Michael Prior - President & Chief Executive Officer Justin Benincasa - Chief Financial Officer.

Ric Prentiss - Raymond James Barry McCarver - Stephens Incorporated Hamed Khorsand - BWS Financial.

Good day ladies and gentleman, and welcome to the ATNI Second Quarter Earnings Conference Call and webcast. 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. [Operator Instructions] As a reminder, this conference is being recorded.

I would like to introduce your host for today’s conference Mr. Michael Prior, CEO. Sir, you may begin..

Actually, this is Justin here. Michael, will be talking shortly, but good morning everyone and thank you for joining us on our call to review our second quarter results. As the operator just indicated, with me here is Michael Prior, ATN's President and Chief Executive Officer.

And as usual during the call, I'll be covering the relevant financial information and Michael will be providing an update on the business. Before I turn the call over to Michael, let me just get through the Safe-Harbor stuff.

I'd like to point out that this call and 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 detail on these measures and then reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or to the 8-K filing provided to the SEC. And with that, I'll turn the call over to Michael for his comments..

Thank you, Justin. Good morning all in the call. First off, as usual I'll start with some highlights for the quarter.

Most importantly, we were able to significantly advance our strategic growth plan in the second quarter closing the Bermuda deal in early May and winning regulatory approval for the Virgin Islands transaction in late June leading to the July 1st close. We also were able to make further progress on repricing our major carrier customers in U.S.

Telecom and to do so in line with the guidance previously given for the segment for the full year 2016. Lastly, we began to build out the first projects in the India solar pipeline we acquired in the first quarter with the operational team fully staffed and additional land and customers acquired.

Unfortunately, all of the strategic activities that are putting our balance sheet to use had a negative effect on our reported results in the current quarter. We’ve tried to highlight the impacts in the line items for ease of analysis by investors.

In particular, the accounting for the India deal required us to include a large piece of purchase price, at least what we thought of in colloquial terms of the purchase price in operating expense. As Justin previewed last quarter and he’ll also cover in a little more detail again after I speak.

The good news is that those items depressed reported operating and net income this quarter, the second half of the year, particularly the fourth quarter should see significantly lower transaction expense and also benefit from the addition of cash flows from those acquired and growing operations.

Justin will also cover that in more detail and comment on restructuring expenses looking forward. Both the deal and restructuring costs are of course real expenses that we incur from time to time and are necessary to accomplish our objectives.

In the international telecom deal side, we have begun work on those objectives, which include improving the customer experience wherever we can, looking for opportunities for growth, and improving the efficiency including cost efficiency of the combined businesses.

So it’s early days, but overall we believe we are on track to meet our investment goals and we are looking to see early evidence of that over the next two to four quarters. With that, I will turn to some more specifics starting with U.S. Telecom segment.

Here we made, as I noted, we made substantial further progress in moving our carrier customers onto new contracts and terms and in fact the initial phase of this is largely complete with pricing in line with our expectations. The next phase is a little trickier and it’s to develop ways to extend our business with our major customers.

We’ve said before that we think our value proposition is strong and we still do, but it is most appealing to the forward thinking financial and strategy side of the carrier customer and expanding the relationship is likely to be a lengthier effort. Operationally, the trends are similar to past quarters.

Data volumes have grown substantially, but are more than offset by price reductions, those under new contracts and existing contract step downs.

As we’ve commented in the past, we think unit pricing flattened out by the end of this year and any growth in domestic wholesale wireless revenues will be largely dependent on launching new coverage or new services. If we don’t find those opportunities, capital expenditures in this segment should come down markedly from recent years.

At the same time, we are working on a number of initiatives to further trim cost in this business and while the impacts are modest, we’re seeing good progress in some areas this past quarter and more on the way. These efforts should be more evident in the P&L a couple of quarters from now.

And this segment’s results were both negatively impacted by the impairment of some of our domestic wireline assets. What that means in layman’s terms is we haven’t succeeded with growing that business the way we had hoped.

In International Telecom, as noted, this past quarter saw the close of the Bermuda Cayman deal and final regulatory approval of the innovative transaction, which closed on July 1st in line with our original expectations.

We are happy to move on to the operational phase and we have a number of initiatives already underway in both businesses on improving customer experience, finding areas for growth, and capturing in market scale efficiencies.

In the early going, these activities will be most apparent to the investors, an increased restructuring and integration cost that we would expect to start seeing benefits flowing through before the end of 2016 and more pronounced in 2017.

At the same time, we are working hard on integrating these operations and positioning them for long-term success in the competitive and technological environments, while you wait closing and so we had a little bit of a head start on this as we talked about in the previous quarter.

For example, in each of Bermuda, the Virgin Islands and Cayman, there is both a need and an opportunity to invest in the networks.

In Bermuda and Cayman, that includes substantial expansion of the fiber plan with the emphasis in Bermuda on a significant improvement in speed and quality throughout the covered area and the emphasis in Cayman on increasing the number of phones passed by fiber to capture growth.

In the Virgin Islands, the recent wireline investments by the previous owner were fairly comprehensive with smaller dollar work to be done on tuning and improving performance in certain areas.

However, we do plan on a substantial upgrade and expansion of our wireless network in the territory, utilizing our broad and deep spectrum holdings to offer an extensive and advanced solution across the islands and that work will start this year.

We also have work to do on strategic positioning and cost and other operating efficiencies with the newly combined businesses as I’ve noted earlier and we are already at work on that front as well.

Lastly, as it’s apparent from this quarter’s numbers, we still have not seen the broad pickup we expected in Guyana that we think the second half of this year has the potential to produce better year-on-year comparisons than the first in terms of both margin and revenue.

Moving on to our renewable energy, revenue from existing production facilities and the associated cost continue to perform at or better than our expectations and on a very consistent basis. That is somewhat to be expected with the sector, but still happy to see it.

As we’ve explained before, growth in this segment is highly transactional either through investing in new projects or acquiring existing facilities or development pipelines.

We think that makes this business a good fit for our strategy and strength, but of course it also means that there will be periods of higher expense and we’ve just reported our third quarter row of high transaction expense.

Justin will talk again as I’ve noted before, more about that, but I’ll say that absent a large unexpected deals, those expenses should be substantially lower in the second half of the year. Our fiber and energy business in India had a very busy quarter with the local team fully flushed out and a rapid execution on the pipeline.

We signed five letters of intents and thorough purchase agreements, we will get more than 40 megawatts DC of solar facilities and we’ve begun construction on the first 11 megawatt facility. You will see that operating expenses increased in this segment from last year and that’s of course predominantly related to the operational launch in India.

We still expect revenue from our phase one projects to start in the fourth quarter, but it will be sometime in the early part of 2017 before the revenue generation exceeds expenses, given the large number of projects and development activity we have underway in the market.

So in summary, lot of noise in the order, but we're quite happy with the strategic accomplishments and what they promise us for the future. We're putting our balance sheet to work and we have the capacity to do quite a bit more.

At the same time, it is not enjoyable to look at operating income and net income weighed down by all of the transactional and restructuring activity.

While those expenses are real and we will continue to incur them periodically as we have in the past, I confess that I'll be relieved to see a quarter reflect more of the return on those investments than the cost. I think the second half of this year holds that promise. And with that, turn it back over to you, Justin..

Great, thank you, Michael. For the quarter, total consolidated revenues dropped 11% to 100 million, while consolidated adjusted EBIT declined 15% to 34.3 million at a margin of 34%. These results were largely anticipated and reflected a confluence of events across our telecom segments. First, our U.S.

Telecom revenues declined 7% and adjusted EBITDA was down 17% year-on-year due to the impact of finalizing the new contracts, the lower wholesale rates as Michael touched upon, and in fact that was partially offset by higher roaming traffic volumes.

As we noted in the release, with the completion of the new wholesale wireless contract terms, we reiterate our earlier guidance for the U.S. Telecom segment of between 165 million and 175 million of revenues and the adjusted EBITDA margin to be in the mid-40s for the full year of 2016.

Conversely, International Telecom revenues increased 34% or approximately 13 million and that was primarily as a result of our acquisition of KeyTech that closed in early May. That’s the Bermuda acquisition.

Although the addition of KeyTech was accretive to the International Telecom segments EBITDA for the quarter, adjusted EBITDA for the segment declined 8% to 15.4 million. This negative comparison was due to several factors.

First, we incurred higher than normal sales and marketing related expenses in Guyana around the country 50-year independent celebrations and we are also comparing against an unusually strong EBITDA quarter in 2015 for Guyana.

Also, impacting that, we continue to be affected by the trends towards lower roaming revenue in most of our international markets that we’ve mentioned in previous quarters. The Renewable Energy segment revenue increased 7%, while adjusted EBITDA declined 2% to 3.8 million.

The negative comparison was due to the operating cost incurred this year related to our India investment as we worked to bring those facilities online in early 2017 as Michael mentioned. Our operating loss for the quarter was 5.4 million and included several special charges totaling 23.2 million.

First, we incurred 10.4 million of acquisition related transaction costs, which was above the high end of our forecast.

While the total transaction costs were in the overall range we anticipated, some of the costs expected to fall into the third quarter were accelerated into the second quarter as we worked hard to close the USVI transaction on July 1st.

As we noted in the release, the majority of the 10.4 million of the charges related to the purchase accounting treatment of our fiber and energy India platform acquisition that we closed early in the quarter and this required part of the consideration to be expensed rather than capitalized on the balance sheet as it’s typical for most acquisitions.

While we know these costs are expected to be an active part of the M&A environment, we’re looking forward, as Michael noted, to having the bulk of these larger costs behind us for now, but we still estimate we will incur between 1 million to 2 million of transaction cost in the third quarter.

The next item impacting operating income was restructuring charges of 1.8 million for various kind of one-time in nature integration expenses following the closing of the KeyTech acquisition. Also related to the KeyTech acquisition in benefiting operating income was 7.3 million bargain purchase gain.

While unusual to most transactions, this gain represents the fair market value, the acquired net assets over the purchase consideration, more than offsetting that bargain purchase gain was 11.1 million impairment charges on our U.S.

wire line operations, as we evaluate and review our strategic alternatives given the recent consolidation and change in the market’s competitive environment. Included in operating expense for the quarter was non-cash stock-based compensation expense of 1.9 million and that compares to 1.5 million in the first quarter of last year.

I should note that our effective tax rate for the quarter is unusually high due to several of the special charges I just mentioned that are non-tax effective for GAAP purposes. We expect the year-to-date effective rate that is now approximately 46% to be in the range for the full year.

As a result of all the special charges, we incurred a net loss for the quarter of$3.1 million or 0.19 per share. Now, looking at the balance sheet, at June, we ended the quarter with cash and cash equivalents of 352 million, after using approximately 42 million of cash to close the KeyTech Bermuda transaction.

For the quarter, cash flow from operations was 50.7 million and total debt outstanding was 63.5 million, which include the addition of approximately 33.7 million from the KeyTech combination. Capital expenditures for the quarter totaled 26.2 million of which approximately 8.9 million was incurred by our U.S.

Telecom operations and 14.5 million by our International Telecom segment. We slightly lowered the capital expenditure estimates on our existing telecom properties from last quarter, but are adding in an estimate of 20 million to 25 million for post-acquisition network investments in Bermuda, the Cayman Islands, and the USVI.

This puts the total telecom capital expenditure estimate at between 80 million and 95 million for the year. Our estimated 2006 bill spend in the renewable energy segment remains at approximately 40 million to 50 million. As part of my financial summary, I usually provide some additional operating data for the quarter.

However, since we've added Bermuda in Q2 and the USVI market in Q3, our plans to provide combined international operating data beginning in the third quarter. And with that operator, I would like to turn the call back to you for questions..

Thank you. [Operator Instructions] And our first question comes from Ric Prentiss of Raymond James. Your line is open..

Thanks. Good morning, guys..

Good morning, Ric..

Good morning, Ric..

Ric Prentiss:.

, o:.

It was about three..

About three, okay, so kind of a margin base is still looking in that 20%. I think originally when you had announced both transactions, KeyTech and Innovative; the thought was the combination of those two would add about $180 million to $200 million revenue in the first 12 months at 25% to 30% margins.

Is that still the thought for the first 12 months of owning them and how did the margins play out over the timeline given what you were talking about, Michael?.

Yeah, I’ll take that one, Ric. I think the revenue ranges are still the number. What we originally had said that the EBITDA margins are more in the lower 20 range, but we want to get them up into that higher range. So it will take a little bit of time for us to move them up into that range on the acquired piece, right.

So, but I think they'll come on more in the lower 20s and then move up overtime as we kind of get efficiencies in place, but they'll take a little bit of time to do that..

Okay.

And then a question on CapEx, you mentioned that you've added the 20 million to 25 million for Key and Innovative, what should we start thinking about as we look into ‘17? How extensive are the fiber and homes past in the Key and how extensive were the wireless upgrades being innovative just trying to gauge what we’re thinking ‘17 might look like?.

I think ‘17, so we get what we want to get done a lot of the upgrades in the USVI, I think a majority of that will fall into ‘16, but there will be some remainder. The timing is everything, right. But I think you'll see some of the other markets come down.

So I would probably - it’s tough to say in terms of timing, but I think we've got a lot of what we want to do built into that number this year..

I think the tough part, Ric, is just where the year-end falls. So, you know, another way to think about it is the bulk of the bigger spend should be completed in the next three quarters, but not necessarily the next two..

Right, okay.

And so we shouldn’t really think of that $20 million to $25 billion as some kind of annualized - you have to keep spending on an ongoing basis?.

No, I think certainly not.

I think what happens in these small markets is it gets much more lumpy than a very big network of market where you're rolling through upgrades and expansion across a very large base, so it should come down significantly happens [ph] something very unexpected or particularly in Cayman, there could be more depending on how the next expansion of fiber plan goes and then sell-through on that, there could be incentive to keep that going.

So - but if you think about in terms of really the base plans that we have today that should come down a lot..

And the margin is back just a the lower 20s, is that really through the first year and you get back up to the 25 and approaching 30 in year two and three or just trying to think of when the improvements might come?.

Well, I think, look, you hope that you can get the most improvements done within a year, right, of closing. That's generally - it’s hard to predict all the piece parts of it, but certain that’s been adjusted..

It's harder on some of these smaller markets to move things too quickly. It's much more public..

Yeah, okay, thanks guys..

And our next question comes from Barry McCarver from Stephens Incorporated. Your line is open..

Hey, good morning, guys, and thanks for taking my questions.

Following along that the line of questions on the USVI upgrades, can you give us an idea of what you think the revenue opportunity is for expanding the fiber, just a little color around that and is it more revenue or more cost efficient to this upgrade planning?.

I think in Bermuda it’s more of a competitive environment situation. I think there could be some overall growth in the sector, but I think it's more about improving the basic customer experience.

You have to kind of keep up with the speed the people want and the completion does the same, that’s not necessarily going to result in any real revenue growth and I think in the wireless expansion of the Virgin Islands, we certainly would hope that would lead the other way around, which would - we’re hoping that that will lead to revenue growth there and same in Cayman where it’s bringing new - the network is quite new and pretty good shape in most places there’s some old fixed wireless that needs to be fixed and replaced wireline, but generally it’s more authentic..

Okay, very good and sorry that I'm skipping around here a lot, but my second question is really on the Indian solar pipeline. I think last quarter you gave kind of a timeline for expected projects when they would roll out over the course of the next several quarters.

Any update there and what you've done so far, would you consider that on schedule?.

Yes, I think we are on schedule.

There is puts and takes as you go and we're not there yet, but I would say we're pretty much on schedule so that we're still looking in at somewhere around 50 megawatts territory to be completed sometime in the first quarter next year and to be following quickly on that and so the precise timing of some of the revenue starts could move up, could move back on particular projects..

Okay. Very good and then just last question. You mentioned in regards to the U.S. wireless expanding your relationships with the big carriers and we've certainly seen you have good success with that in the past.

Is that something that's underway or are we still kind of on the drawing board as to what the next projects could be?.

I think we are closer to the drawing board than underway. I think it’s really - the next stage is not as much about covering white space, which a lot of it was before.

It's more about finding cost efficiencies, operating efficiencies in areas that are just not strategic to these carriers and again I think from a financial and strategic standpoint, that’s a pretty nice value proposition, but it’s different and these are really big companies and with varying priorities.

So, it's really hard to be confident in that until you're really moving..

And Michael, do you think those opportunities - quite a few of those opportunities or you really have to hunt pretty, pretty hard to find one?.

I think there is quite a few opportunities, but again I think the hard part is convincing the customer of that..

Yeah, okay. Very good, thanks, guys..

Thank you and our next question comes from Hamed Khorsand from BWS Financial. Your line is open..

Hi, good morning.

First question is, is the International business, how profitable would it be if you saw a complete reduction to zero of your roaming business?.

Pretty profitable..

Yeah..

It’s a very small part of the business these days..

And it will be a much smaller part of the business. I mean it's a very - on the acquisitions we just closed, it’s almost - it's a minimal amount of any revenue associated with roaming..

Basically the U.S. carriers are paying very, very little to local carriers in these markets and still charging customers quite a lot and so there is no elasticity. The volumes aren’t there, because people tend to avoid using their phone while travelling internationally and what volume there is at that low rate..

Okay. And on the U.S.

Telecom side, is there still room to expand as far as base stations go, so you can grow beyond the current revenue guidance you are suggesting?.

Say that again, Hamed..

Sure. On U.S.

Telecom, can you add more base stations to grow revenue or are you free to find as far as how much you can generate from your contract?.

I think there's not much of that growth left that we talked about. So, really the way to think about it is unless and until we are successful with finding these expansion areas, there won't be that sort of smaller or much in that way that smaller organic growth. It should tend to be a flatter business..

Okay, thank you..

Yeah..

[Operator Instructions] And we have a follow-up question from Ric Prentiss from Raymond James. Your line is open..

Yeah, hey, guys, I want to come back to the India projects for a little bit.

Can you walk us through how the kind of cost come in for each one of the facilities and then the timing and pricing for the revenue you mentioned how you had costs come in this quarter you expect still kind of cost fortune that the revenues will exceed your expenses by the time you get to ‘17, but just trying to understand how best to think through the modeling as the facilities come online?.

Yeah, I think in this business, the big expense is capital expense. So, the operating expenses are not huge.

And what we're seeing now is that I would call the development expense mainly, so that's really putting going out and lining up customers, acquiring land, the activities around that, all of the back-office and overhead that you have to put in place anyway and once you have projects come online quickly - the revenue should quickly exceed that overhead.

It is and should be a fairly high margin business in India just as it is in the U.S..

The drag on that overhead won't be - it won't be large going forward. It’s just - it kind of nicks out of it or takes the –we had the growth in the existing properties that would have probably dropped on the bottom line. It kind of took that away, but it's not going to be a large expense, but it is an expense until we get up and running..

Once you’re up and running, Ric, any individual project doesn't have very high operating expenses. So, even in our U.S. market, most of that expense you see is really the developmental platform, which is among other things also developing India..

Got you, got you. Okay.

And from a CapEx standpoint, how should we think about the timing of that as the facilities come online, any kind of cost per megawatt is a good ballpark number?.

No, I think we'd rather not give that. That’s somewhat competitive. But I think, so we try to give an overall rough number of megawatts expected and the equity investments and as we do more on the debt financing side, we’ll get more clarity on that front as well..

Okay. And final question from me, obviously a large balance sheet capacity left out there.

Any update on kind of what you're seeing in the M&A environment by region or by segments?.

Well, missed our chance to buy Yahoo, I guess. So, but actually - I wouldn’t bet against them. I bet you they’ve got a pretty good plan there. But for us really joking aside, I think asset values still are very high in most sectors and we are very active.

We've managed to find what I think are good investments in that environment, but it's hard to promise anything when there is a lot of money chasing a lot of things with a very optimistic and rosy forecast behind the pricing. That's what we tend to say..

So, just patient and disciplined and watching the markets?.

Yeah, that's right and I think right now we're feeling pretty good, because I think we feel good about our ability to see predict returns and things on the investments in the expanding international telecom footprint and I think we also have a nice path to put capital to work in the renewable side.

Even there, there are some really high values in some markets. We’ve got a little bit of activity domestically. But most of the things in the U.S. are not attractive from a return profile and - but I think that's such a fast-moving segment that or sector that there is more potential for opportunity there..

I'm sorry. Say that again. You broke up..

I think that the renewable even though also suffers from the same thing really cheap that people taking yield bringing up asset values and down returns, it's a lot more fast-moving and fractured and so I think if you are patient and creative, there are more likely the opportunities there in this environment.

So we keep looking in pretty actively in both sectors..

Great, okay, thanks guys..

[Operator Instructions].

Any further questions, operator?.

At this time I'm showing no questions. I would like to turn it back to management for any closing remarks..

No closing remarks. Everyone, thank you and we'll see in another quarter. Take care..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day..