ATNI
#Great, thank you, Operator.
Good morning, everyone, and thank you for joining us on our call to review our first quarter 2016 results.
As usual, with me here is <UNK> <UNK>, ATN's President and Chief Executive Officer.
And during the call, I'll be covering the relevant financial information and certain operational data, and <UNK> will be providing update on the business.
Before I turn the call over to <UNK> 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 of these measures and reconciliation to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or to the 8-K filing provided to the SEC.
And there you go.
So I'll turn that over to <UNK> for his comments.
Okay, thanks, <UNK>.
Good morning, everyone.
As usual I'll start with some highlights.
The first quarter was broadly in line with our expectations for each segment with a few positives and negatives in the details.
Our primary focus at the parent company this past quarter was on preparing for the completion of the two significant pending transactions in our International Telecom segment and closing the India transaction in the renewables segment.
Needless to say, these are all important initiatives towards investing our balance sheet to drive healthy returns for shareholders.
I think we accomplished much in those areas, though there is clearly more to do over the rest of the year.
On the International Telecom side there is the work required to secure regulatory approval and close as well as the efforts to hit the ground running post-close and ensure those businesses move forward effectively and efficiently.
Both of those activities, you will have seen, have contributed to some ramp-up in transaction expense and overall overhead.
On the renewables side, the India acquisition and investment is more of a greenfield development than a large-scale integration.
And we will continue to expend significant resources to position us to move quickly and efficiently on the market opportunity we see there.
As for the businesses unaffected by the recent and pending deals, we have seen areas of progress, but we also have areas where our execution has not been as strong as it should be.
With that, I'll turn to some more specifics, starting with U.S. Telecom.
So in this segment, the most important driver of long-term value as well as short-term movements on our P&L is the ongoing repricing of our wholesale wireless network offerings.
This effort is continuing although not always at the pace we would like.
We believe this is a compelling value proposition, but it's a slow process to reset relationships and to orient our operations and investments accordingly.
While these things don't proceed on an entirely predictable straight line, overall the initiative is so far roughly on a pace and terms consistent with the guidance range we provided for U.S. wireless last quarter and re-categorized in this quarter's release to reflect our new reporting segments.
And I think <UNK> will touch on that a little bit as well.
So operationally here the trends are similar to past quarter's data volumes have grown.
Our pricing has come down, and we continue to spend capital to augment our network capacity and, in some instances, our coverage.
Once reset, we think there will be opportunities to grow this revenue stream.
But that will likely require covering new geographies or generating new revenue sources out of the existing footprint.
And one way we've created new revenue from our wireless footprint is our retail business in very rural and tribal areas.
And revenue from this source in fact increased about 47% over a year earlier.
However, the scale is still pretty small, and so the incremental revenue currently comes with very thin operating margins.
As we continue to add subscribers and volumes and work on improving cost efficiency, though, we do believe the margin contribution will increase.
And the other thing that bears mentioning is the retail part of the business also has strategic value to us.
And it's also an important part of how we deliver value to the communities in which we're operating.
Moving onto International Telecom, as noted, a big part of our attention in this segment has been on the pending transactions involving Bermuda, the Cayman Islands, the U.S. Virgin Islands, and several smaller markets.
The regulatory approval process is not simple anywhere.
But it can be even more opaque, illogical, and slow in smaller markets.
As you may hear from my tone, it can be frustrating at times.
But we're working diligently to bring these deals to close and expect them to do so.
At the same time, we're working hard on preparing to integrate these businesses and position them for long-term success.
The competitive and technological environments don't sit still while you await closing.
And there's much that needs to be done to both maintain and enhance value.
We also have work to do on positioning and costs in existing operations.
As I alluded to in the opening remarks, we have not seen the rate of progress we would have liked in all markets.
So there's clearly more work ahead.
We did see some healthy growth in wireline revenues, but not in wireless.
And we have some cost initiatives as well that have not advanced as fast as they should.
Moving on to Renewable Energy, operating results from this segment benefited from the expected bump in solar production versus the first quarter of 2015 when our Massachusetts solar plants suffered from abnormally heavy and sustained snowfall.
Can I get an amen from [them].
All right, they're not up to amens yet.
As investors will have noted, the main variability in results from this segment over the past year has been in transaction costs.
Our Ahana subsidiary is both an operational platform and an investment platform.
The latter aspect, which is critical to growth in this sector, will continue to incur significant transactional costs from time to time, though we expect those to decline in percentage terms as the operating assets continue to expand.
Furthermore, while legal and other deal expenses both for deals done and deals not done are a fact of life, we do see room to improve our process and approach to reduce those costs.
And <UNK> will add a little more color in that area as well.
I think it bears repeating that we are excited about the prospects in India.
We think we have partnered with a strong team and that there is a tremendous need in India for more power generation and for more distributed generation of power.
What's more, the government recognizes this need and is doing a lot on both the state and federal level to encourage investments in the renewable and indeed broader power generation sector in India.
Now don't be alarmed.
We're not ignoring the many challenges of this type of investment in the market, but we really do believe the risk/reward proposition is solid.
For the next few quarters, the development of this opportunity will most prominently be reflected on the cash flow statement as we begin funding the construction of solar facilities.
Operating expenses in this segment, while not very high, will also ramp up during the next four quarters.
On the revenue side, we do not expect a significant impact until the fourth quarter, then growing from there according to the pace of our build.
While our primary focus is on India right now in this segment, this sector is moving very fast; and so long as we stay nimble and disciplined, I expect more opportunities to present themselves.
In a very modest example of that we expect to bring at least another megawatt online in the U.S. market by the fourth quarter.
So in summary, excluding the transaction-related expenses, our first quarter operating results were within the range of our internal plan.
Our three pending transactions are moving forward, each at their own pace, but all on track to be part of ATN well before the end of 2016.
And we are enthusiastic about the long-term EBITDA and cash-flow potential of the company as we move forward with these new initiatives and look forward to have additional progress to announce in the future.
And I will now turn the call back over to you, <UNK>.
Great, thank you <UNK>.
I'll cover some of the relevant financial stuff and operating stats.
So let me start: for the quarter total consolidated revenues were up 5% to $89.7 million.
And this reflects a 9% revenue growth in our U.S. Telecom operations, a modest increase in International Telecom, and a 6% increase in Renewable Energy segment.
As discussed in our earnings release, we streamlined our segment reporting structure beginning this quarter from five segments down to three segments.
This quarter's revenue increase in U.S. Telecom was predominantly a result of higher wholesale roaming traffic volumes, which were partially offset by rate declines and increases in retail wireless revenues.
International Telecom revenue growth this quarter came from increases in broadband revenue and higher roaming revenues from some of our Caribbean markets, which more than offset the impact of the sale of our Turks and Caicos operations that took place later in 2015.
Consolidated adjusted EBITDA was $34.1 million, essentially flat with the first quarter of 2015, resulting in a adjusted EBITDA margin of 38%.
U.S. Telecom segment EBITDA increased 1% from 2015, and International Telecom in the Renewable Energy segment each increased 8%.
Growth in adjusted EBITDA for (inaudible) segments was offset by increases in our holding company overhead costs, mainly related to increased headcount we brought on in advance of the completion of our pending acquisitions.
As we noted in the release, we reiterated our earlier guidance for U.S. wholesale wireless full year 2016 results, combining it with the U.S. wireline operations for a full segment view.
On a combined basis we expect U.S. Telecom revenues to be between $165 million and $175 million, and adjusted EBITDA margins to be in the mid-40s.
Operating income for the quarter was $15.9 million, down 17% from the same quarter in 2015.
Much of this decline was due to the $3.7 million of transaction costs incurred in the quarter.
These costs are predominantly related to the India Renewable Energy segment that <UNK> spoke about earlier.
We do expect these costs to continue in the current quarter and estimate the second quarter expense to be between $7.5 million and $9 million.
This unusually high estimate is closely related to the expected accounting treatment of our purchase consideration of the development business acquired to establish Vibrant Energy, our platform development business in India.
Included in our operating expense this year's first quarter was non-cash stock based compensation of $1.7 million, and that compares to $1.2 million in the first quarter of last year.
Our effective tax rate for the quarter was 30%.
But I should note that this rate does not take into account any of the pending telecom acquisitions expected to close during the year, as we anticipate recasting this rate as each deal closes.
Net income for the quarter was $6.1 million or $0.38 per share or $0.54 per share excluding the tax-affected impact of the $3.7 million of transaction expenses.
Looking at the balance sheet at March 31st, we ended the quarter with cash and cash equivalents of $391 million.
For the quarter, cash flow from operations was $28.3 million and total debt outstanding was $31.3 million.
Capital expenditures for the quarter totaled $16.4 million, of which approximately one-half was incurred by U.S. Telecom operations, and the other half by our International Telecom segment.
It's still a bit early to predict the timing of this year's projects, but we have moved up the total of 2016 estimate to ---+ slightly to be between $65 million and $75 million.
And as we noted in the release, we also provided an estimate on the 2016 build spend in the Renewable Energy segment to be between $40 million and $50 million.
And some additional operational data for the quarter, we ended the quarter with 883 base stations in our U.S. Telecom segment.
That's up from 877 at the end of last quarter and 836 a year ago.
I should note that these totals include approximately 65 additional base stations that were more retail purposed and now carrying some wholesale traffic.
International wireless subscribers totaled 287,000, fixed lines totaled 154,800, and broadband subscribers totaled 44,600.
And with that, Operator, I'd like to open the call up for questions.
It's a good run rate.
And I think too, yes, Q1 ---+ and I'm not sure why last year it was a little bit.
I think we started probably bringing in some additional folks after Q1.
But I think it's a good run rate.
And if you compare it with like fourth quarter of this year, I think it won't go much higher.
It also included an abnormally higher amount of non-stock comp due to kind of a reset of a forfeiture estimate.
So I think this quarter is unusually high for that.
Yes, it's primarily the former.
And it's really just trying to take advantage of some of the scale and as I mentioned, kind of as I like to say, hit the ground running.
And so there's some expertise and centralization of expertise necessary to do that, including things like project management and some of the more technical aspects.
Well, I think the CapEx <UNK> gave you, so that's the number.
And that's the big number, right.
So the expenses in this business are ---+ this business in India will be similar to the U.S. in that the expenses are disproportionally capital expense.
So it'll start to come in in the second quarter, really, operational expense.
But it's not going to be significant even for the segment alone.
And then once the revenue starts to come in, you quickly get to operational break even.
So I think from a P&L standpoint, nothing major until you start to get 2016 behind you.
But the CapEx, <UNK>, I'll just ---+ the CapEx will flow quickly, if that's also part of your question.
There will be additional CapEx in 2017, not so much for those megawatts, but for continuing to go.
I mean, we're still targeting ---+ 250 megawatts are actually north of that.
And we're a little bit careful about projecting that bigger number, because you learn as you go.
But sitting here today we certainly would be expecting to be building a lot in 2017.
Now debt will start to flow in to fund a good portion of that if we're succeeding with our plan.
Right.
And in the equity weighting of it will go down.
No, no.
Power pricing is quite a bit lower in India, but the good news is costs are even more ---+ you know, are even lower still than they would be in the U.S.
Yes, you know, I think we have to kind of see.
We're hesitant to give a sense of precision on that guidance yet.
I mean I think that I would just return to our statements before, that we think ---+ we see the risks in an emerging market and in this kind of greenfield development.
And we are targeting returns accordingly.
So I think that's all we really can say for now.
And then as we get going there should be better visibility.
Yes, yes.
Well, I think I'll let <UNK> answer the part on seasonality.
But I think in terms of what inning we're in, I think it depends whether you're looking at our projected guidance or where we are in the first quarter, right.
So our projected guidance takes us into the later stages of the game, if you will, for what we anticipate in the year.
But it's an ongoing process as we speak.
And so I think maybe, I'm not sure if this is directly answering your question, but I think that our hope is that the actual activity of repricing and redrawing contracts will be largely complete in 2016.
And there may be some ripples into 2017 from that.
But I think that the process of that sort of reset should be accomplished in 2016.
And <UNK>, I think the way I would look at seasonality.
So we definitely still have seasonality impact, but it's much more [moded] by the rate decline.
So I think you're going to see a little bit more of a flatter quarter.
Q1 has got the best kind of rates in the grid, if you will.
And then I think you'll see the traditionally stronger quarters not being as high in Q2 and 3 and then the fourth quarter lower.
And they're kind of backing into the guidance that we gave.
Sure.
The year on year growth part of it was from the retail ---+ from the rural business, the retail business if that's what you meant.
And part of it was from slightly higher capacity of the network.
Yes, I think the ranges that we gave encompass our expected buildout.
Well, the ---+ one was completed, which is India.
But the two telecom in India ---+ so India has been completed.
But that's, as we noted, an ongoing process of really kind of greenfield investment.
But in terms of the Bermuda-oriented deal and the Virgin Islands-oriented deal, I'd just would repeat what we said earlier, which is we expect the Bermuda one to close soon and the Virgin Islands one to take a little more time.
Yes, I mean, I think as we kind of said in each of those release, right, Bermuda on an annualized basis, $80 million to $90 million of revenue, right.
Added.
Added, yes.
Incremental.
And the USVI about $100 million.
What I would say is that the ---+ and then I think we have later kind of mentioned that in time we want to get those margins up from where we would acquire them.
So I think from a margin standpoint you're going to be more in the low to mid 20's kind of out of the gate.
And then working up from there.
But it's going to take us a little bit of time to kind of integrate and establish those margins.
I think it'll be well into 2017.
Yes, we fixed our application.
I don't know the latest and greatest on that, but we're not worried about our application.
And I think we're on that second notice along with many others.
But a timeline ---+ I don't have anything.
I don't have anything to offer other than what you're hearing out there which is it certainly looks like it's proceeding.
Yes.
No additional remarks.
Thank you, everybody.
And we'll see you in few months.
