ATNI
#Thank you, operator.
Good morning, everyone, and thank you for joining us on the call to review our first quarter 2017 results.
With me here is <UNK> <UNK>, ATN's President and Chief Executive Officer.
And as usual, during the call, I'll be covering the relevant financial information and certain operational data, and <UNK> will be providing an update on the business and outlook.
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 reconciliations to comparable GAAP measures and for information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or to the 8-K filing provided to the SE<UNK>
And I will turn the call over to <UNK>.
All right.
Thank you, <UNK>.
As <UNK> noted, this quarter was in line with our internal forecast and more reflective of the profit levels of our current portfolio of businesses in the past quarters, which included several special charges.
For the quarter ---+ for the first quarter, total consolidated revenues were $128.1 million, up 43% from $89.7 million in the prior year period.
While adjusted ---+ while consolidated adjusted EBITDA increased 23% to $42.1 million, representing a 33% margin.
Our financial results for the quarter did include $1.6 million of expenses related to the sale of our Northeast U.S. wireline business, of which $700,000 were transaction-related expenses incurred in closing the deal and $530,000, which are related to the reversal of minority interest upon deconsolidating the operations.
To review these results by segment.
Our U.S. Telecom revenues were $43.8 million, down 5% from the prior year, and adjusted EBITDA was up 3% to $23.2 million.
Of the $6.1 million in wireline revenues included in the segment, $4.2 million was from Sovernet, the Northeast U.S. wireline business that we sold in early March, I just mentioned.
These operations also included about $700,000 of adjusted EBITDA to the segment this quarter.
In the domestic wholesale part of the U.S. Telecom, we have been focusing on ways to find greater cost efficiencies as we continue to experience rate pressure, as <UNK> noted earlier.
And some of those efforts have started to pay off with reducing operating costs, partially offsetting lower revenues this quarter.
In the International Telecom segment, segment revenues were up significantly again this quarter, reflecting the impact of our Bermuda and USVI acquisitions, increasing by 109% or approximately $41.4 million, and adjusted EBITDA increased 63% to $23 million.
We completed the sale of the St.
Martin operation that was acquired as part of the 2016 USVI transaction.
That sale closed on the first day of the quarter, so there were no contributions to operating results from these operations in the quarter.
After many years of being stable, we've recently seen a decline in the value of the Guyana dollar to the U.S. dollar over the last several months.
While the published rates don't indicate the change, we have seen higher rates in our bilateral agreements that we've entered into in the last several months and did incur a $600,000 expense in the quarter related to our U.S. dollar purchases.
We'll continue to monitor that rate going forward and any related impacts on our reporting exchange rate.
In the Renewable Energy segment, revenues decreased 10% to $5 million, and adjusted EBITDA was down 32% to $2.9 million.
And as we noted last quarter and <UNK> mentioned, revenue was down against last year as we reached the end of contract period for most of our California Renewable Energy credits in 2016.
We also saw weaker energy production this quarter, due to rainy weather conditions in California.
And consistent with past quarters, we've absorbed higher operating costs in overhead, as we ramp up our India operations.
Consolidated company operating income for the quarter was $17.8 million, which included $22.4 million of depreciation and amortization expense, reflecting our 2016 acquisitions and capital expenditures.
Also included in operating expense for the quarter was $1.7 million of noncash stock-based compensation expense.
We ended the quarter with lower-than-anticipated effective tax rate of approximately 21%, and this lower rate was primarily driven by tax benefits that we're able to realize from the sale of the U.S. wireline and St.
Martin businesses.
Looking at the balance sheet.
At March 31, we ended the period with cash and short-term investments of $274 million.
And quarter-to-date, cash provided by operations was $32.1 million, and we ended the quarter with total debt outstanding of $152.4 million.
Capital expenditures for the quarter were $45.7 million, of which approximately $6 million was incurred by the U.S. Telecom operations, $16.7 million by our International Telecom segment and $21.8 million in the Renewable Energy segment.
Capital expenditures are always difficult to project, especially early in the year.
But given the rate pressure we're seeing in our domestic wholesale business, we're carefully evaluating capital expenditure plans for the U.S. Telecom segment.
As a result, we're currently estimating that total telecom capital expenditures of 2017 are more likely to be in the lower end of the $95 million to $115 million guidance range that we provided at the end of 2016.
And with that, operator, we'd like to turn the call over to questions.
Ric, I can help with that one, I think.
I think the fourth quarter, like you said, is typically the lower one, for the reasons you noted.
The second and third quarter, though seasonality and the way that even the newer contracts we've entered into, are a little bit smooth (technical difficulty)
Say it again.
Operator, are we having an issue here.
Now we can.
Right.
Yes, and I think that as I said, I think that there really does feel like there's a good chance that when you look at those year-on-year comparisons, they'll be down.
Yes, I think it's cleaner.
I mean, there will be some ---+ there is some variability and some seasonality in this business, but not as much as there used to be.
So the first quarter used to have tighter margins because of some seasonal higher-margin revenue being lower.
But that's mainly in the wireless and we've added so much wireline revenue that, that really shouldn't be a big impact anymore.
So I think this is definitely in the ballpark.
I mean there's always a seasonality in the fourth quarter on the holidays for us.
So ---+ and I think first quarter tends to be little bit lower.
But I think that's the ---+ that's really how it plays out.
So on the former side, I think it's hard to say more than what we said.
It's hard to quantify at this time.
But if you look at the percent of revenues then this year, it's higher than even large-scale providers would see where they tend to have a very consistent number.
And the way these smaller markets work is you can get a project done completely in a year or in 1.5 years, and then the next year, it drops down quite a bit.
So I think we ---+ all things being equal, existing business would expect it ---+ expect the number to drop quite a bit in the segment.
In the ---+ on the broadcast option, the last I heard, we're still ---+ today is the last day.
We're still under limitations.
I don't want to really talk more about that.
But any license has potential future spend with it.
But as to when that is and where that is, I'd rather not get into.
<UNK>, we can't hear you.
We can hear you.
Yes.
Yes.
I don't want to get into detail on the pricing, because there are not in a lot of contracts.
And so that's important information, but I can give you ---+ conceptually, I think to answer your question decently, which is we have said for a while that we see more or less revenue per geographic area per site on an average basis, hitting the ceiling capping and not ---+ in the old days, there was years where there was movement, up and down, based on usage that could be pretty significant.
That's leveled out quite a lot.
And I think the main thing we're seeing is the carriers adjusting priorities in terms of what quality of customer experience they want in rural areas.
And of course, the general pressure you always have ---+ to work with the customers, and so some of that's working its way through.
But related to that is, we had a lot of capital expense to this business that your customers might not see.
And so you'd say, okay, that's the world then we'll adjust accordingly.
So I did ---+ there's not ---+ most carriers are not ---+ there's not really an overbilled other than in limited circumstances.
But most customers are not doing that.
Yes, I can probably help a little bit with that.
The obvious one's on the data you can say, we are seeing as Guyana moves up in the speed, it's a little bit more of the landline cutting cords, if you will.
So ---+ and then the other markets that are heavy prepaid, so they can [swing] on wireless.
It can somewhat swing around a little bit in a quarter, depending on whatever promotion we're running or our competitor might be running.
It's a pure ---+ the cost is not a lot of added direct cost as the revenue comes online.
So the main costs are in the overall platform cost.
It's not ---+ and cost related to it where the plant sites are, that we're already incurring.
So put it simply ---+ maybe that's not 100% clear, so try say more clearly.
Revenue as it comes in from these projects that we're turning on, the incremental margin contribution is going to be very high from that revenue.
And so as revenue ramps, margins will get better and better.
And approach margins you'd see in solar businesses everywhere, including our domestic business.
But it's really ---+ it's really just saying because you work your way, as you turn the plant up, when it's a final mature plant in general revenue, it'll have high margins.
But as you're working your way there, the costs are fixed on it.
So as your building revenue won't be as higher-margin against fixed cost.
Yes, as I said in my remarks, I think we are having discussions about new geographic areas and builds.
They don't know yet whether that will yield something that makes sense for both us and the carrier.
But we think it's decent enough probability to mention.
Yes.
I think it's ---+ I will have someone look it up.
It's about 5 ---+ 5 to 6 ---+ 100,000 a quarter.
That just kind of shows up in the consolidated segment.
Yes.
I think we can.
I think financing, assuming we get the financing in terms we like that will either way, it will can of dictate what we expect on the future build.
And we see the demand there, but we're trying to make sure that the returns, and obviously, the gearing levels affect that, are where we want to see it to continue to invest.
And so all in all, it's too soon to tell.
And I think at that time too, we can also give some better sense of what size contribution we might see in 2018 from this business.
Yes.
I think we're looking at a number of things.
I would say sort of a lot of the traditional telecom, rural networks, small-market networks, not a lot of activity right now for us.
But those are ---+ those can be [onesie, twosie , as we've seen from the deal that we've done recently.
Sort of tangential things working off of existing competencies and markets where we're exploring and looking at.
Some of our businesses are getting more into cloud services, for example, and we're looking at that carefully and to see can we do it well.
Does it ---+ is it a good return from both the cash invested and the time standpoint.
And then renewable energy, we still think probably has more ---+ we see more opportunities there.
We were ---+ we were hoping to do more in the U.S, I think, in the near term.
But there's a little bit of a cloud on that, that for the industry right now, there's tariff application applied that could put pretty hard, pretty heavy duties on imported modules, which might cause a flurry of building in the U.S. and then a decline, right.
I mean it's pretty efficient, and people are ---+ they can't get the ---+ if costs go up and they can't get the pricing to go up, then builds won't happen.
But ---+ so we see opportunities there.
And again, India is still ---+ we're effectively putting a lot of money to work already and as we noted earlier, we'll see by the second half of the year, what's the forward pace on that.
Yes.
We've looked at a number of markets and there are a number of interesting markets out there.
But for ---+ but it's a pretty high bar to go into a new market right now for us, as we make sure we've got our house in order in India.
Obviously, the U.S. we already operate.
But for the right thing, we would find a way to devote the resources.
Thank you, everyone, and we'll see you in another quarter.
Take care.
