Good afternoon, ladies and gentlemen, and welcome to the ATN International Fourth Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call might be recorded. I would now like to turn the conference over to your host, Mr. Justin Benincasa, Chief Financial Officer.

Sir?.

Great. Thank you, May. Good morning, everyone, and thank you for joining us on our call to review our fourth quarter and full year 2019 results. As usual with me here is Michael Prior, ATN’s Chief Executive Officer. During the call, I’ll 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 the call over to Michael for his comments..

while operating income and net income were negatively impacted by some impairments and other losses related to certain of our minority and overseas investments, our largest businesses performed well. And we were able to continue the positive momentum in our telecom segments through year-end.

And our visibility is quite a bit better today than it was a year ago. We like where these businesses are right now, and we expect continued positive comparisons as we move into 2020. And with that, I’ll hand it back to you Justin..

Great. Thank you, Michael. Just beginning with some of the relevant financial data. For the fourth quarter, total consolidated reported revenues were $112.1 million, up 4% from last year’s reported total of $107.8 million. Adjusting for the sale of the U.S. solar portfolio, completed in late 2018, revenue increased 7% from last year.

Throughout the year, we consistently reported steady revenue growth and improving profits from the International Telecom segment. The U.S. Telecom segment also showed significant improvement this quarter over last year, and its revenue and EBITDA performance in the second half of the year was up 27% and 140%, respectively, from the first half of 2019.

This reflects the benefits from the CAF II Federal Support Award that we won in 2018 and increased wholesale revenue as part of the FirstNet transaction. Consolidated adjusted EBITDA for the quarter was $28.5 million, an increase of 22% over 2018 adjusted EBITDA of $23.4 million. Adjusting for the sale of the U.S.

solar portfolio, adjusted EBITDA increased 39% year-on-year. Looking at the segments and starting with the International Telecom – starting with International Telecom, fourth quarter revenues were up 6% to $83.1 million from $78 million last year, and adjusted EBITDA increased 29% to $26.6 million from $20.6 million.

As Michael mentioned in his comments, much of the year-on-year growth comes from post-hurricane recovery in the U.S. Virgin Islands and continued high-speed data subscriber and revenue growth in the markets where we’ve made investments in upgrading and expanding our fiber networks.

Capital expenditures in the segment totaled $42 million for the full year, coming in lower than the $50 million we expected as timing of some of the spend has pushed forward into 2020.

We reduced capital expenditures by $118 million in 2019, which represents a substantial free cash flow improvement for the segment, which was one of our main goals for the year. For 2020, we expect capital expenditures to be similar to 2019 levels at $45 million to $50 million. In the U.S.

Telecom segment fourth quarter revenues totaled $27.8 million, up from $24.9 million a year ago. And adjusted EBITDA was $8.3 million, up 28% from $6.5 million in the fourth quarter 2018.

While we had expected a small portion of the construction revenue from the FirstNet agreement to start this quarter, the construction schedule was pushed out slightly. We now expect a small portion of the approximately $80 million of construction revenue to be reported in the first quarter of 2020 and continue through mid- to late 2021.

I should note again, though, that this revenue will be offset by construction costs and, therefore, have minimal impact on EBIT and operating income over the build period. Capital expenditures for the segment were $17.5 million for the full year 2019, slightly above our estimate.

We were expecting higher capital expenditures in – we are expecting higher capital expenditures in 2020 for this segment at $35 million to $40 million, which includes approximately $20 million for tower construction and building backhaul that we will own and lease back as part of the FirstNet agreement.

Year-on-year, EBITDA for the quarter included approximately $0.5 million in additional operating costs associated with our early stage businesses. In Renewable Energy segment, revenues were $1.2 million for the fourth quarter, down slightly from third quarter and the prior year after adjusting for the sale of the U.S.

portfolio net – adjusting for the sale of the U.S. portfolio I mentioned earlier. Adjusted EBITDA was $146,000 for the quarter. We reported consolidated net loss for the quarter of $9.8 million or $0.61 per share.

Included in the loss for the quarter was $5.8 million of goodwill impairment charges and a loss on disposed assets from our India solar operations, given the changing market conditions and related delays in execution. Other expenses of $1.8 million included approximately $3 million of currency losses in the quarter.

The majority of these losses are from the currency devaluation of our 2017 investment in the Australian tower company. In addition to our initial 2017 investment, we recently made an additional investment in January that took our ownership above 20%, which will require us to change our accounting method to equity investment method in 2020.

Our income statement – other income statement items to note, the effective tax rate for the quarter was 67%, reflecting a mix of country operations and the impact of several discrete book tax items, including non-deductible losses that impacted both the quarter and the year. We expect the tax rate to revert to more normal levels in 2020.

Also included in operating results was $1.5 million of non-cash stock-based compensation expense for the quarter. Looking at the balance sheet. We ended the quarter with total cash and short-term investments of $162.8 million and total debt outstanding of $86.4 million.

And we mentioned – as we mentioned in the press release, cash from operating activities was down this year compared to last, primarily due to the $27 million tax payment we made this year on the 2018 gain on sale of our U.S. solar operation. And with that, operator, we’ll like to open the call up for questions..

[Operator Instructions] First question is from the line of Ric Prentiss – or sorry, Allen Klee from National Securities. Your line is now open..

Yes, hi. The first question is, when you were talking about the U.S. business, I thought I heard you say that maybe there wasn’t construction revenue in the quarter related to FirstNet and then maybe you’d get some in the first quarter of 2020. Did I hear that right? Because then in the text, I thought that….

Yes, yes. We ended – we thought we might have some in this quarter, but the schedule is pushed out. So we’ll have a small amount in the first quarter of 2020, and then it will kind of ramp from there. So it is – there is none in the fourth quarter..

So all the gains in that segment really came – I mean you have the CAF II, but what else would you point to for the benefits in the U.S.

business for the quarter?.

Just improving wholesale revenue?.

Okay. And then when you talked about some of the opportunities in that segment for 2020, you listed areas where you thought you could sell more within retail and wholesale.

Could you maybe just expand a little bit into how that would work?.

Yes, I think….

Retail and enterprise, just to be clear, too, sorry..

Yes, yes. I think there’s also opportunity also, but that maybe takes a little longer. And so the main issue, as Justin said, is retail and enterprise are the main focus. And a lot – the main driver there is high-speed data services, whether it’s fixed wireless solutions to households or to businesses and sometimes fiber to businesses.

So it’s under the CAF II. We had to build out and support and offer those services in a lot of these areas. We have the backhaul. We have the network. We have the people in place. And so we’ve been ramping up the selling. And I think, while we made some progress in 2019, we see an opportunity to improve upon that in 2020..

Would that suggest that outside of FirstNet and CAF II that the segment overall might be more like stable in 2020, excluding those two things rather than being in decline?.

Yes. I think so. I think that this definitely should. We expect some positive contribution from this initiative to the revenues for the segment for sure. And I think we don’t see major pull downs from where we are today. There is some areas that are – that will decline puts and takes. But I think it’s – so I think the short answer is, that’s fair to say..

Okay. I’ll ask one more question, just relating to the Renewables business. I sort of heard two different things. One, a goodwill write down, which implies the outlook isn’t – or – is not quite as good. But then also that you’re winning some put through that you have some two new customers to add on.

Is the way to think of the business now that this quarter’s run rate is kind of reasonable for the first half and then maybe it modestly increases in the second half? But – or it’s hard to know, like, to what degree that could potentially increase? If you could add any color on that. Thank you..

Sure, Allen. It’s Michael. I don’t think we’re going to forecast – we don’t usually do that anyway. But I also think that the movements are not likely to be material to the company as a whole.

I think what we’re trying to say is there is – there are some good developments and good reasons to expect some growth there, it takes time, right? So you land the customers, you build out. So it takes time for the revenue to follow the sort of customer acquisition success. And so that will mute the near-term benefit.

And the difference between that and the write-down is really a lot of our initial investments took too long to monetize, if you will. And that’s really underlying what hurt that analysis and why we chose write-off..

Great. Thank you. I will get back in the queue..

Your next question is from the line of Rick Prentiss from Raymond James. Your line is now open..

Hey guys. Sorry about the head fake. A couple of questions for you. First, I missed the number, sorry, but I’m busy, earnings morning already.

What was the impact of the early-stage companies in the fourth quarter numbers?.

It was an additional $0.5 million over last year..

And what was last year, just in….

Yes, it’s probably $1 million last year. So it’s probably about $1.5 million this year..

Okay. And then the FirstNet project, as we have been expecting a little bit in the fourth quarter for the construction side, you mentioned how it’s pushed off and then it be small in 1Q.

What’s led to that delay? Was it weather? Was it timing from AT&T, FirstNet, equipment? What kind of led to almost like a half year delay, maybe?.

I think it was just a combination of stuff, really. It’s just sites work. It’s just typical stuff, honestly. I don’t think there is anything you can….

It’s a – I would add, it’s a big overall program. And so there’s that complexity to get that starting momentum, both on our side and on the customer side..

Got you. So a big project. It takes a lot to get wheels running and then once you do, it starts flowing.

Any issue with permitting, zoning? We keep hearing, obviously, the FCC and others are trying to get small cells going in urban areas, but are we seeing pushback in any permitting and zoning and the FirstNet target area?.

There’s – in our areas, there’s a – I think we feel pretty good about where we are there, but there’s always some that are taking longer and others, it’s not easy. So you’re right, that is always – can be the long pole in the tent. But I don’t think we have a particular concern there in our areas. I mean we know them well and we know the process well..

Okay. I know I’m bouncing around a bit here.

But in India, Renewable Energy is not Telecom, but while the Telecom department, telecom and the telecom fees that are getting imposed and interest in India, any concerns about as of U.S.-based company operating in India? Because a lot of foreign companies are starting to get nervous about the telecom side of India..

Yes. I mean, I think India is a very promising market and exciting market in a lot of ways. But there is a tendency to do right turns, left turns, sometimes even U-turns by government just has a history of that. Not keeping a steady path that really encourages investment and really honestly, lowers their cost to capital, is the way I think of it.

So I don’t think it’s helpful to the pace of foreign direct investment that they need and want to grow that economy. But I still think it will get through that. It will just continue to have growing pains. And in the solar area, we’ve seen a little bit of that.

I think the main feature in solar, honestly, and renewable energy has been massive amount of interest in it, which continues. And so in some respects, it’s a buyer’s market, but we still see real value in the assets that are being built..

Okay. And you touched on a little bit in your comments about Geoverse.

But we get the question a lot about why do you need private LTE? Why would people maybe want enterprise 5G solutions inside of a factory or a different business as opposed to using Wi-Fi? So could you elaborate a little bit on kind of why building owners or enterprise people would want a private LTE or a private 5G network, but built by some neutral host?.

Sure. And I think I’d add to that, it’s also, what I know I didn’t really mention in my remarks. It’s also – I also think we’re moving to a much less cumbersome, much more cost-effective solution than the DaaS solution, too. So it also affects. So there’s kind of two aspects, which is a better solution than Wi-Fi presents today.

And then the second aspect is so-called 5-bar coverage indoors, bringing macro network coverage indoors. So on the first aspect, Wi-Fi is inherently not as safe as protocol as the cellular protocols, if you will. It’s – it doesn’t allow nearly as many connected devices as the emerging 5G technologies will allow.

And it’s not nearly as robust in terms of what you can put in it. I don’t know that there are network slicing technologies involved with Wi-Fi. So it’s – Wi-Fi is – has its purpose and will continue to have its purpose.

But I think it’s just – if you really going to go to the next level and put mission-critical systems on your wireless connectivity, I think Wi-Fi is not a great answer, right? And if you look at other places in the world, like Europe has been actually other places in the world, like Europe has been actually well ahead on this in terms of industrial IoT, and you can see that.

You need to know you’ve got a very reliable, very secure solution, you want to be able to connect multiple devices and sensors, and you want to be able to do it at low latency. So I just think there’s a tremendous amount to offer and what didn’t exist before.

I mean, I think part of what’s enabling this is also regulatory innovation, right? So the whole CBRS development, with the FCC-led and other jurisdictions are now looking at or copying or doing similar things, really enables you to have that licensed spectrum indoors, that the enterprise can drive as opposed to waiting for a macro carrier to get around to it.

And the other advantage you have on that perspective, it’s – without setting up and having to do RF coordination with multiple carriers, you can set up a multiple carrier capable solution. So as occupants change and their preferred carrier changes. You don’t have to make any changes.

So I think there’s a reason there’s a lot of excitement around this, but it’s still early, right? The devices are just starting to roll out sort of the mainstream devices like the iPhone or other to fair in roll out with CBRS-embedded. There are other areas.

We produce sims that we can put in customer devices today, but the ecosystem is still developing..

Yes. And the last one for me is then, obviously, the minority interest have continued to grow $25 million in the 2019, $32 million over three years. You laid out a couple of them.

But how should we think about how much of your checkbook, because you still have a pretty flush checkbook, how much more of your checkbook are you looking to put into minority interest? And then when would we get a sense of how best from us on the outside valuing what you’ve already invested?.

Sitting – we do evaluate things as they come. As you know, well, Rick, right? So everything has that caveat. But sitting here today, I wouldn’t expect the minority investments to be that large in the next three years as they were in the last three years, just because there’s some unusual items in that.

And because we have – we think we have ample opportunities ahead of us with some of these – some of the existing investments, controlled investments we talked about to put money to work. But if an exciting opportunity comes along, we’re going to look at it.

So I think it was unusual because you really had two of those investments really drive that number, and both are not sort of normal. The Australian neutral host business is one where, in a lot of other areas, we would have done it as a controlled investment if we did it.

And the ex-com investment was just kind of what we thought is a special opportunity..

And the new satellite technology, was that the one-web one, that is it?.

No, this is an antenna technology. One-web was quite a bit longer ago. This is a new antenna technology, and it’s a relatively small amount of money..

Is it a steerable antenna, flat antenna? What kind of satellite antenna technologies are you thinking about?.

Flat, passive, multi bands, it’s pretty interesting. But I don’t – it’s a small investment for us, and it’s – I don’t really want to be their disclosure vehicles..

All right. Thanks..

Your next question is from the line of Greg Burns from Sidoti & Co. Your line is now open..

Good morning..

Good morning..

Just one on the International Telecom. You’d mentioned the growth in the wireless part of that business has been lagging your expectations.

So what are your plans? Or how do you intend to maybe turn that part of the business around and get some growth out of that side of the business?.

Yes. I think the first one is do a better job on sales and marketing, right? That’s – in a couple of markets, we know and the leadership teams know that they can and should be doing a better job on customer acquisition and the marketing side. And then there’s an element of recovery.

I mean some of that was the Virgin Islands, where – just was not our focus. We didn’t want to focus on growing a new mobile product while we were building recovery of the core fixed line data business. And with that done, we’re now in a position to put more attention on that growth side. So it’s a combination of things.

But frankly, it’s not rocket science, we just simply haven’t executed.

Okay. And then when we look at the operating margin on the International segment, obviously, you get more scale there. You’ve seen some nice margin expansion this quarter.

How should we think about – now do you have a long – or medium- to long-term target of where you think the operating margin on that business can be? Is there further room for operating leverage on the International side of the business?.

Hi, Greg. It’s Justin. I think we definitely have room to keep moving that up. If you go back when we first bought those properties in 2016, we said it’s just going to take us some time. And if you go back and look at the kind of the quarter before the hurricane, we’ve moved those margins up on International, pretty significant amount.

And I think we still have room to go. It’s just going to be slow. It’s just a slow kind of process to kind of work your way through it in these small markets..

Okay. And then in the U.S. Telecom, you’d mentioned $20 million for backhaul and site built.

Was that part of the AT&T-FirstNet? Or is that actual like CapEx that you’re spending for your own network?.

It’s our CapEx in relation to that contract, whether it’s our CapEx, our assets..

Okay. And lastly, just on some of the investments like Geoverse and others. Rick had asked about making some further equity investments.

But in terms of putting operating capital or increasing the spend to grow some of these businesses, what’s your view on that this year? Where are we at? Should we expect increased investments that might show up in the P&L this year to get those businesses to accelerate the growth of those businesses?.

Yes. I think it’s – it is case by case. In some cases, I don’t expect it because there’s other funding sources, particularly in some of the minority investment. Investments in other cases, I think the answer is yes, but largely success-based. I don’t see a big increase in the pace on the control things outside of success-based deployment, if you will..

Okay. Thank you..

Yes..

[Operator Instructions] Your next question is from the line of Hamed Khorsand from BWS Financial. Your line is now open..

First off, on the FirstNet-related question is, because of the push out, does that mean anything from a maintenance revenue standpoint? Does that get pushed out as well? Or do you think any of that gets recognized in Q1?.

No. We would need to do the construction before we flip over to the maintenance. But in the meantime, we pick up the roaming revenue..

Okay. And because of that roaming revenue, is that what drove the Q4 U.S.

revenue higher this past Q4?.

Yes. The wholesale and the CAF II, yes..

Okay.

No, what I’m trying to understand is it recurring in any aspect? Are you able to maintain pricing? Or do see any kind of volume increase beyond just what you have with AT&T on the FirstNet deal?.

I think there are things we’re pursuing, but there are puts and takes in that area. So – but I think I’d refer to the answer before on that. I think on the FirstNet side, it’s outside of construction revenue, which is really not meaningful economically. There’s – we’re not expecting any big movements. It should be fairly steady state.

Okay. All right. That was it. Thank you..

Sure..

We have our follow-up question from Mr. Allen Klee from National Securities Corporation. Your line is now open..

So earlier, you said that in the quarter that the adjusted EBITDA loss for emerging investments was around $1.5 million.

Is it your thinking that it kind of stays at that rate on a quarterly run rate in 2020? Or it moves higher or lower?.

I would say it kind of – it will hover around that rate. But I think as we gain success, it’ll – it could grow before we – as we continue to invest in it. But I don’t think it be materially in the short term..

So when you say grow, you mean it could become a large – a little bit of a larger loss in – on a quarterly basis in 2020?.

It could, but it’s lending the way we’re operating, we’re really lending those operations now with our other operations in U.S. Telecom. So it’s a little hard to do a perfect allocation.

But I think what Justin is trying to say is there is – there – as you’re ramping up a new product, and as you have success, the expense can expand faster than the revenue in the early days, right? So there could be some of that, but we’re not necessarily expecting that to be material in the 2020 numbers..

Okay. Thank you..

Sure..

At this time, I would like to turn it back to the speakers for any further comments..

With no further comments, everybody, thank you, everyone, and we’ll see you in a couple of months for Q1..

Thanks, everyone..

Take care..

Bye..

Thank you, presenters. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, and have a wonderful day. You may all disconnect..