Justin Benincasa - Chief Financial Officer, Treasurer Michael Prior - President and CEO.

Ric Prentiss - Raymond James Barry McCarver - Stephens Incorporated Hamed Khorsand - BWS Financial Sergey Dluzhevskiy - Gabelli & Co.

Good day, ladies and gentlemen and welcome to the Atlantic Tele-Network Q2 Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference call.

Justin Benincasa, Chief Financial Officer. Sir, you may now begin..

Great thank you, operator. Good morning, everyone and thank you for joining us on our call to review our second quarter and six months results. With me here is, Michael Prior, President and Chief Executive Officer. And as usual during the call, I'll be covering the relevant financial information and certain operational data.

And Michael will be providing an update on the business. Before I turn the call over to Michael for his comment. I'd like to just point out, that this call and our press release contain forward-looking statements concerning our current expectations, objectives and underlying assumption regarding our future operating results.

And are subject to read and uncertainty 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 of these measures and reconciliation to comparable GAAP measures, and for further information regarding the factors that may affect our future operating results, please [technical difficulty] .com or the 8-K filing provided with the SEC. And with that, I'll turn it over to Michael for comments..

All right, thank you, Justin. Good morning and welcome, everyone. Starting with some highlights. The second quarter was one of strong year-on-year-year growth in operating income and EBITDA, the growth was driven by two main factors.

The addition of our renewable business with its consistent cash flows and high margins more or less in line with expectations. And improved profitability in our international operations, some of that was the result of one-time benefits or favorable comparisons to anomalous costs, in the prior year.

Our biggest segment US wireless performed very consistent with expectations with revenue up 8% year-on-year due to network coverage and capacity expansions undertaken in the second half of 2014 and on into the 2015 as well as growth in the small rural retail business.

Operating profits for this segment were flat however due to lower rates as I will get to momentarily. Lastly our cash continued to build following the investment late last year in our renewals business, approaching $400 million again and I will talk a little bit about the opportunities for deploying that cash in a few minutes.

So let's turn to some more specific starting with US wireless. As I noted US wireless' results were consistent with our expectations. Revenue is leveled out a bit and we expect it to flatten further and then decline before we are able to find other opportunities to expand the business.

As with the first quarter wholesale revenue in the second quarter benefited from favorable year-on-year comparisons in the number of sites deployed. However, as indicated this favorable comparison will decline during the second half.

Particularly in the fourth quarter, where the data rate decreased impact will be more apparent in the aggregate numbers and as we still expect revenue and adjusted EBITDA to down for the full year comparisons.

As we've laid out at length before, we think the move to lower data rates and return for longer term and more strategic relationships, is ultimately enhancing for the business by reducing risk significantly and putting us in a better position to generate the long-term cash flows and a true outsourced network model with investment attributes that we believe are quite similar to a fiber back haul.

We think the value proposition to carrier customers is compelling and our ability to deliver is proven. But these are big players and it will take time and work to complete the shift in the model across the board. Outside this high level shift the other drivers in this business were fairly consistent.

Voice volumes continued to decline on a per unit basis, though they appear to have flattened out in areas. Data volumes per unit have grown. And aggregate data volumes which were up 161% year-on-year have also benefited from the ongoing network expansion.

Lastly part of the offset to declining rates was the steady growth in revenue and profitability of our small specialty retail business which serves tribal lands and other remote populations. We have had particular success working with our tribal partners in the Navajo Nation to bring a competitive and advanced offering to the region.

Moving on to international wireless; revenues there were down 10% year-on-year similar to the first quarter. And the sale of the Turks business in the first quarter accounted for a little more than half of the revenue decline, with the remainder resulting from lower roaming revenue across the Caribbean and Bermuda.

We think the latter impact will catch up to itself by the fourth quarter of this year. And at the exit in Turks will help further improve margins and cash flows in the second half.

The more important trend is that adjusted EBITDA in the Island Wireless statement alone increased by 13% year-on-year-year as cost saving measures in a number of markets more than made up for a significant increase in regulatory fees and others.

So we continue to work in this area discussed in previous quarters looking to boost growth in some international markets defend share and improve margins, in others. Next with wireline operations; total wireline revenues were up nearly 4% primarily due to broadband growth in Guyana.

Notably in that market, we rolled out a significant speed increase for most customers for no additional charge and reduced rates for customers in areas, where the plant does not currently support enhancement. We felt this was right thing to do and are pleased that we managed to grow this revenue stream despite that approach.

In renewable energy, our acquisition was obviously contributor to overall second quarter results and particularly to overall EBITDA growth. We continue to be very active in looking at opportunities to expand this platform organically and through strategic partnerships and investments.

We've gotten close on some deals in the first half of the year, but ultimately we're not able to pull the trigger because they did not meet our terms or we were unable to validate some of our initial assumptions. It has been somewhat frustrating, but we will remain disciplined investors.

That being said, we are quite optimistic that we'll find opportunities to expand this business in the near term and we are even more bullish on the longer term opportunity. Moving from that to the broader world of investment and expansion in general. We're starting to see some more interesting opportunities in the telecom space as well.

Better valuations, better fits. Nothing specific of course, but between that and renewable. We certainly believe the skies of our balance sheet utilization are brightening. So in summary the quarter delivered a good strong advance and profitability and free cash flows.

In addition to external opportunities, we continue to invest in network capacity, expansion and quality in our domestic wholesale business. And as Justin will touch on, we expect that to continue through the end of the year. And there is additional potential and ongoing improvements and efficiencies in the other businesses.

So that does it for me, I'll turn it back over to you, Justin..

Great, thank you, Michael. For the quarter total company and revenues were up 8% to $90.3 million and this increase over 2014 is primarily due to the addition of our renewable energy acquisition completed later last year, which added $5.3 million in contributions from our US wireless retail operations, which Michael commented on earlier.

Adjusted EBITDA at a margin of 45% continue to outpace revenue growth increasing 16% to $40.5 million. In addition to the continued strong performance in our higher margin domestic wholesale business.

Overall margins benefited from our renewable energy segment, which posted an adjusted EBITDA margin of 74% for the quarter and from improved profitability from our international operations some of it of a one-time nature. Continuing down the income statement, the quarter's operating income was $28.7 million up 33% from the same quarter in 2014.

Operating expenses this quarter included $1.5 million, non-cash stock based compensation expense compared to $1.3 million in the second quarter last year.

Operating income for the quarter also included a gain of on sale of assets of approximately $2.8 million within our US wireless segment related to the sale of 14 phase completed earlier in the second quarter.

I should note again, that this quarter that our 46% effective tax rate is higher is much higher for the quarter and year-to-date, due to the $20 million lot on deconsolidation we recorded in the first quarter, which has no offsetting tax benefits.

Net income for the quarter was $9.5 million or $0.59 per share compared to $11.5 million or $0.72 per share reported in the second quarter of last year. Looking at the balance sheet at the end of June as Michael noted, we had cash, cash equivalence of $392 million and total debt outstanding of $35.9 million.

Year-to-date, the company generated $81.1 million of cash from operating activities up from $15.3 million in the similar period last year. Less capital expenditures of $28 million we produced approximately $53 million of free cash flow in the first half of the year.

Note, that compared to 2014 much of this improvement in cash from operating activities is due to the high cash tax expenses related to the ALLTEL sale that we made in 2014.

For the quarter, capital expenditures totalled $14.2 million of which approximately $7.8 million was incurred by the US wireless business $2 million was incurred by our international telephony segment and $2.1 million was incurred by the island wireless businesses.

Timing is always a little hard to predict, but we expect telecom capital expenditures to still stay in the range that we've reported in previous off in the $65 million to $75 million. So I guess some of the additional operating data for the quarter.

We ended the quarter with 787 base stations in our US wireless territories up from 654 base stations a year ago. But only up 1 from last quarter due to the sale of the 14 sites, I noted earlier. At the end of the quarter, international wireless subscribers totalled 313,200.

Big clients ended the quarter at approximately 153,000 access lines and broadband subscribers ended the quarter at 42,200. And with that operator, I'll turn the call over for questions..

[Operator Instructions] our first question comes from the line of Ric Prentiss from Raymond James. Please proceed with your question..

A couple of quick ones. First, you mentioned how the retail business and the US Wireless business is fairly small.

Do you anticipate providing any stats in the future, or can you get us an idea of kind of the magnitude that's adding?.

Yes, we look at that for the future and it continues to grow. This time, it's more, it is contributing to EBITDA, but it's not a significant number. It's a little more significant on revenue..

Yes, okay. And you mentioned how you deployed, I think 4G LTE to provide broadband to the Navajo Nation.

What are the thoughts as far as LTE into more of the network?.

I think we will get there, if we talked about before it's really driven by the carrier customers. But I think we are seeing now as those conversations are I would say accelerating.

So I think, we would certainly anticipate getting there in more areas over the next call it a year, that's not hard and fast timeline, but that's the way it looks right now. And just to be clear to, in the Navajo, it's not just fixed wireless broadband. It's a mobile offering as well, in fact that's probably the more significant revenue piece..

Yes, that makes sense. And then, Michael you mentioned that you're seeing some more interesting opportunities in telecom, better value.

What's changed in the environment to maybe get some better values out there? Rising interest rate environment, or M&A, bigger deals falling apart, just wondering what's changed the dynamics in the marketplace, do you think?.

I think probably it's more a function of a lot of the competition is going after really big deals trying to capitalize on very cheap credit and so there is some smaller better fit for us, that have more interest to us. But always hard to predict whether that means, we can actually bring them home.

But we like that and I think, I think you see general science, this is not scientific but I think you see general science that people are realizing that at some point that the music will stop and so I think that brings a little more activity and maybe in some areas more reasonable activity..

All right. And my last question is, in the Islands and the International markets, we've seen a lot of convergence play start to happen, where people are putting wireless and video or wireless and landline together.

What are your thoughts in your different markets? Are there any opportunities there, or is there a desire for the customers to see that kind of offering?.

Yes, I think that does have value particularly in smaller markets, big fish little pond. I think it's probably even more important in those markets or more beneficial if you can have full offering whether it's a triple player or quad play, however you want to call it.

I've never been one that believe the one billing, one bill was the compelling part of it. But I just think, it gives you an opportunity to have a more efficient operating structure have the quality up overall and really, you don't really care how people. It's all about data now, right.

You don't know how to care, how they get their connectivity, you offer them whatever they want and ultimately, I think the same thing will be true on content. So the video is interesting. I don't think it's going to fall away and a lot of these markets is past, the traditional sort of broadcast model, as oppose to the pull model, the push model.

As oppose to pull I think, we'll have a lower decline in some of these markets, but in the markets where they haven't had a great push offering. I think they might leapfrog a little to more pull anyway. So you know I think the important thing is that the investment in that area, you have to refocus on connectivity, in the end..

Great. Thanks for the extra color..

And our next question comes from the line of Barry McCarver from Stephens Incorporated, please proceed..

So my first question, Michael, in your prepared comments, you talked about some opportunities to boost growth in the international wireless business.

So I was wondering, if you could give us a little more color on what you might be thinking about there and potential timing of anything?.

Sure and good morning, Barry. We - I think in some markets, Guyana is an example, we think we can do better from market share. We think the market overall has potential growth on ARPU and I think we think there are benefits of what we've been doing on the wireline side too.

And so, don't know that we've been operating on an optimal basis from there in previous years and so we just see opportunity to do better. And it's not going to be free for the taking, but we think, we can do better.

In other markets, the growth potential they're more mature and the growth potential is more modest, but we as I said we found areas where we think we can make ourselves more efficient without sacrificing quality or customer experience..

And secondly, Michael, you mentioned that in Guyana you upgraded data speeds there and then provided a discount to those that didn't qualify for the upgrade or couldn't get the upgrade for the technology.

Is the idea behind that to boost usage or adoption in that market so at some point in the future there is a revenue opportunity or just kind of what's the thought process behind that move?.

I think part of it is, branding and sort of making clear that you understand to the market that it's about delivering value. And if you're going to deliver lesser value to some than others, they should pay less and we think that's an important message to get across then be behind and ultimately will pay in the branding. So I think it's more that.

We do think, there is almost an obligation to get as many people connected as possible. It is, absolutely I mean I'm not saying anything. Most people don't believe it's absolutely a productivity and standard of living enhancement just as powerful as voice over mobility alone..

And just one more actually for Justin. I think you touched on, the effective tax rate in the quarter.

Can you go over why it was so high again and what should we expect for the next quarter?.

You should expect that to be consistent throughout the rest of the year pretty much in that rate. And the reason why it's high, is we go a, we got a $20 million lock on that deconsolidation in the first quarter and that is, a non - you can't pick a tax benefit on that.

So it artificially inflates our tax rate and it's probably 10% and based on that and 10% I should say on that rate, in fact. We would be more on a normalized basis down in the low to mid 30s..

Okay. Thanks a lot, guys..

But that will be consistent throughout the year, though that higher rate is just a repeat..

Okay. Good. Thank you..

[Operator Instructions] our next question comes from the line of Hamed Khorsand from BWS Financial.

Just a couple of topics here.

First off, on the International Wireless end, do you think some of the competitive pricing pressure you've been seeing lately could be due to your main competitor filing an IPO and just looking to increase revenue and subscriber counts?.

No, I don't think so. I don't think we've seen great pricing pressure in those markets. I mean, they've always been competitive. There is a lot of back and forth moves for share and customers that they tend. Sometimes it's a permanent pricing and sometimes it's promotional, but there's been nothing different..

Okay. And then as far as the US Wireless end goes, the amount of adds on the cell sites count has been declining over the past few quarters even if I take into consideration the 15 cell sites you sold.

Is this going to be the case going forward? Are you just - you can't find new geographic areas to expand in? Is this more of a capacity growth story at this point?.

It was - I mean, what was done in the past is been both, past couple of years is been both coverage and capacity. And I would say capacity probably had a bigger impact overall on the data volume increase. But anyway, both were very significant. And it's always been lumpy, I mean if you go back, we've been in this business now 10 years.

We go through periods where we're building a lot and then we go through periods, where we don't. We're not, it's definitely not a built it and they will come model.

So from a longer term basis, I alluded to kind of where we go after these rate increases watch through and I do think there is a opportunity to expand because I think where we are now on cost and rates, makes a very compelling offering to carriers in a lot of areas that we're not today.

So whether they will see that too and we can convenience them of that's tougher, but I think there's opportunity..

Okay.

My last question is on the US Wireline, are you able to provide us any more input as to what the fiber line loop that you're running in Northeast is looking like as far as revenue and EBITDA goes? Are you able to break that out for us?.

Yes and we don't break it out. It's particularly because some of the other. The legacy business within it is, you know is not, we don't have a GAAP allocation within, but we could do on the expense side and there is some margin, that even where about, where they would fall from the revenues.

What I would say is that the, the fiber business is on network customer business is growing well particularly within enterprise customers in Vermont area, little slower in New York and so those numbers, those growth rates are good and healthy, but you've still got a question of relative scale, some of the legacy business that's just pretty flat..

Okay. That's it for me. Thank you..

[Operator Instructions] and our next question is a follow-up question from the line of Ric Prentiss. Please proceed..

Wanted to ask a couple of questions. Back eight months ago or so when you bought or announced the deal to get into the energy area, you talked a little bit about the changing tax incentive landscape and how that might affect transactions.

Any update as far as what you're seeing as far as the sunsetting of the incentive tax?.

Yes, a good question, Ric because that, I would say that's probably a major contributing factor to the fact that we haven't expanded in the US since the transaction. There is an absolute flurry of deals and builds to get it in under the - it has to have the project operational and running by December 31, 2016 in order to qualify for the 30% ITC.

On top of that, there are some caps within states in terms of areas where you get some of the renewable energy certificate benefits such as Massachusetts that tapped out in certain areas, certain utility areas. So there is the combination of that.

There is a tremendous amount of activity and I would talk to one of the partners running our renewable business today and he described the US still is frothy. And just people are chasing yield and so that's made it hard for us to find things that we thought were worthwhile in light of other opportunities we see down the line..

Okay.

And then, what about the update on the US regulatory side as far as the Connect America Fund or other type changes that might be coming?.

I don't know where that all falls out, yet. Ric. We've been a voice in there obviously about, you know the funding of role expansion broadband. I mean, some of it we like, some of it we don't pick is very useful.

But we think there should be further opportunity because we're - if there is anybody truly hitting the under serves, I think we're a good poster child for it. So if there are programs that make sense, we will certainly go after that.

If they make business sense with the subsidy and we, as you know we've done some of that and are in the midst to completing some of the builds that we qualified for earlier. So there is a little, there is a lot of back and forth now about what's the next step there.

I don't think it's all been sorted out yet, I think the FCC has been somewhat focused on the 600 auction..

And speaking of 600 auction, any interest from your standpoint?.

Yes, I think we look at every option and certainly that one, is one that we would look at. We're not in the situation of desperation for spectrum. So we'll be very price sensitive, but it's good spectrum for rural areas, clearly. So it has our interest..

And it does feel like the Chairman wants to get it done pretty quickly..

Yes, I think, I have no special insight, but I definitely see that. I think that more and more feel, it's really going to happen. I think they'll start to auction in fall and if any luck, it will happen in the first quarter..

Okay. Thanks, guys..

[Operator Instructions] our next question comes from the line of Sergey Dluzhevskiy. Please proceed with your question..

A couple of questions. So on the renewable energy obviously you mentioned a couple reasons why you decided not to pull the trigger on some of those deals.

How do you expect the environment for deals in that space to evolve over the next six months, 12 months? And from your perspective, what are you looking for in renewable energy assets? What types of assets do you find particularly interesting?.

I think in the US, I'll start with the US. I think, we think that there will be some breakage as you get closer to the deadline for the ICC drop. So through the end of this year, in the early part of next year. Unless there are some major move on interest rates, we think probably continue a pace.

But inevitably there is people who are overreaching and there is projects, they just won't get in the funding line and some of those might be interesting. So there might be good opportunity at more reasonable, more attractive returns in second half of next year in the US. And that's not to say, we're not looking at anything in US.

There are some things we continue to look at, that we think are more strategic in nature. But we've also been looking a lot outside the US where there is a lot of markets with high solar resource, high power rates and not enough power generation. So they check, check on the things you'd want to see.

Balanced against that is, it's [indiscernible] in the US market is frothy is because it's, it feels very low-risk, you've got a contract with the high credit partner. You know the rules, you feel are going to stay the going the same that you're banking on when you do the deal or I know you're not changed.

So you know the political risk, currency whatever is not there. So but you can still factor those in the other markets and find markets they're quite attractive just like we had in telecom. So I think that maybe more of the low hanging fruit for us. But we continue to look in both areas..

All right. And another question on the competitive environment in Guyana. Obviously you made the pricing move on broadband or increased speeds and that had an impact.

What do you expect in terms of competitive environment over the next six months to 12 months? Obviously as it was mentioned, Digicel plans to IPO and I think part of the strategy, I mean part of the original strategy is probably to look for fixed assets, cable assets to become more of multi-service provider.

Do you see that playing out in Guyana? And I guess what's your general expectations are for that market over the next 12 months?.

Yes, I think the right way to look at all the markets we're in, is that they will continue to be at least as competitive as they're now. In no area, will you have a walled garden. I think that's the way we try to look at the business and whether or not, you get full throated competition in all aspects of your business.

You really do a lot better, if you act like, if you already have it. And we think, we better in that regard in some respect, but I think that's the attitude we all have both in market and at this level. So I think, there is some healthy aspects of the competition.

Of course, everybody would take lacklustre competition if they could get it I guess, but we haven't seen that for a while and we feel, we'll be all right..

Thank you..

That concludes today's' question-and-answer session. I would now like to turn the call over to management for closing remarks..

No further remarks, everyone. Thank you. And we'll see you in another quarter..