Good day, ladies and gentlemen and welcome to the ATN International First Quarter 2019 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 be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Chief Financial Officer, Justin Benincasa. You may begin..

Great. Thank you, operator. Good morning, everyone and thank you for joining us on our call to review our first quarter 2019 results. With me here is Michael Prior, 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, I would refer you to our earnings release on our website at atni.com or the 8-K filing provided to the SEC. And I'll turn it over to Michael..

Alright, thank you, Justin and good morning, everyone. My remarks this quarter are going to be relatively brief since it has been only two months since the year end call. So just as usual, I will start with a overview and then go quickly through the segments and finish.

When I look at this quarter I would look at it and say the story might best be entitled the Tale of Two Segments; one is very positive and one is not. First, the negative, our U.S. Telecom segment reported historically low results with adjusted EBITDA well below levels we have seen for many years.

While there is some seasonality in those numbers and the effect of an asset sale and some other items, these results are primarily due to the decline in our core wholesale wireless revenues. Second, is a positive.

Today, International Telecom is by far the largest segment accounting for roughly three quarters of total revenue for the quarter and we are pleased by the progress and future prospects of this part of the portfolio. So I said I was going to be brief, so let's move from that directly into the segments discussion beginning with International Telecom.

So, while in line with our expectations it was good to see the growth of both revenues and operating margins in this segment. The reasons for this growth should be familiar.

We have returned to a full scale, more normal operating environment after some five quarters of hurricane recovery work and we are continuing to see broadband and other data service growth following our major network investments.

So you can see this data growth clearly in the subscriber numbers with data subscribers ending the quarter at more than 125,000, 12% higher than a year ago. And we do think this sortg of organic growth coupled with cost controls will be a recurring theme this year and into next.

Lastly, as Justin will cover, so far we are seeing the free cash flow expansion for this segment that we expected and spoke to in our last earnings call. Moving to the U.S. Telecom segment, this was a disappointing quarter as I said even after you account for the effect of the transactional and subsidy items that were expected and much discussed.

I will assure you that our team is not idle in the face of this adversity and we are still working diligently to try to reposition the main wholesale business. And while success is not guaranteed or even completely defined, our goal is to create a sustainable and more predictable stream of revenues and cash flows from those operations moving forward.

And I do expect our understanding of that future will become clearer as 2019 progresses. In the meantime, as we stated in the press release, we do anticipate results improving a bit in the next quarter due to a variety of issues that disproportionately affect either the year-on-year or sequential comparisons.

Beyond that we have a number of initiatives involving different businesses and service offerings within this segment outside of wholesale wireless. But there's nothing new of note to report on that since our last call. In Renewable Energy, there is also little to add to the update we offered in late February.

Segment revenues and adjusted EBITDA are of course down year-on-year because of the U.S. asset sale. Now that the India business is producing steady revenues and operating cash flow, we are focused mainly on opportunities to increase scale.

In other developments during the quarter, ATN Ventures made a significant new investment in XCOM a new venture focusing on developing new wireless technologies that was launched last year by members of the former leadership team at QUALCOMM. We are excited about this chance to invest in and partner with a very talented group.

We share their vision of rapid changes to communications technologies which we will believe will open up the prospect of new business models in the broader sector. So to sum it up, our largest collection of businesses is producing favorable trends and expanding cash flow, but our legacy U.S.

Wholesale business is still fighting headwinds which we are working hard to combat. And we are investing not in insignificant amount of our capital and time pursuing business expansion and investment opportunities. And now I'll hand it back to you Justin..

Great, thank you Michael. For the first quarter total consolidated revenues were relatively steady at $103.3 million down 1% from last year's first quarter. Excluding the impact of the US Solar sale we saw similar trends of the fourth quarter 2018 with increases in the International Telecom segment revenues more than offsetting lower U.S.

Telecom segment revenues which speak to the benefits of a diversified business model. Consolidated adjusted EBITDA for the quarter was $23.2 million compared to $26.3 million in the prior year, which I'll breakdown further as I go through the segments.

Starting with the International Telecom segment, revenues increased 15% to $80.3 million up from $70.1 million last year and adjusted EBITDA was up 51% to $26.9 million from $17.8 million. Much of the year-over-year increase relates to post hurricane recovery in the U.S.

Virgin Islands and as Michael noted, we continue to see strong subscriber and revenue growths, thanks to our investments in upgrading and expanding our fiber networks. We expect capital expenditures in this segment to be between $50 million and $55 million for both maintenance and additional growth projects in multiple markets for the year.

Including that capital expense, we expect to see a year-on-year improvement of free cash flow in excess of $100 million for this segment. In the U.S. Telecom segment, revenues were $21.5 million for the quarter down from $28.5 million a year ago and adjusted EBITDA was $2.3 million down from $12 million in the first quarter of 2018.

Of the $7 million revenue decline $4.9 million was due to lower wholesale revenue that Michael mentioned. Breaking down the year-over-year adjusted EBITDA difference, approximately 35% of the decline or $3.5 million was accounted for by the sale of 100 wholesale sites which closed mid-2018.

The expiration of the Mobility Fund I grant and related operating expense offsets and the additional operating costs from the early stage business investments we made mid last year.

We currently expect site acceptance and revenue benefit from the $80 million 10-year Connect America Fund II award to start late in the second quarter which will benefit second half segment results. In the Renewable Energy segment revenue were $1.5 million in the first quarter following the sale of the U.S.

portfolio in late 2018 accounting for the $4.3 million reduction in the first quarter results. EBITDA was $0.6 million for the quarter.

Consolidated net loss for the quarter was $1.6 million or $0.10 per share and other income statement items to note, EBITDA in the US Telecom segment for the quarter was negatively impacted by approximate $1.2 million from the inclusion of the early stage initiatives we previously discussed.

The effective tax rate for the quarter was 62% reflecting the impact of some discrete items on a smaller pretax item. But we currently estimate an overall effective tax rate in the high 30% range 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 March 31, we ended the year with total cash and short-term cash investments of $176.8 million and total debt outstanding of $90.1 million. Capital expenditures for the quarter totaled $17.8 million of which approximately $11.4 million was incurred by our International Telecom segment, $3.1 million by the U.S.

Telecom operations, and $3.3 million in the Renewable Energy and other segment. And with that, operator, we will open the call up for questions..

Thank you. [Operator Instructions] And our first question comes from Ric Prentiss with Raymond James. Please proceed..

Thanks, good morning guys..

Good morning..

Good morning..

Your high school and university is especially proud because I'm also using that Tale of Two Segment as my title for the note last night as well. When we do look at the two segments, on the U.S.

side, how mechanically will the Cap II funding work? Justin, you mentioned it is going to come in late 2Q but is the 80 million over 10 years, will that all come in spread through revenue or is there any contra-CapEx component and is it kind of level loaded and is it all incremental versus [indiscernible]?.

Ric, again it is all coming in as revenue. It might not come in the full $80 million at the start because we reserve if we don’t get an area covered we might not be accepted, et cetera, so there will be some conservatism in then the 80.

And then if there is any CapEx needed to meet the requirements they will flow through capital expenditures, but it is fairly even if that's – if in terms of coming through the quarters. And it will be all income back….

Okay if it is not a publicly reserved per population..

Right, it would be all incremental if that's – if I think you are asking to….

Right, and then also within the U.S. Wireline business, it has been bouncing round a little bit on the revenue side for wireline. I think last year was about $1 million in revenue but then it went up to closer to 2 million in the latter part of 2018 and now in 1Q 2019 we're back down to kind of $1 million of revenue.

Is there some seasonality in the base wireline business, I'm not that aware of that, so I'm just wondering what…?.

That is, that wireline – yes, that wireline revenue is our wholesale business, that you know does kind of bounce around a little bit. It is not really seasonal it is just, I think this quarter in particularly was a little bit off..

Okay and so somewhat like what we saw in 2018 is maybe more of expected area?.

Yes, it's hard to say, it's the wholesale long-distance business we have in there. But this quarter was lower. It's not a major impacting item on EBITDA, yes or over the business..

Okay..

So the movements shouldn’t really have a big impact..

Got you. Now of course one of the bigger is it does impact the EBITDA is the second segment, the business segment that's done strong is the International, you called out continued organic growth and also cost control.

How should we think about the margins in that business, now that you've spent a lot of the capital where the margins might be able to go in that business with the organic revenue growth and the cost controls?.

I'm not going to give a target, but I think we think there is a lot of opportunity to improve margin. You know, it depends on individual markets and businesses, but we think we both, we have to improve the margins. There is a longer term viability is the individual businesses, but we also think there's ample opportunity to do so.

And it won't – it won't happen overnight. It is a matter of a number of initiatives. There's been some good progress in some areas, but I would say we're probably early innings of what we think we can do, and time will tell how well we'll do it obviously..

Right, and how about seasonality in that business as far as the International, obviously it is a mixture of different markets, but how should we think about seasonality on revenues and margins in the International segment?.

It is not very pronounced at the moment. You know in the old days it used to be more pronounced when there was a higher smaller group of assets and a higher piece of the overall revenue was inbound roaming revenue. That's just not that significant. So if you think about the underlying product it is really pretty, pretty steady throughout the year.

There are exceptions. There are some markets that have a little more of an increase, but to some extent those are at different times of the year for different markets, so net-net-net not a real factor..

And really it's just being tied to the adoption of broadband and data consumption then?.

That's right and the core revenues here, both wireless and wireline are domestic recurring revenue stuff and they don't move around a lot throughout the year for any individual customers..

Okay and the final one from me is on the early stage [indiscernible] shift to Colorado as far as how much impact they had on the EBITDA within the quarter.

How should we think about the ramp from there from CapEx or other spending, what's the magnitude and my region [ph] in the next one, three, five years?.

It's hard to predict Ric, I guess what I would say is if we're successful, it could be fairly significant number in those businesses, but it really and we've spoken to this before, it's really the business models are very oriented towards success based CapEx, so that will be coming at the same time is revenue commitments and revenue growth.

So it's – but today it's hard to predict the size or the scale because we have a number of different opportunities we're chasing and it really depends how they pan out..

What should we be watching externally as far as the success factors, is it announcement of buildings as far as to do indoor down [ph] systems or what should we be looking for as far as milestones along the path to look successful?.

It's the first part of your tentative answer which is, you'll tend to see announcements of that progress and partnerships and things like that would be other indicators, because that's really how you measure the progress of those businesses..

All right, okay, very well thanks guys..

Yes..

Thank you. And our next question comes from Allen Klee with Maxim Group. Please proceed..

Good morning. So the U.S.

Telecom segment could you expand on what a little bit on what you had said that some of your initiatives could get a little bit of improvement for next quarter in terms of what that is and then excluding the benefit you will get in the second half from Connect America fund, do you think that the new run rate of the margin is kind of where is in the quarter you just had or is there is some opportunity for that to improve?.

I think all of, will Justin add if I missed something or misspeak, but I think first of all the gist for the next quarter is mainly some best formed under but not entirely seasonal factors that have a say that the second quarter should improve a bit over the first. There is nothing – that's not about bigger initiatives and things like that.

Those things are a little bit probably further out, maybe impacting 2019, but further out. And in terms of margins, it really depends ultimately on the success of that. I mean we're – that's what we're working on. So it is a little bit hard to predict margins when the core wholesale revenue line we're working on various things that will impact that..

I mean seasonality alone Allen would in the higher seasonal quarters expand that margins, right? Because the cost structure right now is kind of steady-state. So as we move through the seasonality you're going to get an expanded margins in the more seasonal quarters being kind of in the second and third..

Did that answer your questions, Allen?.

Yes, thank you. In renewables, no it's pure India.

What's your thoughts on what can change this from being kind of a steady-state level of revenue and EBITDA to a higher number?.

It’s really about building out on our pipeline and we said that we need to see additional capital partners including local lenders in order to do that. So we still think that's the direction, but that's basically what's required..

Okay, and then finally, I guess you have kind of touched on it, but is there anything else you would add with emerging investments of how you think about the potential timeframe for the revenues contribution from these investments?.

You know, I think we largely covered it. The way to think about it would be that I think is by coming into 2020 those are either starting to really significantly ramp or there's visibility of that ramp or they are basically not succeeding at the – executing on the model. Right? So it becomes somewhat binary..

Okay, thank you so much..

Sure..

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

Hi, good morning. So first off, is there anything you're doing on the U.S.

Wholesale side to improve the profitability of that business?.

We’re working on it, but there's only so far you can go. So, you know, we’re certainly working on that, but I think it’s mainly a revenue issue rather than a cost issue..

And then, on the early investments you’ve made, especially the ones you’ve highlighted in the previous calls, is it still too early to talk about monetizing any of those?.

Yes. I mean, I think we, we’re we feel, we’re not in any rush to do that, in fact we love to build, you know, we like to build bigger businesses for the long-term if we can..

And then on the International side, you were talking about the broadband increase, is that all coming from the U.S.

Virgin Islands or is that, is Guyana in the mix as well?.

It is multiple markets, it's not, it’s those markets with other markets, it’s really, really most of our markets..

Is U.S.

Virgin Islands back to being profitable or not yet?.

It’s EBITDA positive..

Okay, alright, great, thank you..

All right..

Thank you. And we have a followup from Allen Klee with Maxim Group. Please proceed..

I was just curious if you had any specific color on what’s the competitive market of how – if you think how you are doing in Guyana and Bermuda?.

No, I mean, I think, I think we’re, I think we try not to get into those individual markets, but I would say, from an overall basis there are some markets where we think we're more or less where we should be from a competitive standpoint and there are other markets where we think we can do better..

Thank you..

Yes..

Thank you. And we have a followup from Ric Prentiss with Raymond James. Please proceed..

Yes, hi guys, two quick follow-ups, first, on the metrics, Michael you mentioned the subscribers broadband up 12% year-over-year to 125,000, were there any changes, you know, sometimes you guys re-categorize or have updates on the subscriber accounts in the different segments and the different markets, were there any updates in the way the subscriber metrics were calculated?.

No, you know, those are pretty straightforward. We think, we’ve done is taken our markets, if we’ve exited the market we might remove them, but for the most part those, the numbers are pretty straightforward.

But the one thing to point out though Ric is that if you look at the foot-notes to the subscribers, that it is the second foot-note is important.

So the growth in revenue is larger than that subscriber line might imply and that's really because of that foot-note point out in the Virgin Islands while the network was down, we just kept our pre-hurricane subscriber levels where they were and less on until we were able to offer them service and they declined..

So, they were still active customers, but not, we weren’t able to provide the service, so we credited it back..

Right, and are you at now where you think most of the customers have come back and you are either offering them service or they have, the address is no longer there, just wondering how cleaned out is that number then on the U.S.

[indiscernible]?.

So, it’s clean from the perspective of the people who are back in their houses with some exceptions, there are some exceptions, but the people who are back, we were able to offer them service and so that’s relatively clean.

But there are still not an insignificant number of houses I’ve seen estimates to as high as 10% of the households that are not rebuilt, that are waiting particularly under the federal fund plan for rebuild. Now some of those maybe occupied and capable of service, so I wouldn't expect that to be a number you can rely on precisely.

But there's still some there, there's definitely still some win-back opportunity for us. But you can look at you this, if you look at the video subs for example right, it’s down in that period, but our actual video, revenue-generating video subs are up because of virtually none of them were in the Virgin Islands were generating revenue a year ago..

And is there any further FCC support that you might be able to get in the islands?.

Yes, absolutely, there is a long-term plan that’s pretty significant that would partly replaces existing support under the old high-cost plan which was frozen in this market like a lot of markets for a period of time, that's continuing while they wait to administer this new plan and decide on the final brand.

So, they identified $186 million over 10 years for this market and you know, but we, they did not make the awards at this point..

Any thoughts of, obviously it’s political and regulatory wise, but is it something you think might happen this calendar year or is it slipping into next year?.

We, certainly hope so. Know there, you know the FCC has gotten a pot on their plate and they’ve been everything they can but, for us it’s really difficult to operate without some certainty there and some of the things we want to do, additional things we want to do in terms of expanding the network and hardening it and all those things.

We’re really waiting to hear, here. So a way to look at that number is, it is the, it’s not, if all of that was awarded to us it’s not $18.6 million a year additive because they are roughly $16 million a year that we’re getting today..

Okay, all right, and then one last one from me, you kind of talked on the FCC being busy, obviously they got a lot on their plate, how do you think about the different spectrum brands that are being identified for 5G? I think you guys did not participate in the 28th 24 day of auction, but how do you think about spectrum and what might be coming available with the FCC focused on trying to find more?.

Yes, I think we’re watching all those. I think there's you know, it is possible maybe even probable that we’d participate in some that are being identified but we’re still trying to decide that.

In certain places, so in our biggest retail operation in the U.S., it is really the Virgin Islands and you know, we have very good spectrum assets there and debts there, but there, but we are watching other things to try to understand how they might augment what you have and different technologies that are coming. So it’s probably too soon to tell.

I don't think it’s a huge succumbing expenditure for us overall just given where our businesses are located. I think it’s relatively smaller. And then in the wholesale business and some other businesses it will tend to be much more success oriented, what we do.

So if there's a customer need that is identified or enterprise, you know other types of uses..

Okay and the CBRS stuff were fond of that same discussion that you were having?.

Exactly..

Okay, thanks..

Yes..

Thank you and this ends our Q&A session for today. I would like to turn the call back over to management for closing remarks..

Thank you everybody and we look forward to speaking with you in July. 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..