire industry has been experiencing for some time.
And we expect those trends to continue despite some efforts to mitigate.
While we still have pockets of work underway, we do consider the Virgin Islands now to be in a post rebuild environment and that contrasts markedly with the second quarter of 2018, which has been quite positive to the underlying results.
Our reported GAAP revenue and operating income as well as EBITDA of course don't reflect this improvement because of the $15.4 million in supplemental funding. We received from the FCC last year to offset a portion of our hurricane rebuild and recovery expense.
As you know $8.2 million of that funding was received and recorded in the second quarter of last year and was accretive to both revenue and EBITDA in the same amount.
The balance was recorded in the third quarter of 2018.
So hopefully weve emphasize that enough to give investors an ability to understand the underlying trends.
As to the cash flow, we were expecting a major improvement for this segment. This year as we noted in our year end remarks, we had much lower planned capital expenditures as we came into the year. Following the essential completion of the hurricane rebuild and some other major network upgrades and expansions.
We also expected the strong organic EBITDA growth we have highlighted.
So it's good to see both of those expectations fulfilled to date and I think just in you're going to talk about that a little further soon.
Lastly, as noted we think the underlying trends largely point to continued growth risks remain of course as they always do but there are also opportunities to accelerate.
Or further extend the positive momentum.
In U.S. Telecom, we saw significant sequential improvement in the second quarter, but that of course was coming off a very low base and there was some seasonality playing a role.
Still it is a step in the right direction and as noted in the release, we do have reasons to feel more optimistic about the future.
Our team has been working very hard on some initiatives that if successful could further improve results in coming quarters, and provide a more predictable and stable base from which to pursue additional opportunities.
I don't want to say much more about that at this time, but wanted investors have a sense of how we are handicapping things going forward.
Renewable energy in this in this segment renewal energy results are largely consistent with the first quarter and of course the year on year.
Comparisons are negative because of the successful sale of the large larger use solar operations.
We do expect to start to see growth in production capacity in revenue.
Late this year, probably more into next as the India based vibrant energy team has built up an impressive pipeline on both the demand and supply side and we expect to renew plant expansion in the second half of this year.
We will move at a deliberate pace.
But if we secure the right funding partners that could accelerate.
So in summary, our consolidated operating results are headed in the right direction.
Once we Peel off the sale transactions in special funding received last year that the GAAP comparisons are likely to be more positive.
And looking ahead, we expect to see continued progress in the second half of the year and our international Telecom segment.
We hopefully will have an improved outlook for domestic telecom.
And we are still working on other areas to invest in growth. Despite a frothy market in many areas of telecom infrastructure.
And with that I will turn it back over to Jeff.
Thank you Michael.
Just to cover some of the relevant financial information for the second quarter total consolidated reported revenues were $107.7 million on a recurring revenue basis. This represents a 4% year on year increase after adjusting for the onetime $8.2 million of FCC Hurricane support that Michael mentioned, we received in the second quarter last year and for the revenues related to the use and for revenues related to the U.S solar portfolio and wholesale roaming sites, which were sold in 2018.
Consistent with trends, we saw in the first quarter revenue growth from recurring services in the international Telecom segment more than offset lower us telecom wholesale revenues.
Consolidated adjusted EBITDA for the quarter was 24.2 million below the $36 million in the prior year, but would be slightly ahead adjusted for FCC funding and the sale transactions I just noted.
Looking at the segments and starting with international Telecom revenues were $79.9 million compared to $81.5 million last year adjusted for FCC funding revenues would be up 9% from 73.3 from 73.3 million adjusted EBITDA was $24.7 million compared to $26.7 million reported last year.
Without the $8.2 million FCC money last year, adjusted EBITDA would be up 27%.
As Michael noted much of the year on year growth relates to post hurricane recovery in the U.S Virgin Islands at strong subscriber and revenue growth in the markets, where we've made investments in upgrading and expanding our fiber networks.
While operating expenses for the segment have fluctuated in the past few quarters as a result of the US Virgin Islands, returning to more normal operations, we anticipate more consistent operating expense trends moving forward.
We expect capital expenditures in the segment to be approximately $50 million. This year, which includes additional growth project spending in multiple markets.
This would represent a 110 million reduction compared to last years levels, which would result in significant free cash flow improvements. This year for this segment.
In the U.S. Telecom segment revenues were $26.4 million for the quarter down from $30.3 million a year ago and adjusted EBITDA was seven was $7 million down from $12.7 million in the first quarter 2018.
The 3.9 million revenue decline was due to the sale of the wholesale sites and overall lower wholesale revenue offset partially with the revenue from the connect America to fund that started this quarter.
The year on year adjusted EBITDA difference was the net of the revenue items I, just noted plus an additional $1.5 million of operating costs associated with the early stage business investments, we made mid last year.
In renewable energy segment revenues were $1.5 million in the second quarter. Following the sale of the newest portfolio in late 2018 and that accounted for the $4.6 million reduction from the second quarter last year, adjusted EBITDA was point $8 million for the quarter and as we noted in release, we expect an additional to add additional plant capacity in the second half of the year and occurrence construction costs of $6 million to $7 million.
Consolidated consolidated net loss for the quarter was point $9 million or five cents per share.
Some other income statement items to note our effective tax rate for the quarter was a 16% benefit reflecting the impact of some discrete tax items that had a positive impact on the quarter.
We currently estimate an overall effective tax rate in the high 30% range for the full year.
Also included in operating income was $2 million of noncash stock based comp and compensation expense for the quarter.
Looking at the balance sheet, we ended the quarter with total cash and short term cash investments of 152 million and total debt outstanding of $89.2 million.
Capital expenditures year to date with $35.4 million of which approximately $23.7 million was incurred by our international Telecom segment $6.4 million in the US Telecom operations and 5.3 million in renewable energy and other segment.
And with that operator, we would like to open the call up for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered wish to remove yourself from the queue. Please press the pound key.
Again, ladies and gentlemen, if you have a question. Please press Star then the one key on your Touchtone telephone.
Our first question is going to come from Allen Klee.
Your line is now open.
Hi, yes, good morning.
You talked about in.
US wholesale telecom now some of your actions have.
Been positive to improve that business I was wondering if you could expand a little on.
One the actions that you are doing and how that's making you cautiously optimistic.
I think it's.
Im not going to expand much as I hinted in my opening remarks.
But.
It's not really.
Major improvements to the business today, its things we're pursuing that could.
That could improve it tomorrow right the simplest way to say it so I just want to make sure you understood that.
But.
What those are.
Im not going to speak further.
Okay is there anything you can talk about related to your emerging investments.
Such youve done incremental way in the last quarter in your outlook and maybe how we should think about how much you're spending on this and how.
How would you think about the longer term what this can contribute to revenues and earnings.
I think it's too soon to give that kind of prediction, Alan but I think we still feel that there is some very interesting upside in some of the emerging businesses, but they are they are early stage and in some cases.
Industry that surrounds them is somewhat early stage and we're much more focused on positioning and milestones that aren't really.
Financial at this point in the in those businesses.
So there's just.
It's in the scale of what 80 end is it doesn't make a lot of sense to.
At this stage in those businesses focus on a quarterly basis, but.
But overall, we think well I'm not going to try to quantify it.
I think there's there's.
Some exciting upside and elements of that.
Down the line nothing nothing in the near term.
Okay and then in international.
Telecom.
You mentioned, a date is doing well you'd like to see.
Mobile.
Do a little better can you talk a little about what's going on with mobile and what do you think you can do to improve that.
I think the main thing is we are we just have and click on the sales and marketing side I think we have invested in have you know.
Very high quality extremely competitive potentially best network in a couple of markets where.
We don't have the market share that follows that so it's really it's really gaining market share.
And also in some cases that also should mean ARPU scare share because you we need to gain more market share in the bigger spending segment and have more of the spend.
Collective spend to be on our network.
So.
What I would say is were.
What we've achieved to date in.
International Telecom, which is just in highlighted if you take away some of the things that are the organic numbers are quite positive.
It's despite not really gaining ground on the mobile side.
And so we we we believe we can do better and we think we have to do better.
Okay, and then moving to the U.S. Virgin Islands.
Could you give sort of where you are in.
Hi, guys. It seems like you're pretty far along with the recovery but.
Maybe maybe little more expand on.
Where do you think that is and what else has to be done and then send the opportunity you see ahead.
Yes, there are that was such a major event or events. There are some lingering things, but I think they're pretty small and I think our mindset is look we're that that's in the rear view mirror, let's let's.
We consider it normalized.
And it's all about.
Going in doing.
Executing on the plan, we had when we made that investment.
A year before the hurricane so.
You know I think that is everything from margin expansion, both in revenue growth and in.
Greater productivity and cost controls.
Two and the revenue growth is multi pronged I think theres opportunity in mobile we talked about there's opportunity on enterprise side.
In multiple markets, but certainly in the Virgin Islands, and then there's no macroeconomic growth so to to.
Even though I'd say, we are treating and its normalized there are certainly that economy is still not where it was before the storms.
Most of the there is still a large number of hotel rooms that are not.
Opened.
But we expect that to change in the coming high season.
Okay, Great and then.
In the past you had mentioned that there could be some government.
Money associated with it.
In Us Virgin Islands, Puerto Rico and.
You guys had a pretty good opportunity to get some of that.
Could you just maybe update us on if thats still available and where that stands.
Yes, I think what you're referring to is the.
Good plan, the FCC put out for $186 million over 10 years.
To fund.
The Virgin Islands Telecom infrastructure I'm, just keep it very high level and that's.
That replaces the traditional high cost funds.
Which we are receiving today so that.
That's not all incremental to what is flowing through our financial today, but.
But that high cost program was slated to and two and change into a new program based on.
FCC review in all these places so.
We still think it's very positive, but they haven't.
They havent made the final determination in awards yet and.
As you are no doubt aware they've been very busy.
But.
And to some extent.
We think we are it's a little slow for us in part because it's it's been link.
Also to that.
Hurricane.
On the forward funding in Puerto Rico.
Which is a very very different market than the Virgin Islands and has a very different issues.
As they consider how best.
Ill get the best Bang for the Buck for those taxpayer funds. So.
So I think we're waiting I wouldn't say patiently, but.
We're still waiting.
Okay. Thank you and then more of a strategic question.
In the past it seems like you had focused.
Your acquisitions are on.
Your your capital one.
On a areas, where you're managing 'em services business and buying it opportunistically and on improving the performance.
It is.
More recently, you've been investing in some more different.
Touch of a maybe a little more emerging type of technologies is there's still interested in opportunities in and managing our find opportunities out there related to telecom services opportunities.
Yes, I think there are Alan I mean I think.
They are.
They're not a lot of them that are highly synergistic to what we are doing today, but there are some that it had some synergies and our into our businesses that.
We like that we think of the types of businesses that have served us well in the past but.
I think there is a lot of capital out there looking at a lot of different things and so the things that tend to be interesting to us from a.
Value standpoint.
More complicated and.
And there's a reason that they may not be in Frothier end of the market and so that maybe some of them hard to execute on.
Even for us.
So it it said.
We are we're overall optimistic about the opportunity to put more the balance sheet to work but.
But it's a tricky market as an investor.
Okay. Thank you and then lastly on on renewables to tell me if I heard this right, but it's it's sounded like your.
The tone on the market was maybe slightly more.
Positive in terms of.
Of this growing and.
And potentially getting some financial partners on the financing has anything changed there since the last call just in terms of how you've been feeling about this.
Yeah, I think you've read it right I think.
We're seeing a lot more interest and potentially not nothing done yet potentially more.
Interest along.
Levels that are attractive to us.
But.
And you know and we've.
The team has really done a good job building up.
Hi, quality pipeline and operating the assets well.
I think potential partners recognize that and we also want to.
Keep that momentum up which is why were.
We're looking at moving forward with some.
Careful but but some additional.
Expansion.
Okay, great. Thank you so much.
Yep.
Thank you.
And our next question comes from Ric Prentiss from Raymond James Your line is now open.
Thanks, Good morning, guys.
Good morning, Eric.
Okay.
Focus most of my questions on the quarter to quarter.
Versus year over year is obviously, there was a lot of stuff going on.
Last year puts and takes in there.
If we look quarter over quarter in 2018.
How much caf two funding.
Did you receive in the second quarter. When you said you started getting some.
It's about a million and a half in the second quarter, Rick and then it will be about a million nine run rate going forward.
Right, Okay, so getting to 8 million a year kind of thing which is the yeah, yeah. There's oh.
Right right small reserve against that but yes.
Okay and does that go into wireless wireline.
This is why our wireless network.
It's wireless, yes, hi, Rick you're slightly muffled, we can hear you, but its just okay.
And then pick it up here sorry about that.
Yes, so wireless.
As we look at the moment.
The.
The international segment quarter to quarter or why are long in business and international revenues were down slightly quarter to quarter, what margins would loan.
Remarkably on total remarks lever.
From one to two two and so not much seasonality or just I think I heard you call out that maybe now youre more to more consistent opex trend going forward. So just trying to think what happened from one to two.
And how do we think about that going forward.
It was a lot of that was around the opex.
Kind of fluctuating as I noted and so I think we've kind of settle that out in the second quarter. I think we we do expect to continue to see get some margin expansion moving forward.
But it was the kind of Lumpiness was more around opex in the last couple of quarters.
So it's a good level to build off of what we saw in Twoq.
Yeah.
Okay, and when you think about the spectrum out there.
I think you guys participated in the.
Hey, CA comments on.
On the C band and can you just talk a little bit about what you see happening back or maybe also address CBRN spectrum and what the opportunities are with what you're hoping to see happen.
Yes, I'm not sure I mean.
Qualify I'm not sure who is qualified to predict where this event is going to go ahead.
You know, it's it's clear the first some of the obvious things it's clear that the FCC has a real push to to release spectrum. So that that is not.
Slowing down.
Fiveg and Fiveg related.
Deployments so I.
I think they're they're really working hard on getting that out there in various ways and then and they've done a lot.
And I think they're also very conscious.
Theres a lot of players who are anxious for.
CBRN to get to the next stage and I just think.
There is you know it's just the logjam of.
In ambitious calendar have a lot to do but we do expect that to resolve itself and you look around the world.
There seems to be a lot of people coalescing around 3536 for some of that and you know Rick you know as well as anybody else.
The technology is in terms of devices and things will will will expand to fit many many bands, but what's interesting about the crs that the U.S. has done that I've heard a lot of other countries start to look at.
Really with admiration is this is contemplated approach of some.
Some assigned spectrum under sort of traditional license auction and some you know.
On a used by use.
Dynamic basis.
I think it's very attractive to a lot of people in the technology.
Area, and so I think that that gets done and it will have it.
It will have it.
Ups and downs in the beginning I expect I think it's a little tricky to do but we're certainly expecting that to happen and we're expecting to participate in that and utilize crs in multiple areas.
Okay, and then to answer your question.
Yes.
Obviously.
Currency mobile decision, maybe we get something today from D.A. J.
That can also help the FCC maybe move forward on some of the spectrum stuff because as you pointed out there is a pretty busy there.
Yes, certainly back on the U.S. side again on from quarter to quarter than if I looked at the wireless revenue in one Q2 wireless revenue into Q1, and a half million benefit from Caf two high margin business.
But then it does look like you saw decent seasonality then.
Within the wireless U.S. segment, how should we think about that seasonality or the way the contracts play out in the in the second half of 19. As we think then also modeling trend lines into 2020, and there was a nice uptick.
Thank you the Twoq, you and us wireless even pulling out the cap to stop.
Yes, I am glad Justin add or correct me, but I think it's.
I think it's complicated to get.
To to make that too much of a science and the answer because of a bunch of things going on but I would just say.
First quarter felt like.
A really low quarter.
So it's.
Not all.
Seasonality I don't we still do not expect anything like the return to seasonality that we had in past years.
But there is as contracts change and we work through the accounting.
Orient, there's there is sometimes a little bit what looks like seasonality that is updating your assumptions.
On the total year, yes.
And by updating assumptions as we kind of record the revenues based on traffic flows right. So as.
So there definitely is some seasonality in Q2 and Q3 have always been those kind of quarters.
Right.
Right. So as we think than one Q was probably.
Low versus what might be typically expected as we look into the next the future of U.S. telecom into Q.
But.
Freak you up some and so just trying to.
Once it was probably lower than what you might have expected in Twoq you.
More of a decent run rate then pulling out making the no I wouldn't say run rate, but it's more there is more seasonality in Q2 and Q3, right then or there is no.
In terms of alcohol upsides upside season, that's what she said yes.
And then.
And I'm just speaking to historically and then it because it's really it's where we where we operate obviously right a lot of.
Occasion areas and seasonal traffic out there.
So it kind of follow ups follow the warmer weather.
All right and then on the wireline side looks like it's kind of now you've sold that.
Other asset.
Got it and that million a quarter I mean, you did 700.
Yeah, and that that's been our wholesale business as well, which you know even if we had more revenue in there it's really low margin stuff. So.
Okay perfect. Thanks, so much guys.
Okay. Thanks.
Thank you and ladies and gentlemen, if you have a question. Please press Star then the one key on your Touchtone telephone again, if you have a question. Please press Star then the one key on your Touchtone telephone.
Our next question comes from a man questions from VW asked your line is now open.
Hey, good morning, just a couple of questions first is there any risk to U.S. wireless revenue declining further.
After these new programs you are focusing on do not pan out in the medium term.
Yes, yes, there always is.
I mean, I think you heard our body language, we think more likely.
The other direction, but there certainly is some risk to that.
And then how long before these services do get adopted by carriers.
Hi, there, it's not going to say more about that now.
Okay.
Okay. Thank you.
Yep.
Thank you.
And I'm showing no further questions I would now like turn the call back to management for any further remarks.
No further remarks, thank you everybody and.
Have a great rest of the summer.
Ladies and gentlemen, thanks for participating in today's conference. This concludes today's program.
I will disconnect and everyone have a great day.