Michael Prior - President and CEO Justin Benincasa - CFO

Ric Prentiss - Raymond James Allen Klee - Sidoti and Company Hamed Khorsand - BWS Financial

Thank you, Michelle. Good morning, everyone, and thank you for joining us on our call to review our first quarter 2018 results.

With me here is Michael Prior, ATN’s President and Chief Executive Officer. During the call, I’ll cover the relevant financial information and Michael will be providing an update on the business and outlook.

Before I turn the call over to Michael, 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 information regarding the factors that may affect our future operating results, please refer to our earnings release on our Web site at atni.com or the 8-K filing provided to the SEC. And I’ll turn the call over to Michael.

Thanks, Justin. All right, well, overall results for the quarter were as expected, down substantially from the comparable period last year.

The two main factors of course were the loss of revenue in the Virgin Islands due to the destruction of our wireline network and it should be said a lot of the other infrastructure in the territory during the two massive September 2017 hurricanes and the much discussed reduction in U.S. wireless wholesale revenue resulting from contract changes that went into effect in 2017.

Both of those factors will continue to negatively impact year-on-year comparisons throughout 2018, though we expect to see sequential quarterly improvement in the international telecom segment throughout the year, as our wireline network build in the VI nears completion and customers reconnect it. Also, on the good news side of the fence, I was happy to see performance improvements in several areas, notably including non-hurricane affected markets in International Telecom and in Indian solar.

I’ll talk more about those in a few minutes. From a capital allocation standpoint looking forward a bit, we are feeling fairly positive about the ability to grow free cash flow from the mix of operations we have today and at the same time we are actively looking at opportunities to invest our balance sheet capacity and future growth.

So with that, I’ll turn to more of the segment details starting with International Telecom. So there I’ll try to keep it shorter than last time but so much attention is on the post-hurricane environment.

And there the rebuilding of Viya’s wireline network in the Virgin Islands is the main focus of much of our team today; certainly of course of the Viya team but also a lot of support from ATN and partners. And at the end of the first quarter, less than one-third of Viya’s residential customers were reconnected.

We had hoped to be quite a bit further along by this date. I think it’s hard from the outside to understand but what we’re talking about in the Virgin Islands is essentially a complete rebuild of the entire wireline network outside the main switching network management elements, the use of some older [ph] nomenclature.

Another way of looking at it is it’s virtually all of the outside plant. And then, the fact that our operations are spread over three main islands in the middle of the ocean that typically rely on Puerto Rico for most supplies and the fact that the power grid was only substantially restored in February.

And you get a picture of the difficulties the team has been facing. It took us awhile to get the necessary trucks and crews on the island and since that point we have been hindered by shortages and delays in shipping some critical supplies.

However, the pace is picking up and we are bringing more customers on line and into billing every day and every week. As mentioned in the press release, we are awaiting action at the FCC on some support that we and others have been discussing with them for some time.

In early March, the FCC Chairman announced a proposal to direct almost $1 billion to restore and expand networks in Puerto Rico and the Virgin Islands that were damaged and destroyed during the 2017 hurricane season. We know that it isn’t easy to get the details of these relief proposals done and worked out and we appreciate the motives are good, but we are eagerly awaiting action so we can efficiently and speedily work more resilient into our rebuild and ensure that we can provide services soon to the more difficult areas.

So once through this lengthy rebuild, we expect to see healthy numbers for the segment as a whole and that should include a very substantial reduction in the capital expenditure requirements in 2019 and beyond. Part of our optimism has to do with the performance improvements we have seen in multiple areas.

In some, we’ve seen speedier and smarter execution in general and others we have seen faster build-out and provisioning of new fiber customers and in others we’ve seen progress on improving margins. There will be continued revenue pressure in legacy voice and video services and undoubtedly competition may be more competition for data revenues.

But right now we are seeing a good trend of increased high-speed data customers on the back of previous and ongoing network investments. Looking more specifically at the subscriber levels and focusing on sequential movements given the hurricanes and the sale of some smaller markets, for wireless subscribers in the segment they were up slightly at about 311,000 from 307,000 at the end of last year.

Data subscribers continue to rise, roughly 106,000 from 105,000 at the end of the fourth quarter. Conversely, voice access lines dropped from a little over 171,000 to below 170,000 and we lost roughly 1,000 net video subscribers as well.

People will note that those loss rates look better actually than what is prevailing in a lot of places. But I would caution you that we have kept the Virgin Islands numbers static because as long as they are in our billing system and we’re issuing credits that we kept it static.

And as we said before, we don’t expect on reconnect that we will reconnect the full level of the subscribers we had before the storms. So moving on to U.S.

telecom, results for this segment was as expected. The team has been focused on rightsizing operational and capital expenditures for the changed business environment.

And we did see a reasonable percentage of the loss revenue offset by lower capital spending. We believe there are more efficiencies to find but at the same time we are having conversations about expanding services in certain areas and considering other strategic opportunities in this segment.

So we have to be careful and balance our national impatience with implementing improvements with the need for patience as we continue to deal with the fluctuating environment. We could see more near-term pressure on revenue and margins before any success in developing new opportunities materializes, but we are working diligently on solutions.

Renewable energy, not much has changed in the segment since our call in late February. We’re making progress on restructuring the India business and examining our existing pipeline against current market dynamics in the stage of our business.

We did see a good increase in revenue year-on-year as more power was produced and sold in India, thanks to more plants receiving final regulatory approval. We had some more to come in terms of plants coming on-line but we are moving slowly on further expansion for the time being as we evaluate our position and strategy and continue conversations with lenders and other potential funding partners.

So in summary, this was a period of tough year-on-year comparisons for a number of expected and understandable reasons but our sequential performance was in line with what we anticipated. Trends in U.S.

wireless are somewhat soft but we continue to closely monitor the situation and are evaluating longer-term projects that provide growth potential. Conversely, International Telecom is positioned for progressive growth.

And so that’s it for me. Justin, back to you.

Thank you, Michael. Given the impact of the 2017 specific items on our year-on-year comparisons, namely the hurricanes, the U.S.

wireline business and the contractual changes in the U.S. wireless that Michael just covered, I’m thinking comparing consecutive quarters will be more informative by the better baseline for which to measure future progress.

All the year-on-year comparisons as you know can be found in our earnings press release. For the first quarter, total consolidated revenues were 104.5 million, down 3% from the fourth quarter as revenues increased in the International Telecom segment partially offset by the anticipated declines in U.S.

wireless revenue. Actually without the hurricane impact, we think that our International Telecom operations revenue would have more than offset the drop in domestic telecom.

We did see a sequential revenue increase in the U.S. Virgin Islands in the quarter but as Michael noted in his comments, our network rebuild there is behind plan.

Much of the first quarter was spent repairing the core of the network but we’ve now moved more into the phase of reconnecting customers. Consolidated adjusted EBITDA for the quarter was 26.3 million compared to 30.8 million in the prior quarter and predominately driven by the reduction in U.S.

wireless revenue. The adjusted EBITDA margin was 25% for the quarter.

Looking at some specifics around each of our segments and starting with U.S. Telecom, revenues for the quarter were 28.5 million, down from 34.5 million from the fourth quarter and adjusted EBITDA was 12 million, down from 16.8 million last quarter.

The majority of the revenues difference related to the new contractual rates and revenue caps that we have discussed previously. We continue to look for opportunities to reduce capital spending that’s not specifically tied to revenue growth in the segment and our current budget calls for a 50% reduction in capital expenditures from where we spent on average over the last few years.

In the International Telecom segment, revenues were 70.1 million. That’s up 5% from the 66.9 million in the fourth quarter.

And adjusted EBITDA was 17.8 million, up from 16.8 million. Almost all of the quarter-over-quarter revenue increases came from the network build-out in the Virgin Islands.

Even with the pickup in revenues, we continue to operate with adjusted EBITDA losses in that market as the nature of the business requires a certain level of fixed costs be maintained. As we noted in the release, we do expect business in that market to progressively improve as we move through 2018.

In the renewable energy segment, revenues were 5.8 million in the quarter comparable to the 5.9 million reported in 2017 fourth quarter, as we had similar energy production this quarter in India as last quarter. Adjusted EBITDA was steady with the prior quarter at 3.7 million.

For the consolidated company, we incurred a net loss of 5.6 million or $0.35 per share. And I should point out that the tax expense in effective rate for the quarter was just a portion of the pre-tax income mainly as a result of accounting for loss exclusions in the U.S.

Virgin Islands. As we move through the year, we still expect the overall tax rate to be mid-30s.

Also included in operating income this quarter was 1.6 million of non-cash stock-based compensation expense. Moving to the balance sheet, we ended the year with cash and short-term investments of 206 million.

For the quarter, cash from operations was 22.5 million and we ended the quarter with total debt outstanding of 154.9 million. Capital expenditures for the quarter outside of costs incurred for hurricane network repairs totaled 21 million, of which approximately 15.4 million was incurred in our International Telecom segment, 4.7 million in the U.S.

Telecom operations and 0.9 million in renewable energy. In addition, we spent approximately 30.9 million in the USVI for hurricane restoration efforts.

As we mentioned in the press release, we now estimate that total costs of that network rebuild to be between 60 million and 65 million, some of which was paid for with the insurance proceeds and any governmental support we received. And with that, operator, we’d like to open the call up for questions.

Hi. Good morning, guys.

Good morning, Ric.

A couple of questions. First, I think you mentioned that you had sold the British Virgin Islands in late '17.

Did you call out that that was 1.1 million of revenue out of it when you look at quarter-over-quarter that came out and just trying to think through how many subs that was and what the effect on ARPU was? Because I didn’t know that you were selling the British Virgin Islands.

Yes, that was the revenue number. And I think we pro forma the subs in the back table to put out all that from the historical data we provided, Ric.

And it was mid-2017, not late; just to be clear.

Okay. So was that – so the BVI was out of 4Q as well?

Yes, I think so. Let me look.

Okay. And when you consider that, the subscriber growth from 4Q to 1Q of mobile subs going up by I think you said about 4,000.

Obviously a nice quarter. Just trying to think of what the competitive dynamics look like out there as far as the international mobile operations?

And the ARPU also looked like it came in pretty nicely, although now I guess equipment is included up into revenue.

Yes, although we don’t have a huge amount of equipment subsidies in the nature of the prepaid business, right, because a lot of the subs are coming through Guyana. But – do you want to talk about the competitive?

Right. And I think the point to make there is people bring their own more typically and that’s why --

So a competitive environment, there is some – there’s a difference in different markets but I would say we’ve got a little share gains in places like Guyana and kind of held their own otherwise. I wouldn’t say it’s remarkable but it’s a good trend, I agree.

Ric, what I would add to that is in markets like Guyana where they’re typically behind where we’d be in the U.S., we are seeing more data traffic now too in the ARPU.

All right. So as a thought, you can see some continued – so is this a good ARPU level that it grow from this level or just trying to think through --?

I think the biggest number of subs is in Guyana where we think ARPUs have potential to grow quite a bit from the further data usage and penetration and then from the fact that the economy is already starting to grow in anticipation of the oil activity.

All right, that makes sense. And on the CapEx, I think you kind of answered the question.

Previously you were thinking hurricane restoration might be I think 35 million to 45 million. Now you’re thinking 60 million to 65 million.

Those are gross numbers. And so when you get insurance and maybe government support that would reduce it on a net basis.

Is that correct?

That’s correct. And insurance is in there at 34 and some change I think.

And of course that doesn’t include loss revenue.

Sure, right. And previously you had kind of mentioned what you thought CapEx absent that was going to be for the year.

Linked telecom was 65 million to 80 million. Has there been any change to that?

I didn’t notice an update to that.

We didn’t update that and we’re probably still around that range. We’re seeing a few things on some growth initiatives that may bring that number up a little bit as we move forward.

But we’re still waiting to kind of see how that plays out. But it would be kind of gross CapEx.

Got you. And then in the U.S., you’ve got the upcoming sale of a part of the wholesale network.

Is that looking like it’s still about 100 base stations? And just trying to think through I think you mentioned that it might close in 2Q.

So we’re just trying to think through what the impact of the sale of the network looks like not just in 2Q but the rest of the year?

Yes, I think that it is about 100 base stations but you can’t kind of straight-line it because it’s more within the context of larger contracts and so on. So I think the best thing to do is go back to the guidance we had previously given which encapsulated that event.

All right. And so the guidance – I think that was, what, 110 million to 120 million or 100 million to 120 million of U.S.

Telco in '18?

Yes. And as we noted, we’re seeing some – because I know we’ve pegged the question in the release that we’re seeing some softness.

We’re not saying we think we’re going to fall outside that guidance at this point. But it might put us at the low end.

Okay. Yes, that’s what I want to get at was kind of what that softness was and you mentioned it could be on the revenue and the margin side.

Yes.

Okay, great. That’s a good start for me.

I might come in after other people ask.

Good morning.

Good morning, Allen.

Starting with U.S. Virgin Islands, can we get a sense of what the profitability or losses are there and how much service credits are being given today or in the first quarter?

We mentioned in the release, right, if you look at year-over-year quarters, it’s about a $12 million impact in the quarter for service credits. And on the EBITDA, we’re not giving out specifics on that but it’s negative.

And where did the service credits show up in your financials?

In revenue. It’s a reduction to revenue.

Okay. And if you get to – if you get everything up and running by the late summer, then post that you had said prior to the hurricanes that you thought that USVI would have annualized revenue of around 100 million and 20% to 25% operating margins.

I know the economy has slowed down a bit there. But is there any reason to think that once it’s back and running maybe for a little bit that those numbers still make sense?

Allen, it’s Michael. If you go back – first of all, we don’t break out the individual markets within the segment any more.

We gave what the numbers have been doing pre-deal, what kind of a run rate was so people could figure out how to add it. But directionally as we said before, it’s hard to believe that we would be ready, it will come back right away at the level it was pre-storms.

You’ve got people whose haven’t maybe – we have left the island and may not return. You’ve got some other economic activity that’s below where it was; some of its catching up.

And then you have sort of – I don’t know what the word is inherent; court cutting, court shaving [ph] that can occur naturally but can be exacerbated by these sorts of situations when people are waiting for reconnection for a long time. So it’s hard to gauge exactly what that will be, but we think it will take some time to get to full steam in a minimum.

And keep in mind also that those are the kind of numbers we gave when we first acquired the property which included the VI and some of the same margins. So the apples-to-apples is going to be a little bit off of that number to begin with anyways before impact.

The best thing to do is look back and say kind of the high point was second quarter last year and there’s some puts and takes to it, right. There’s some improvement in other markets but that’s kind of a high point that if the Virgin Islands – we need the Virgin Islands to come back pretty full to get back in that territory.

Okay. Thank you.

In terms of – you’ve talked about managing costs in U.S. Telecom.

In terms of where EBITDA margins have been coming in, do you feel that the current run rate is a good one going forward?

On the margin, I think – it’s hard to say. I think any additional softness in revenues will put pressure on the margin.

Okay. And then just maybe a little more of an update on India in terms of what your thinking is on getting third party financing and potential timeframe that it may or may not --?

I guess our thinking is we’d like it, not to be too flippant. But I think we’re having good conversations.

It’s a question of terms and acceptability. There is interest level on both the debt and equity partner side, serious conversations occurring but there’s also a play of those things particularly on the equity side against out what direction we are going forward in scale and other considerations like that.

So it’s hard to be more specific than that. And I [indiscernible] making progress at some point is only really clear when you actually have something in hand.

But the conversations are going on and we’re working it.

Okay. Thank you.

Just two accounting-related questions; one, you paid a high relative amount of tax in the quarter compared to your pre-tax income but you still said you should be in the same range for the year. Could you maybe point to what impacted the quarter?

Could it have been – or did you repeat your cash from Guyana? And if you did, what that was?

And then also net income contributable to non-controlling interest was – while it’s relatively steady looking back in time, it was over 100% of pre-tax income. So maybe also just kind of explaining what’s going on in those two things.

Thank you.

Yes, let me take the second one first. The minority distributions, if you will, that’s really driven around kind of the jurisdictional kind of spread of income this quarter.

So you’re going to have markets we’re in that did well. The minority interest accounting that takes place there and then losses in the Virgin Islands are really what are impacting both of those.

And that’s 100% owned. So that’s going to artificially inflate that minority interest piece because there is – and also the losses in the Virgin Islands are for accounting purposes not – the losses are excluded, I’ll say.

So you kind of have tax on everything else but no benefit from the losses in the Virgin Islands.

And on taxes?

That’s the same thing on taxes as well. The losses in the Virgin Islands are – you have to exclude and so you can’t tax affect them which would bring – ultimately it would have brought the effective tax rate down if you could tax affect them.

Okay. Thank you.

Hi. Good morning.

So first up, could you just clarify the guidance you gave for U.S. Telecom, the commentary you had given earlier?

You were indicating that would end up being closer to the lower end of the guidance. Is that because of the sale that’s pending or is that because it’s just the contract terms of the remaining assets?

It could be closer to low end and it’s just the combination of things we’re seeing; lower traffic and things like that. The sale was already included in the guidance that we gave.

Okay. And then as far as Guyana is concerned, how are you able to or what’s the strategy as far as increasing ARPU?

You had talked about data rates rising in that market.

It’s just penetration. It’s just mobile data penetration in consumers as you’ve seen in most markets, it’s just a little behind getting used to mobile data, valuing it, using it more, smartphone penetration believe it or not still has some impact.

So it’s the kind of trends other markets have seen, it’s just a little bit of a lag time versus more developed economies.

I will just ask you what is the penetration rate for smartphones in Guyana?

We don’t provide market-by-market details.

Okay. And then are you looking for a third party investor in India or can you grow it out yourself?

We can grow it out ourselves. But whereas we said we’re evaluating the pros and cons, are the [indiscernible] returns high enough.

What’s happening in solar is there are a lot of – there’s a lot of money coming in the renewable energy in multiple markets that’s got a much lower cost of capital and therefore lower return need than we do. And so we’ve always contemplated as we build in this segment attracting additional layers of capital and effectively serving as a managing partner, if you will.

And that helps the returns be attractive enough for us and it also provides an outlet for the sort of path of financial money that’s looking for operating investing partners to get money into the sector, including in Indian solar in particular. So it’s out there but there’s a little bit of a chicken and egg potential too, which is we likely need to get bigger to allow people to put enough money to work.

Okay. Thank you.

Thanks, guys. Michael, early on you had talked about capital allocation and that you’re fairly positive there could be some free cash flow growth as you manage revenue, cost and CapEx.

But then also obviously the balance sheet you’re sitting with a ton of cash. Can you elaborate a little bit for us on what types of opportunities or locations of opportunities they might need or there might be?

And also AT&T last night had a very bullish call on their desire to really go fast and furious on the FirstNet project. Is there any opportunities there for you?

Yes, I don’t like talking about individual things but yes, I think there’s opportunities in that area broadly for us and certainly having conversations with anybody looking to add infrastructure quickly and we’re all wireless in particular. And in general I think the areas we see are kind of in the – what I would call all-in – mostly in what I would call the shared infrastructure bucket on communications side.

There is a lot of need for the big carriers to manage their network costs, keep their network costs down as they continue to do massive expansion of capacity and capabilities on the data side. And we see opportunities there for us.

And there’s a bunch of other people doing that as well. But we think it’s a good fit for kinds of things we like, our operational capabilities and our reputation.

So I think that’s a lot of it, particularly in the United States but also in other places. We made that small investment in Australia.

We see other markets like that benefitting from it. And then renewable energy, again, it’s a bit of figuring out the model and there could be puts and takes of capital moving, but we continue to see opportunity there for a player our size to kind of work with those large financial sources in the sector.

Okay. And then you referenced a couple of times the potential and obviously Chairman Pai looking to help Puerto Rico and the U.S.

Virgin Islands. Is there some way for us to scale what that potential opportunity might be?

Obviously it’s tough to call the timing but what type of magnitude it might mean?

No, it’s pretty hard because most of that is not public. It’s easy to look at and say, of course the bulk of the money is going to Puerto Rico given the size of Puerto Rico relative to the Virgin Islands.

But we think it certainly has potential to be material to that business for us. And it’s kind of critical to accomplish some of the things that we think makes sense to make the island more resilient and the communications infrastructure more robust.

So hard to – the short answer is can’t really quantify right now other than to say I think it could be material.

Okay. And along the lines with the FCC, obviously you have the CAF II process going on.

Did you guys register for CAF II or you’re interested in doing the CAF II fiber auction?

We are registered. And I think – I forgot to get briefed but the usual thing I’m told is don’t say anything else.

And what’s the timeline? I think you could talk to that.

Yes, you’re registered. And then what’s your thoughts as far as how the timeline of that plays out?

Well, I believe the auction starts in July if I remember correctly. So I don’t know beyond that in timeline.

I mean I have an idea but I don’t want to say and get it wrong.

Sure. Great.

That’s fine. Okay, thanks for the follow up, guys.

Sure.

Yes, hi. Just a clarification.

You didn’t show any equipment sales this quarter and I was just wondering is that a result of a change of getting rid of some businesses that you really won’t be seeing that going forward or is it something as specific to the quarter?

No. That’s a change in accounting principle that just took effect this quarter.

So I think now all the – it’s all included – it’s all in wireless.

Thank you.

That’s all we have everybody. Thank you for joining us.

And we’ll see you next quarter. Take care.