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

Ric Prentiss - Raymond James Barry Sine - Drexel Hamed Khorsand - BWS Financial.

Good day, ladies and gentlemen and welcome to the ATN International First Quarter 2017 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Justin Benincasa, Chief Financial Officer. Sir, you may begin..

Thank you, operator. Good morning, everyone and thank you for joining us on the call to review our first quarter 2017 results. With me here is Michael Prior, ATN’s President and Chief Executive Officer.

And as usual, during the call, I will be covering the relevant financial information and certain operational data and Michael will be providing an update on the business and outlook.

Before I turn the call over to Michael for his comments, I would 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 details of these measures and reconciliations to comparable GAAP measures and for 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 I will turn the call over to Michael..

Okay. Thank you, Justin. My remarks this quarter will be briefer than usual, given our last call was just 2 months ago and the broader trends, for the most part, remain the same.

On the highlight side in International Telecom, our network expansions and upgrades continue to pace and our construction of solar plants in India within our renewable energy segment actually picked up pace. In U.S. Telecom, we closed on the sale of our U.S.

wireline business toward the end of the first quarter, which was an important, but anticipated goal. Meanwhile, lower pricing is putting some additional pressure on revenues and margins in our domestic wholesale wireless business. And with that, I will turn to some more specifics and I will start with International Telecom.

Historically, the segment was predictable, but nonetheless, very positive, given the acquisitions we made midyear of 2016, a doubling of revenue year-on-year and a 63% rise in EBITDA. EBITDA increased at a slower pace than revenue because the acquired operations come with lower margins than our historical operating margins for the segment.

We remain committed to improving those margins. But as we have said before that will take time and we are more focused initially on upgrading and improving the networks and the overall customer experience.

I should note that margins did improve over the fourth quarter, but that is mainly related to the sale and deconsolidation of two small island markets that had thin or negative margins.

In coming quarters, year-on-year comparisons, excluding transaction-related charges, should flatten out allowing a more apples-to-apples view given the timing of those acquisitions. Subscriber levels in International Telecom were flat overall with some decline in traditional voice lines offset by modest gains in data subscribers.

Wireless subscribers overall declined slightly, but there is no clear trend that we see here at this time. The customer experience is making noticeable progress in all markets. And in the U.S. Virgin Islands, we just publicly launched a major re-branding campaign in the current quarter to help draw attention to the improvements.

We have experienced a more difficult regulatory and political environment in a lot of areas of this sector than is typical. For example, Guyana now acknowledges that our competitor, Digicel, is operating illegal unlicensed facilities, but is yet to take decisive action to enforce the law.

While we are frustrated by the government’s lack of response, we remain focused on the day-to-day, on the customer and our scheduled operational improvements. Moving to U.S. Telecom, in this segment, the quarter was largely in line with expectations.

Revenue declined both due to the sale of the wireline business before the end of the quarter and the effect of lower rates on our wholesale wireless business. As noted in my remarks in the press release, we now expect further reductions in wholesale revenues in the near-term.

It is difficult to quantify that at this time, but we do think there is a good chance that year-on-year comparisons will be down beyond what would be expected from the wireline sale. From a cash flow standpoint, we expect to reduce our capital spending in this segment accordingly and we will also examine other costs as well.

We don’t expect this to be a continuing spiral sitting here today, but we are reexamining our approach in order to help customers dealing with different priorities and pressures on their end.

On the positive side, we do see potential for expanding our network reach and revenue generation in the mid-term, but those discussions are still in the early stages and a positive outcome is unlikely to provide much benefit in the current year. Moving to Renewable Energy.

Here, the first quarter was nearly identical to the fourth quarter in terms of revenue and margins. And the reasons for the decline year-on-year in both quarters expiring state credits in California and ramped up expenses in India were the same as well. The main news in this business was getting solar plant construction in India back on track.

And we were able to synchronize four separate plants towards the very end of the first quarter. Now, synchronizing essentially means the relevant solar plant is working, the connection to the utility is in place and tested and that we are now delivering power into the grid.

We expect to be synchronizing additional capacity at existing sites and new sites during the second quarter. So revenue flow from these plants starts at a lower level on initial synchronization. Basically, it’s at the wholesaler merchant energy rate.

And the next step is then to qualify under what’s called open access and begin earning the PPA rate, which is the negotiated rate with our customer, the end user.

It’s a bit complex, but the net-net of it all is that we expect revenue to ramp throughout the year both because of completing construction and selling increasingly more power at negotiated commercial retail rates.

We are in the midst of considering and negotiating the placement of project debt on the initial projects probably slightly behind where we would have liked to be here, but not far. While we have a sense of the terms and likely outcome, we want to have that financing in hand before we make final decisions on the face of future construction.

So in short, I would say stay tuned. In summary, all-in-all, a good quarter of financial results and a number of positive operational developments in both International Telecom and Renewable Energy, balanced against some near-term headwinds in U.S. Telecom.

It’s good to see the benefits of our recent investments taking shape and we are on the lookout for additional opportunities. At the same time, we are working hard on improving cash flows and the effectiveness of our existing businesses. And now, back to you, Justin..

Alright. Thank you, Michael. As Michael noted, this quarter was in line with our internal forecast and more reflective of the profit levels of our current portfolio of businesses in the past quarters, which included several special charges.

For the first quarter, total consolidated revenues were $128.1 million, up 43% from $89.7 million in the prior year period, while consolidated adjusted EBITDA increased 23% to $42.1 million, representing a 33% margin. Our financial results for the quarter did include $1.6 million of expenses related to the sale of our Northeast U.S.

wireline business, of which $700,000 were transaction-related expenses incurred in closing the deal and $530,000, which are related to the reversal of minority interest upon deconsolidating the operations. To review these results by segment, our U.S.

Telecom revenues were $43.8 million, down 5% from the prior year and adjusted EBITDA was up 3% to $23.2 million. Of the $6.1 million in wireline revenues included in the segment, $4.2 million was from Sovernet, the Northeast U.S. wireline business that we sold in early March, I just mentioned.

These operations also included about $700,000 of adjusted EBITDA to the segment this quarter. In the domestic wholesale part of the U.S.

Telecom, we have been focusing on ways to find greater cost efficiencies as we continue to experience rate pressure as Michael noted earlier and some of those efforts have started to payoff with reducing operating costs partially offsetting lower revenues this quarter.

In the International Telecom segment, segment revenues were up significantly again this quarter, reflecting the impact of our Bermuda and USVI acquisitions, increasing by 109% or approximately $41.4 million and adjusted EBITDA increased 63% to $23 million. We completed the sale of the St.

Martin operation that was acquired as part of the 2016 USVI transaction. That sale closed on the first day of the quarter, so there were no contributions to operating results from these operations in the quarter. After many years of being stable, we have recently seen a decline in the value of the Guyana dollar to the U.S.

dollar over the last several months. While the published rates don’t indicate the change, we have seen higher rates in our bilateral agreements that we have entered into in the last several months and did incur a $600,000 expense in the quarter related to our U.S. dollar purchases.

We will continue to monitor that rate going forward and any related impacts on our reporting exchange rate. In the Renewable Energy segment, revenues decreased 10% to $5 million and adjusted EBITDA was down 32% to $2.9 million.

And as we noted last quarter and Michael mentioned, revenue was down against last year as we reached the end of contract period for most of our California Renewable Energy credits in 2016. We also saw weaker energy production this quarter, due to rainy weather conditions in California.

And consistent with past quarters, we have absorbed higher operating costs and overhead, as we ramp up our India operations. Consolidated company operating income for the quarter was $17.8 million, which included $22.4 million of depreciation and amortization expense, reflecting our 2016 acquisitions and capital expenditures.

Also included in operating expense for the quarter was $1.7 million of non-cash stock-based compensation expense. We ended the quarter with a lower than anticipated effective tax rate of approximately 21% and this lower rate was primarily driven by tax benefits that we are able to realize from the sale of the U.S. wireline and St. Martin businesses.

Looking at the balance sheet, at March 31, we ended the period with cash and short-term investments of $274 million. And quarter-to-date, cash provided by operations was $32.1 million and we ended the quarter with total debt outstanding of $152.4 million.

Capital expenditures for the quarter were $45.7 million, of which approximately $6 million was incurred by the U.S. Telecom operations, $16.7 million by our International Telecom segment and $21.8 million in the Renewable Energy segment. Capital expenditures are always difficult to project, especially early in the year.

But given the rate pressure we are seeing in our domestic wholesale business, we are carefully evaluating capital expenditure plans for the U.S. Telecom segment.

As a result, we are currently estimating that total telecom capital expenditures of 2017 are more likely to be in the lower end of the $95 million to $115 million guidance range that we provided at the end of 2016. And with that operator, we would like to turn the call over to questions..

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

Hi, good morning guys..

Hi Ric..

Hi Ric..

Couple of quick ones on the U.S.

business, Michael you mentioned the further reduction of wholesale revenue and pressure on year-over-year might be down more than the landline sale, I think that the wireless contract used to have a component that was kind of like the price pressure would be more felt in the fourth quarter, as they consumed a certain amount of capacity.

And so typically, you had some seasonality that led third – second and third quarter to be a little higher, what do we think as far as the quarterly trends throughout the year then, if there is still that component of a true-up at year end that causes fourth quarter to be lower, how should we think about the seasonality of quarter-to-quarter and year-over-year?.

Ric, I can help with that one, I think. I think the fourth quarter like you said is typically the lower one, for the reasons you noted. The second and third quarter, though seasonality and the way that even the newer contracts we have entered into, it’s a little bit smooth [Technical Difficulty]….

Can you hear me okay?.

Say it again..

You broke up, sorry.

You were – it was all garbled, so you said it is more smoothed out?.

Operator, are we having an issue here?.

Can you guys hear me?.

Yes, now we can..

Okay. Yes.

I lost a lot of what you said there, but I think what I heard is that it’s a little more smoothed out than it has been?.

Yes, it is..

Yes, it’s more muted..

And it’s really the nature of the contracts that are driving that. Right, yes. And I think that as I said, I think that there really does feel like there is a good chance that when you look at those year-on-year comparisons, they will be down..

Okay.

And then Justin, when you mentioned the landline in the first quarter, $6 million or so revenue, but $4 million was on the sold business, was that a positive or a negative $0.7 million EBITDA, because I know Sovernet kind of bounced a lot around of times?.

Yes. It was actually a positive. I mean there were a couple of – it was a positive. There were a couple of last minute court adjustments before the sale, but it was a positive..

Okay. And then on the International Telecom business, you mentioned margins were a little better because St.

Martin and Aruba, some of those markets might have had negligible to negative, how should we think – so margins came in, I think what about 29% in International in the quarter, should we think that’s more of kind of the run rate, then Michael, you said improvement over time, but is this kind of finally a clean quarter for 1Q ‘17 for International Telecom?.

Yes, I think it’s cleaner. I mean there will be some – there is some variability and there is some seasonality in this business, but not as much as there used to be. So the first quarter used to have tighter margins because of some seasonal higher margin revenue being lower.

But that’s mainly in the wireless and we have added so much wireline revenue that, that really shouldn’t be a big impact anymore. So I think this it’s definitely in the ballpark..

Sure.

And then two other real quick ones and then we will leave it, International Telecom equipment, though dropped pretty significantly since the acquisitions were made middle of last year, you have been running more like maybe $5 million a quarter, $6 million, this quarter was $2.5 million, is that just seasonal handset sales or is there something systemic going on, as far as what would have caused International Telecom equipment to drop?.

I mean there is always the seasonality in the fourth quarter on the holidays for us. So but I think – and I think first quarter tends to be a little bit lower. But I think that’s the – that’s really how it plays out..

Alright.

And then you mentioned CapEx to be on the low end in the U.S., but I think you also, in your prepared or in the press release mentioned that CapEx in general for telecom could drop significantly in ‘18 just as projects are done, any concept about what kind of early magnitude we might be thinking on ‘18, given the price pressure, but then also that you bought a lot of spectrum now, you bought about $48 million in the broadcast auction?.

So on the former side, I think it’s hard to say more than what we said. It’s hard to quantify at this time. But if you look at the percent of revenues then this year, it’s higher than even large scale providers would see where they tend to have a very consistent number.

And the way these smaller markets work is you can get a project done completely in a year or in 1.5 years and then the next year, it drops down quite a bit. So I think we – all things being equal, existing business would expect it – expect the number to drop quite a bit in the segment.

In the – on the broadcast option, the last I heard, we are still – today is the last day. We are still under limitations. I don’t want to really talk more about that. But any license has potential future spend with it. But as to when that is and where that is, I would rather not get into..

Alright, it makes. Thanks guys..

Thank you. And our next question comes from Barry Sine from Drexel. Your line is now open..

Hi Barry. Barry, we can’t hear you..

Barry, if your phone is on mute, please un-mute it. [Operator Instructions].

Can you hear me now?.

We can, yes..

Okay, sorry about that. On U.S.

wireless, if you could – I want to go back and I just understand some of the trends there, presumably usage is increasing, I think you are more on fixed pricing contracts, have you lost any or a portion of any customers, is there overbuilding and maybe you could just explain what is the pricing mechanism that you have on the U.S.

wireless contracts?.

Yes. I don’t want to get into detail on the pricing, because there are not in a lot of contracts.

And so, that’s important information, but I can give you conceptually, I think to answer your question decently, which is we have said for a while that we see more or less revenue per geographic area per site on an average basis, hitting the ceiling capping and not – in the old days, there was years where there was movement, up and down based on usage that could be pretty significant.

That’s leveled out quite a lot. And I think the main thing we are seeing is the carriers adjusting priorities in terms of what quality customer experience they want in rural areas. And of course, the general pressure you always have – to work with the customers and so some of that’s working its way through.

But related to that is, we had a lot of capital expense to this business that your customers might not see. And so then you would say okay, that’s the world then we will adjust accordingly. So there is – there is not, most of the carriers are not – there is not really an over-billed other than in limited circumstances.

But most customers are not doing that..

Okay, that’s helpful.

If I can also turn, you are increasingly providing subscriber metrics in the earnings release and if I just look at the sequential change, you had pretty good growth in your data subscribers, but you were down in wireline, wireless and video, if we could talk about the individual markets and presumably that’s not across the board, in some of those, you are still seeing growth, could you give us a little more granularity on that subscriber data?.

Yes. I can probably help a little bit with that. The obvious one is on the data you can say, we are seeing as Guyana moves up in the speed, it’s a little bit more of the landline cutting cords, if you will.

And then the other markets that are heavy prepaid, so they can on wireless, it can somewhat swing around a little bit in a quarter, depending on whatever promotion we are running or our competitor might be running..

Okay, those are my questions. Thank you, gentlemen..

Sure..

Thank you. And our next question comes from Hamed Khorsand. Your line is now open..

Hi, good morning.

First off, on of the Indian revenue, you were talking about – the ramp that you are talking about, is that going to be low margin revenue or is that going to change over the course of the year to higher margin revenue?.

It’s a pure – the cost is not a lot of added direct cost as the revenue comes online. So the main costs are in the overall platform cost. It’s not – and costs related to it where the plant sites are, that we are already incurring. So to put it simply [ph], maybe that’s not 100% clear, so try say more clearly.

Revenue as it comes in from these projects that we are turning on, the incremental margin contribution is going to be very high from that revenue. And so as revenue ramps, margins will get better and better. And approach margins you would see in solar businesses everywhere, including our domestic business..

No, I understood that part.

I was referring to the – during the commentary you were talking about how you would get higher priced revenue once you get qualified?.

But it’s really – it’s really just saying as you guys work your way up, as you turn the plant up, when it’s a final mature plant in generating revenue, it will have high margins. But as you are working your way there, the costs are fixed on it. So as your building revenue won’t be as higher margin against fixed cost..

Okay. And then on the U.S.

wireless side beyond just the spectrum auction, is there any intention to grow that business? Would it be profitable to grow that business given where you are with the contract terms that you have in place?.

Yes. As I said in my remarks, I think we are having discussions about new geographic areas and builds. They don’t know yet whether that will yield something that makes sense for both us and the carrier, but we think its decent enough probability to mention..

Okay, I missed that. Alright, thank you..

It’s alright..

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

Yes. Hey, thanks guys. Two quick follow-ups. I think in the press release you also mentioned that the India Renewable Energy would be more neutral to EBITDA by mid ‘17. I think you are kind of addressing that in the previous question.

But can you lay out for us maybe what kind of magnitude of negative EBITDA it was giving in the first quarter just so we have a sense of what the drag is?.

Yes. I think it’s – I would have someone look it up. It’s about 100,000 a quarter..

Okay. And that’s….

That just kind of shows up in the consolidated segment..

Sure. Sure. And then as you add some more revenue, it covers the fixed cost, but it really is second half of the year before it would transpire. We are just trying to get a magnitude on it.

And then Michael in the past, you had also mentioned that as you get project financing, you can maybe look to provide some more details to the Street as far as the business. Because I think a lot of us are struggling with the Indian business understanding the cost, the margins, the returns etcetera.

You mentioned you are little bit – you are behind a little bit in the financing, but it’s getting closer.

Is that still the plan that in the next – are we talking few months or few quarters that we can get some better granularity and understanding of how to model in India?.

Yes, I think we can. I think when we had financing, assuming we get the financing on terms we like that will either way, it will kind of dictate what we expect on the future build. And we see the demand there, but we are trying to make sure that the returns and obviously the gearing levels affect that are where we want to see it to continue to invest.

And so all-in-all, it’s too soon to tell. And I think at that time too, we can also give some better sense of what size contribution you might see in 2018 from this business..

Okay, that makes good sense. And then probably also as you look at your balance sheet, a lot of cash is still sitting there. And so if you get the financing and the gearing and the returns you like, more money goes here.

But if not, then there is other potential avenues that you might look at and what is the latest thoughts of other opportunities as you look around the globe?.

Yes. I think we are looking at a number of things, I would say sort of a lot of the traditional telecom, rural networks, small market networks, not a lot of activity right now for us.

But those are – those can be onesie, twosie as we have seen from the deal that we have done recently, sort of tangential things working off of existing competencies and markets where we are exploring and looking at.

Some of our businesses are getting more into cloud services, for example and we are looking at that carefully and to see can we do it well? Does it – is it a good return from both the cash invested and the time standpoint? And then renewable energy, we still think probably has more – we see more opportunities there.

We were – we are hoping to do more in the U.S, I think, in the near-term, but there is a little bit of a cloud on that, that for the industry right now, there is tariff application applied that could put pretty hard, pretty heavy duties on imported modules, which might cause a flurry of building in the U.S. and then a decline, right.

I mean, it’s pretty efficient and people are – they can’t get the – if the costs go up and they can’t get the pricing to go up, then builds won’t happen. But – so we see opportunities there. And again, India is still – we are effectively putting a lot of money to work already.

And as we noted earlier, we will see by the second half of the year, what’s the forward pace on that..

And any other markets, Renewable Energy that you are studying and looking at?.

Yes. We have looked at a number of markets and there are a number of interesting markets out there. But for – but it’s a pretty high bar to go into a new market right now for us as we make sure we have got our house in order in India. Obviously, the U.S. we already operate, but for the right thing, we would find a way to devote the resources..

Makes sense. Thanks for answering questions..

Sure..

Thank you. And I am not showing any further questions at this moment. I’d like to turn the call back to management..

Thank you, everyone and we will see you in another quarter. Take care..

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day..