Good day, ladies and gentlemen and welcome to the ATN International Fourth Quarter and Full Year 2018 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] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Justin Benincasa, Chief Financial Officer. Mr. Benincasa, you may begin..

Great. Thank you, Josh. Good morning, everyone and thank you for joining us on our call to review our fourth quarter and full year 2018 results. As you know, Michael Prior is here. He is ATN’s Chief Executive Officer. During the call, I will cover the relevant financial information and Michael will provide an update on the business and outlook.

Before I turn the call over to Michael for his comments, 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 details on these measures and 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 the 8-K filing provided to the SEC. And with that, I will turn it over to Michael for his comments..

Alright, thank you, Justin and good morning, everyone. As usual, I will start with some highlights for the quarter and follow with more details. In addition, since this is the fourth quarter review, I will end with some thoughts on the full year and 2019.

So as noted in our press release, overall results for the quarter were mix and apples to apples comparisons in our U.S. Telecom and Renewable Energy segments were made more difficult by asset sales that we successfully completed in 2018. Longer term investors in ATN should be familiar with this situation.

Our approach is to make investment in operating decisions, entirely based on projected returns on invested capital and the related risks and strategic value.

This can lead to investments in finite revenue scenarios, such as the build-to-suit rural network that changed hands in 2018, to dispositions of otherwise healthy businesses or assets such as the U.S. solar sale and other situations like the Mobility Fund, where there is an anticipated revenue or profit downturn in the future.

The good news is that the returns turned out to be quite good in each of the transactions affecting the comparisons for this quarter and the next few quarters. Of course results in our U.S.

Telecom segment also suffered from some negative operating trends with lower traffic causing return to seasonality and a significant decline from the third quarter of wholesale revenues.

On the other hand, International Telecom’s operating trends were much more positive with quality growth in fiber broadband customers, the ongoing recovery in the U.S. Virgin Islands, completion of some major network upgrades and operating improvements in a number of areas. Outside of the U.S.

solar portfolio sale, there were no significant developments in the Renewable Energy segment and our intention there is primarily focused on the India business. So now, turn to little more detail on International Telecom. As noted, this was a strong quarter for this segment in many respects.

We saw continued benefit from our investment in fiber networks in many of our markets with consumer broadband subscriber and ARPU growth being major contributors to the 17% year-on-year growth and segment revenue. And we are pleased with the customer response to our new and enhanced data services.

We think there will be continued benefits from these and other recent network investments. The related good news is that, as I already alluded to, the bulk of this program network investment was completed in 2018. So we expect to see a major improvement in free cash flow in 2019. The substantial completion of our network rebuild in the U.S.

Virgin Islands will also provide a big benefit to segment cash flow moving forward. There is still work to be done in some of the more difficult areas.

But the main focus there is now on revenue recovery, and on that note, information from federal and local authorities indicates that somewhat – somewhere just shy of 10% of residences in the territory are still without wireline but – sorry, I misspoke – are still unoccupied or not with wireline network connected and beyond that some of the repaired and occupied homes are not reconnecting for the full prestorm services.

This not unexpected cord cutting or cord shaving is mainly impacting landline voice and video services.

We believe, we will continue to win back some of those customers and service revenues over time and indeed, excluding the one-time federal subsidies received in 2018, we would expect to see year-on-year revenue growth from this market throughout 2019. And then turning to U.S. Telecom, the story in this segment continues to be one of repositioning.

Continued work on the cost structure and the structure of our offerings to our wholesale customers and the profitability and quality of our smaller retail operations, while at the same time, developing new growth opportunities. On the wholesale side, traffic and revenues were down significantly from the third quarter and year-on-year.

Part of this was a change in some service provider’s approach with some carriers throttling their subscribers aggressively while others sought to maximize customer experience and a smaller factor in the decline in traffic was the proposed large carrier merger.

Close to one half of the year-on-year EBITDA decline was related to the previously mentioned Midwestern network sale that we completed in July of last year. The wind down of the FCC Mobility Fund I program and higher expenses related to a number of early stage U.S.

Telecom investments such as the expansion of our in-building coverage business and we made good progress in a number of areas outside of legacy wholesale, increasing data revenues from consumers, carriers and enterprise customers alike while at the same time improving profitability from the smaller wireless retail business.

We think there are additional opportunities in serving these rural communities and our CAF II award will help us go after them. In Renewable Energy, the headline was the closing in early November of the previously announced sale of our entire U.S. solar production portfolio.

Although, we were happy that we got the deal closed, it of course reduced revenues and EBITDA for the fourth quarter as title transferred on those facilities.

In India, it was a similar story as the previous quarter, a good and consistent operating performance and power production and we made progress bringing facilities into full production mode under existing power purchasing agreements and at the same time the team continue to build the strong pipeline of additional builds and are actively engaging with prospective funding partners.

So looking back, as I promised at the year overall and review and looking forward, a little bit. When you look at the full year results, it’s interesting to note that despite the post hurricane downtime of the Virgin Islands network, the decline in U.S. wholesale traffic and revenue and to a lesser extent, the sale of the U.S.

solar portfolio, we still managed to produce a 28% consolidated adjusted EBITDA margin, which I think indicates the benefits of our fairly diversified portfolio of operating assets.

A particular bright spot for the year was the performance of our International Telecom operations with all markets other than the Virgin Islands executing above expectations. We think this segment is positioned well for continued organic growth in 2019 and of course a substantial expansion in free cash flow.

ATN Ventures also had a successful launch in first year. And we are encouraged about the potential of this unit, and its early investments to contribute to future growth and investor returns. The India solar business was successfully restructured during the year and we believe the strategic opportunities will expand in 2019.

And we are closely managing our U.S. Telecom segment in the face of some difficult market conditions. We continue to believe that there could be opportunities for us to invest in shared infrastructure as the industry moves to lower costs and we are optimistic on the longer-term outlook for the business. Lastly, the sale of the U.S.

solar portfolio was an example of our team’s ability to deliver returns through opportunistic portfolio management and capital allocation.

So to close, it was a challenging year in many respects for ATN, but our teams also had many successes, growth in broadband and other data revenue, the solar asset sale, securing critical additional government funding for our network rebuild after the hurricanes, improving cost discipline and winning the CAF II award for federal funding for expansion for our rural broadband network in the western United States.

And so with that, I will turn it back over to you, Justin..

Great. Thank you, Michael. For the fourth quarter, total consolidated revenues were $107.8 million, flat with last year’s fourth quarter, higher International Telecom segment revenues resulting mainly from the continued hurricane recovery in the U.S. Virgin Islands, but also from revenue growth in other markets, offset decreases in the U.S.

Telecom segment. Consolidated adjusted EBITDA for the quarter was $23.4 million compared to $30.8 million in the prior year, which I will breakdown further as I go through the segments. The adjusted EBITDA margin was 22% for the quarter and 28% for the full year. Looking at some specifics around each of the segments and starting with the U.S.

Telecom segment, revenues were $24.9 million for the quarter, down from $34.8 million a year ago and adjusted EBITDA was $6.5 million, down from $16.8 million in the fourth quarter of 2017.

As Michael noted, approximately 40% of the revenue declines and 50% of the EBITDA decline was accounted for by the sale of the 100 sites which we closed in mid 2018.

The expiration of the Mobility Fund 1 grant and related operating expense offsets, and the additional operating costs from the early stage business investments made this year, the remaining differences from overall lower wholesale roaming revenues. In 2019, we expect the U.S.

Telecom segment revenue to benefit from the Connect America II Fund, beginning in the second half of the year. In the International Telecom segment, revenues increased 17% to $78 million, up from $66.9 million last year and adjusted EBITDA was 23% to $20.6 million from $16.7 million.

Much of the year-over-year increases relates to the post hurricane recovery in the U.S. Virgin Islands. In addition, we continue to see strong subscriber revenue growth in Guyana and Cayman, where we have been investing and upgrading and expanding our fiber networks.

As Michael mentioned, our business in the USVI saw substantial improvement throughout 2018, but it will take some time to get back to the pre-hurricane levels. In the meantime though, we continue to be very focused on improving overall financial performance in that market.

In the Renewable Energy segment, revenues were $4.9 million in the fourth quarter 2018 down from $5.9 million reported last year and adjusted EBITDA was $2.9 million for the quarter compared to $3.6 million in 2017. Results this quarter reflect the sale of the U.S. portfolio which closed in early November.

On a consolidated net income or I should say, our consolidated net income for the full year was $19.8 million or $1.24 per share. Other income statement items to note, EBITDA in the U.S. Telecom segment for the quarter was negatively impacted by approximately $1 million from the inclusion of the early stage initiatives we have talked about previously.

We had a $12.5 million net gain on the sale of the U.S. Renewable portfolio and the effective tax rate for the quarter was 52% and 35% for the full year and included in operating income was $1.3 million of non-cash stock-based compensation expense for the quarter.

Moving to the balance sheet at December 31, we ended the year with total cash, cash of $192.9 million. For the full year 2018, cash from operations amounted to $115.9 million and total debt outstanding was $91 million, excluding the spending on post-hurricane network repairs.

Capital expenditures for the full year totaled $105.8 million, of which approximately $80 million was incurred by our International Telecom segment, $13.4 million by our U.S. Telecom operations and $4.5 million in the Renewable Energy segment.

The full year spending in telecom was approximately $10 million more than we anticipated from our last guidance as we continue to accelerate network expansion in certain markets where we believe it gives us competitive advantage.

Also reflected in the higher number is the re-class of inventory purchases into capital expenditures that was not included in our original guidance. Based on our current portfolio, we expect 2019 to be considerably different with respect to capital spending.

In the International Telecom segment, we anticipate full year 2019 CapEx to be between $50 million and $55 million. And in the U.S. Telecom, we’re looking at capital expenditure level similar to those of 2018. The approximate $100 million plus reduction in total spending should result in significant free cash flow in 2019.

And with that, Josh, operator, I would like to turn the call over for questions..

Thank you. [Operator Instructions] Our first question comes from Ric Prentiss from Raymond James. You may proceed with your question..

Thanks. Good morning, guys..

Good morning..

Hey, couple of questions. One to start on the U.S. side, obviously, there is pressure there, you talked to it, Michael, but on a quarter-to-quarter basis, revenues were down like $6 million, but EBITDA was down by $7 million. Obviously, it’s high margin business, but seems really high margin business.

So I guess the question is I think Justin you said the U.S. Telecom early stage stuff hit about $1 million to EBITDA in the quarter, but just trying to think as we look at that business before CAF II.

How should we think about the margins in that business? Is this the new run-rate that we will see? We’ll have seasonality obviously, but just trying to think through what happened quarter-to-quarter from third quarter to fourth quarter and how we should look at it going forward?.

Yes, I do think margins are probably closer to where they are in the fourth quarter on go forward, because the Mobility Fund was an expense offset that, that closes some of the gap on the EBITDA you were just talking about. So that came through was in operating expense offset for us in prior quarters..

And can you guys scale that for us was that a couple of million dollars a quarter or just trying to think how big an item that one was?.

It was about $1.5 million a quarter..

Okay, so that definitely helps. And that was not there in third quarter as far as going away..

Correct..

And was it total – yes go ahead, Michael..

Well, I was just going to say, there is always a mix of things too, right. There is other expenses that don’t relate to the brand new businesses started with other initiatives and things like that. So it’s not pure, but I agree with Justin, directionally..

Okay.

And then we should still see some seasonality on the revenues given roaming typically goes up more in the summer time?.

Yes, I feel – yes, I mean some of the contract structures we had smoothen a little bit, but we are seeing some seasonality..

Okay. And then Michael, you mentioned and Justin, you did as well that the CAF II funding hopefully start seeing some funding coming in the second half of ‘19.

So that’s an $80 million over 10-year funding, but how should we think about it scaling up to that run-rate level and is there any CapEx associated to collect that money?.

Yes, I think the scaling is – that one I am not entirely sure how that will all come on because it’s a little bit of – it’s a process but....

I think it’s relatively – my understanding is it’s relatively steady. So, it’s relatively evenly apportioned over the period, so an 10-year period sorry, but obviously if it starts in the second half, it won’t be evenly appreciated in the 2019..

Right..

And I think, early on, go ahead, Justin..

Right, yes. So I think in 2019, there will be minimal amount of CapEx associated with it. There will be some as you go. The full $80 million will come through as a revenue item for us..

Right, okay..

And then towards the back end as the full thing comes up, we will probably have more CapEx, but we will help with that as we go though..

Okay..

In terms of including it..

Sure. And then are you expecting any more FCC support in the Island area.

I think, there were times when you thought you might get a little more one-time benefits to help continue to improve the new network down there?.

I think, it’s more about the longer-term program. So, there is a proposal out there that would essentially replace and potentially increase the funding we get today from the high cost fund. So that so there is this frozen high cost support that the FCC is continuing.

While they’re waiting to put this new regime in place and there is there is no guarantees on that. What that amount will be, but we do think that, we are very much the right recipient for the funds and we’re pretty active, making the case. But, beyond that, we don’t, we don’t know and we’re not exactly sure on the timing of that getting finalized.

I mean, we certainly would expect it to get finalized this year and certainly would hope it would get finalized in the next couple of months. But, there have been some delays thus far..

Okay. Last one, just kind of housekeeping for me, on the Renewable Energy. How much did the U.S. business contribute in the fourth quarter? Since the sale was early November.

Just trying to think of what we want to look at as far as, a good run rate for looking into 1Q and beyond 2019?.

In terms of EBITDA or revenues?.

Yes, both revenue and EBITDA.

How much was it just stub period?.

It’s hard to compare exactly the revenue because there is some moving things on the overhead but, I think the revenue was $3.5 million and pretty, pretty high margin..

Yes, and that’s high. All right, so yeah, so little under $3 million on the EBITDA..

For the partial quarter, and was total EBITDA in Renewable Energy, $2.3 million for the quarter?.

Total EBITDA for Renewable for the quarter?.

$3 million..

$3 million. Hang on..

So, the U.S.

was about [indiscernible] of the EBITDA?.

Yes, yes, India is still relatively small..

Right, right..

Okay, thanks, guys..

Okay. You’re welcome..

Thank you. Our next question comes from Allen Klee of Maxim Group. You may proceed with your question..

Hi Allen..

Yes hi.

Could you talk a little more about kind of a little more color on what you’ve been doing in Bermuda and Guyana and kind of your outlook for them in ‘19?.

Sure. And actually, one thing, I just had made a note. I meant to mention it before and Ric before I answer that. I think, I kind of mangled that statement on the Virgin Islands households, information. It’s the information we have indicates that a little less than 10% of homes are awaiting reconstruction under a federal program.

So, there might be more homes that are awaiting reconstruction, some of those people may actually be occupying those homes. Some of them maybe off island entirely, but that’s the only sort of hard stack we have to indicate what’s going on there right now and where that recovery is. Going to your question on Guyana and Bermuda.

Bermuda is a pretty mature market. But the teams that are very good job executing. We’ve had an ongoing program of kind of instituting new cost discipline and structure and trying to figure out how to add productivity to the business.

We are still constantly looking at offerings to customers and things like that, but overall through that kind of careful management of that, we had good year in Bermuda.

And in Guyana, it’s more Guyana is like Cayman is more about the fiber expansion programs we’ve had that I mentioned a few times and that’s been seen very good customer take-up and we think there is some ongoing benefits to read from it..

Okay..

Did that answer your question, Allen?.

Yes, thank you.

And then how does so is there a way to think about kind of where your EBITDA margins were during the quarter internationally, and the revenue base internationally and what the opportunity is to kind of grow from those levels?.

I mean, we don’t give guidance, as you know, but I think, what we’re saying is, we think there is opportunities to grow. One obvious factor is the Virgin Islands recovery. We don’t we would expect quarter-on-quarter pretty much all year to have good organic growth there.

There were some onetime items those near those as we call them, I’m not sure the auditors call them that, but these short-term grants relief grants from the SEC that we received last year in the second and third quarter. So those might make hard to match.

But if you’re looking at organic operating trends, I think we feel there is a number of different areas within this segment, where we should continue to grow..

Okay, thank you. And then moving on to Renewable Energy, if you strip out the U.S.

and if you strip out the like $12.5 million gain from selling the U.S., does that imply that India lost money during the quarter or am I missing something?.

India on an EBITDA basis was positive. On a net income basis, they might have with depreciation and amortization been down but on it’s definitely positive on EBITDA. That answers your question..

And could you give us a sense of like the amount, of megawatts and what you think the opportunity is over the next year to grow that?.

It’s I think we have an opportunity to potentially from a megawatt standpoint go up increase multiples on what we have now. I don’t want to really say, how much it is, because so much depends on funding and other factors. I mean we are we believe that to be proved out that model there.

We need to spread the funding of building out on that pipeline and we’ve had a lot of interest from parties but nothing to talk about at this point. So, it really remains to be seen how much we build out there this year or even or even next year..

Okay. And then to U.S. Telecom, I am trying to understand a little, you said there was a 40% decline in wholesale traffic.

Is that kind of a run rate that you think would continue with or do you think that there’s something about the market may be stabilizing at a lower decline rate going forward?.

Yes, just to clear, I will let Michael answer that, but just to clarify, it’s not a 40% decline in whole it’s 40% of the decline or percentage of the decline, 60% of the decline was from wholesale traffic..

And revenue..

Right. Just to clarify your numbers but..

Yes. It’s a mix of factor. Allen, I think it’s tough, it’s quite frankly, it’s tough right now to handicap the direction of that the wholesale side of that business in particular over the next few quarters. I think there are things we’re working on that could improve the trends, there’s other things that could potentially even make it worse.

I think, we tend to believe it’s more likely they get better, but it’s also possible that it stays consistent.

So, this year, I think there’s a lot going on and my expectation is there would be there will be a lot more clarity as the year develops, good or bad and there are also all these other activities going on in that segment that will potentially impacts the financials for U.S. Telecom, particularly as you get later in the year..

Okay. And then within U.S. Telecom, you touched on that, you made investments emerging investments. I think you spent around $1 million during the quarter.

Can you give us some thoughts on how you think about spending on that in ‘19 and what’s your kind of goals are for ‘19 and ‘20 from these businesses?.

I mean our goals are to take advantage of these opportunities. I mean, we are pretty, we think, just these, one example, we think the in-building coverage has great potential as a sector and we like our offering and our positioning, and so if we see opportunity to invest in expansion of that, we will. We try to take a clear view of it as we go.

But I think that’s how we feel about it. We are not going to sort of just dip our toe in the water. If we see, our team will move fast and aggressively, and I think that’s same true a little bit in fiber business and other businesses.

So, at this point, we feel pretty good about the prospects of these things really contributing particularly in 2020, I think 2019, be more likely to be more of an expense impact than any significant revenue impact..

Okay, thank you so much..

Sure..

Thank you. [Operator Instructions] Our next question comes from Hamed Khorsand from BWS Financial. You may proceed with your question..

Hi, good morning..

Good morning..

So, couple of things.

Could you quantify the FCC benefit in Q4 and then how much you’re expecting in 2019?.

I mean, I think, well in 2019. As I said, we don’t know exactly what’s going to happen with that long-term grant. But right now, we’re running roughly $4 million a quarter, and for now we expect that to continue..

It’s really the, it’s the longer certainty of that that’s the benefit to us as well, on a go under the new program..

Okay. Would that help you as far as just because the U.S. Virgin Islands, like you were saying is 10% or so unoccupied or unconnected.

Is that just going to make up the difference for you?.

No, I don’t, you would only see it that way, I think it’s more about the, this is a particularly high cost market for in order to deliver the services to the vast majority of the population. And so, and I think the FCC recognizes that. So, there is this program that they’ve proposed and it’s possible.

I think it’s, I don’t have the exact number in front of me. It’s 186 million or something like that. Over 10 years. So, if you do the math, we could receive an award at or above what we are receiving now and it’s pretty necessary.

And we also think as I mentioned, I think, were by far the best way and most effective way to deliver those, sub for those subsidies to deliver the policy outcomes, they want to have, which is a high a very high percentage of people connected to minimum standard of reliable, high-speed broadband. That’s the main focus of the new funding..

Okay. And then in U.S.

Telecom, is there another price step down this year?.

I don’t know. I mean, there is nothing scheduled..

Okay.

And far as your investments go, has any of them reached the revenue kind of caliber yet to benefit you or is it still just early stage?.

Say again, Hamed. I am not..

On the, those little investments you’ve made over the past and you’ve highlighted in past calls, has any of those businesses reached a stage where they’re generating revenue where it’s actually beneficial to you at all right now?.

There are some revenue being generated particularly in new business in International Telecom on cloud services, but nothing is producing significant impact and net-net they are all collectively is a drag to EBITDA..

Right. On the U.S. Telecom side, it’s really the expense of funding the platforms that we’re seeing..

Okay, alright. Thank you..

Thank you. Our next question comes from Ric Prentiss from Raymond James. You may proceed with your question..

Hey, guys. Wanted to throw a couple of follow-ups in there on a busy earnings day.

Just want to confirm, the CAF II funding that you mentioned that is additive, right, that wasn’t a good – lot of people get confused on all the different FCC programs out there, but CAF II, the $80 million over 10-year is additive?.

Yes, it’s a totally new program and nothing it’s replacing..

Exactly, okay.

Next one is how does the Sprint T-Mobile merger affect you guys, was that some of what you might have been alluding to in an earlier question?.

Yes, I mean, yes, I was, but I don’t want to get into detail because we don’t want to talk about carriers, our customer’s traffic patterns too much, but just suffice it to say, it was a factor not a major factor, but a factor..

Okay. We will monitor that.

And a bunch of quickie ones, are you guys in the millimeter wave auction?.

I am not a 100% sure. So I better not answer,.

If you were, your attorneys would probably already tell you, you couldn’t, but…..

That’s what I think. But I would rather stick with the answer is neither confirm nor deny..

Okay. One would expect that that millimeter wave is not as conducive in your rural areas, but there could be some interest for in-building systems.

So I am just wondering, what frequencies you are looking at in the indoor DAS space?.

In the indoor space, we are very focused on CBRS as well as some of the existing carrier frequencies that it really depends partly on the customer and the situation, but the whole platform from the beginning that we are building and is very much focused on that CBRS band..

Makes sense.

And then final one for me is, lot of talk on 5G, what do you guys think 5G means for the industry and what does it mean for you guys?.

Well, you are right there is a lot of talk about it. And I think there is – at the very basic level, there is the similar G move where you have more per capacity for – per band of spectrum for cell site etcetera and faster speeds.

And I think that maybe is not the most significant thing, I think the most significant thing that we see is the fact that a lot of the different carry on things which is you can have a lot more devices connected to a node than previously and at a lot lower latency.

And so if you look at – and then – and there is some other things that people are lumping in with 5G, network slicing and other technologies that are pretty interesting in terms of the applications you might have.

And when we look at things like the in-building business, we think some of those – some of those technologies and solutions are very interesting indeed and provide potential real new used cases. I think some of the more traditional use cases I don’t see a big use for us in the near future. We have just done a lot of upgrades.

We have in most areas we have a lot of capacity and you know speeds that are adequate for what the market is.

So, it really – a lot of it depends on what kind of used cases get developed in bigger markets, which is often the way we have done it in our rural markets and island markets is see, what’s going on, what does this enable for the customer base and then does that make sense for us to invest in and on what timeline, but I wouldn’t say, there is a major 5G investment coming anytime soon for us from where we are looking at it right now..

Except for maybe on the indoor stuff?.

That’s right, that’s right..

Okay. That helps. Thanks, Michael..

Sure.

Operator, any other questions?.

There are no further questions at this time..

Okay. We just like to thank everybody and we will see you at the end of Q1..

Thank you, ladies and gentlemen. Thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day..