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Edited Transcript of ATNI earnings conference call or presentation 23-Feb-17 2:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 ATN International Inc Earnings Call

Beverly Feb 23, 2017 (Thomson StreetEvents) -- Edited Transcript of ATN International Inc earnings conference call or presentation Thursday, February 23, 2017 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Justin Benincasa

ATN International, Inc. - CFO

* Michael Prior

ATN International, Inc. - President, CEO

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Conference Call Participants

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* Ric Prentiss

Raymond James - Analyst

* Barry Sine

Drexel Hamilton - Analyst

* Hamed Khorsand

BWS Financial - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the ATN International fourth-quarter earnings conference call and webcast. (Operator Instructions) As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Justin Benincasa, Chief Financial Officer. Sir, you may begin.

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Justin Benincasa, ATN International, Inc. - CFO [2]

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Great. Thank you, Terrence. Good morning, everyone, and thank you for joining us on our call to review our fourth-quarter and full-year 2016 results.

As usual, with me here is Michael Prior, ATN's President and Chief Executive Officer, and during the call I will be covering the relevant financial information and Michael will be providing an update on the business and the outlook.

Before I turn the call over to Michael for his comments, I would 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 the 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 further information regarding the factors that may affect our future operating results, please refer to our earnings release and our website at ATNI.com or to the 8-K filing provided to the SEC.

And I will turn the call over to Michael for his comments.

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Michael Prior, ATN International, Inc. - President, CEO [3]

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All right. Thank you, Justin. Usually you get a better crowd warm-up than the Safe Harbor, but have to go with that.

As usual for the fourth quarter, I will begin with some comments on the year. Overall, I think we were quite pleased with how we are positioned as the year came to a close. In International Telecom, we closed and completed a good part of the critical integration work of two significant acquisitions leaving us with three similarly sized businesses with fully integrated telecommunications offerings in manageable, competitive environments.

We have significant scale within each of our main International Telecom markets and we are working hard to ensure that the customer experience and the value proposition continue to improve and that these businesses are well-positioned for long-term value creation.

In U.S. Telecom, we made great progress on improving operating efficiencies against the backdrop of significant price reductions thus helping to ensure consistent and reliable cash flows. There is more work to be done positioning this segment for the longer-term, but we have made a good start.

In both our International and Domestic Telecom segments, we also made progress on rationalizing the portfolio and improving overall strategic focus. This includes the sale of a small market acquired in the Virgin Islands acquisition and the pending sale of our Northeastern United States Wireline operations.

In Renewable Energy, we opened up a new market and potential for growth with the deal we closed with Armstrong Energy Group out of the UK that resulted in the launch of Vibrant Energy in India.

While we are a bit behind on our initial build schedule, we are optimistic about the potential for strong returns in that market and we see the entire segment as producing significant opportunities for investment for both the near and midterm.

So while there is still much to improve and, as always, risks and developments to manage, we believe we have entered 2017 with a strong platform for steady operating cash flows and plenty of opportunity to invest for growth.

With that, I will turn to some more specifics starting with the International Telecom segment. In that segment for the fourth quarter, we had higher expenses and thus thinner margins than we initially expected and we anticipate margins improving from there. Furthermore, as I noted, we made good progress strategically and operationally.

The fourth quarter saw this happen on a number of fronts. In Bermuda, we launched the new brand, One Communications, for the combined company, emphasizing our ability to meet all communications needs for everyone from the ordinary consumer to the very large financial service firms located on the island. We also commenced a number of investment and operational initiatives to improve the experience of residential customers of our video and broadband services.

Those initiatives, most of which will extend well into 2017, include upgrading customer premise equipment; an extensive fiber build to improve speed, capacity and quality of service; upgrading our submarine fiber network; and improvements to customer care and other items. We also launched 4G LTE on our wireless network, a first for Bermuda, and we will expand that network further in advance of the America's Cup activities this summer.

In the Caribbean, we launched a major upgrade of our wireless network in the US Virgin Islands, which we expect to complete towards the end of the third quarter, and we invested in terrestrial and subsea fiber expansion in multiple markets, including the Cayman Islands.

With our acquisition integrations, we are walking the line between impatience to improve the operational efficiencies and customer experience and patience to get it right. We have made great strides in strengthening the leadership teams, capitalizing on shared resources of operational expertise and making some of the easy fixes, but the process will continue throughout the next few quarters.

We also made strides in improving operations in Guyana from both an efficiency and a customer experience standpoint and the greater cost discipline has put us in a better position in that market as the competitive environment changes.

And speaking of the competitive environment, our competition in most of these markets is also investing in wireline and wireless network upgrades. We believe we can manage these developments and hold our own, but there could be pressures in some markets even as we expand in others.

And you will note that we have expanded our segment data and given subscriber numbers for this segment in the tables to our release. We expect to expand a little upon that for the 2017 quarters and the data will, of course, become more meaningful with the next quarter, enabling comparisons.

Overall, subscriber levels are growing at a modest level for this segment for the time being. We have won share in prepaid wireless and we have expanded the homes passed as well as the penetration of the same by our high-speed broadband connections and video services. But we have also had some offsetting declines due to competitive moves, the industry-wide reduction in voice access lines and the winding down of some of the legacy fixed wireless network elements.

Moving on to U.S. Telecom, both the quarter and the year were in line with the revenue expectations we communicated at the beginning of the year and exceeded our expectations on operating income as the expense management efforts undertaken by the team paid off. The wholesale wireless business is the largest component of this segment and, of course, was the driver behind the year-on-year declines, though comparisons were more favorable for the fourth quarter, because much of that impact occurred a year ago.

Meanwhile, we continue to work with the national carriers to find ways we can help going forward in addition to improved site economics. We see a strong value proposition, but it is clearly a long sales cycle conveying that proposition, in most cases.

We are not standing still awaiting those outcomes, however. We continue to work on improving operating efficiencies and looking to additional sources of revenue and cash flow. In addition to our retail activities, particularly on tribal lands, we have also looked to add depth in market through some smaller tower and backhaul investments and selected enterprise offerings.

And as discussed briefly last quarter, we determined some time ago that our Northeastern fiber and enterprise business needed to get bigger to fit operationally and strategically within our Company and within the sector, as well as to better maximize value.

After looking at a number of expansion opportunities, we ultimately decided to exit by combining the business with the regional private equity-backed rollup. We first invested in that business more than 10 years ago and, while it is beginning to show real momentum following a fiber network expansion, we felt it would be much stronger as part of a larger operation. We expect this transaction to close in the current quarter, so we thought it would be useful to give a reminder of what that will mean for our reported results.

While the sale will cause a reduction in segment revenue and this business, as a reminder, contributed about $5.5 million in the fourth quarter, given the early stage of the fiber network expansion, the divestment should actually result in increased operating and net income and only a small reduction in EBITDA contributed to the segment.

Next, in the Renewable Energy segment, the fourth quarter continued a positive trend in terms of domestic power production, but results were lower than last year because of two factors. First, the quarter marked the expiry of most of the state credits we receive in California related to our power production there, and Justin will get into that in a little more detail. Outside of these credits, we do not have any subsidies scheduled to expire in the next five years.

Second, our construction of and, thus, revenue generation from our solar power plants in India, is behind by about one quarter. The Indian federal government's last-minute mandated termination of certain denominations of currency came at a bad time for us in the construction cycle, as our contractors were unable to pay their workers. While we eventually put together a workaround by helping establish bank accounts for those workers, it still cost us significant time and then the effects lingered as many businesses in the supply chain were facing similar problems.

These things will happen though and we are once again building quickly to meet what we see as robust demand. There has been great competition for the larger builds in India with bids at seemingly record low rates. But, at our level, any reductions in power pricing have been more than offset by reduced costs and we remain bullish on this opportunity despite the delay.

We expect our Indian operations to generate more than $2 million in very high incremental margin revenue in the fourth quarter of 2017 and we expect relatively rapid growth from there in 2018, contingent only on our ability to borrow at reasonable terms against the completed facilities.

As a side note, going forward for this segment, we are going to try to communicate more in terms of revenues and EBITDA contributions as well as related capital expenditures rather than in megawatts. We think that metric can be a little confusing given different costs to build and different electric power pricing in the markets we operate in.

So in summary, we exited 2016 very much on our strategic plan with a group of geographically diversified, strong, in-market telecommunications businesses with the potential to continue to deliver solid and consistent cash flows for the long-term as well as an exciting investment and growth platform in the renewable energy sector. At the same time, we have maintained a high quality balance sheet with the majority of our debt sitting at the operating subsidiary level, leaving room for further expansion.

And now I will turn it back over to you, Justin.

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Justin Benincasa, ATN International, Inc. - CFO [4]

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Great. Thank you, Michael. I will cover some of the relevant financial information for the quarter and the year. For the fourth quarter, total consolidated revenues were up 55% to $128.5 million compared to the prior-year period, while consolidated adjusted EBITDA was -- increased 33% to $34.1 million representing a 27% margin as we integrate the two sizable telecom acquisitions we made during 2016.

Our financial results for the quarter were impacted by several organic and acquisition-related factors but, as Michael mentioned, our revenue performance in the quarter, excluding the Sovernet divestiture, represents a base from which to model 2017.

To review the results by segment, our U.S. Telecom revenues were $39 million down 1% from the prior-year period and adjusted EBITDA was up 5% to $16.4 million. While wireless revenues within the segment declined 5% to $30.9 million in the period, this was mostly offset by increases in our wireline wholesale transport revenues. Performance for the segment was in line with expectations and guidance with revenues totaling $176.7 million and an adjusted EBITDA margin of 48%.

We do expect the sale of the U.S. Wireline business to be completed in this quarter which Michael noted will reduce annual revenues in this segment by approximately $22 million but will have a negligible impact on the year-over-year comparisons of adjusted EBITDA.

In the International Telecom segment, revenues were up slightly against the quarter increasing by 122% -- significantly, I guess, against the quarter, sorry -- increasing by 122% or approximately $46.5 million and adjusted EBITDA increased 77% to $21.1 million. These increases from last year's fourth quarter reflected the impact of our acquisition in Bermuda which, as a reminder, closed in early May and the USVI acquisition that closed on July 1.

We did incur somewhat higher operating costs in the quarter associated with several administrative expenses related to the integration of these companies, such as required statutory audit fees and expenses incurred with billing system conversions.

Also, at the end of the quarter, we completed the sale of our St. Maarten market acquired as part of the USVI transaction and switched to the equity method of accounting in our Aruba market. These changes will have little impact on adjusted EBITDA but will reduce reported revenues by approximately $9 million next year.

In the Renewable segment, revenues declined 11% to $4.8 million and adjusted EBITDA was down 27% to $2.8 million. And, as we noted in the release, performance wasn't impacted by the expiration of a significant number of California renewable energy credits that reached the end of their contract life in 2016.

There was approximately $500,000 of revenue reduction in Q4 that was out of period this quarter but, overall, the expiration of these incentive credits will lower 2017 revenues by approximately $2 million. Also impacting the quarter was increased overhead and operating expenses associated with ramping up our India operations.

Consolidated Company operating income for the fourth quarter was $10.9 million which included $23.1 million of depreciation and amortization expense. We expect to see this level of quarterly D&A continue through 2017. Also included in the operating expenses in the quarter was non-cash stock-based compensation expense of $1.4 million.

We ended the quarter with a high effective tax rate of approximately 52% and 47% overall for the year. This was predominantly driven by several one-time, nondeductible expenses -- expense items throughout the year such as transaction fees and goodwill write-off. Barring any such similar expenses next year, we expect our 2017 tax rate to be back down to a more normalized rate and be closer to the mid-30%s range.

Looking at the balance sheet at December 31, we ended the period with cash and short-term investments of $279 million. Year-to-date cash provided by operations was $111.7 million, which includes the negative impact of funding a $22.5 million pension obligation that was in lieu of purchase price to the seller, but is required to be accounted for in the net cash from operations activity.

We ended the quarter with total debt outstanding of $157 million which includes an additional $30 million of debt associated with a $65 million refinancing of our US renewables operations which closed in late December.

Capital expenditures for the year totaled $124 million of which approximately $32 million was incurred by our U.S. Telecom operations, $63 million by our International Telecom segment and $23 million in the Renewable Energy segment.

As we noted and Michael talked about, we have -- in our press release we have several concurrent telecom network expansion upgrades underway in several of our international markets. All these investments were considered and planned for as part of the acquisitions in Bermuda and the USVI, but they did result in higher than normal level of capital expenditures in 2016, which will continue into 2017 with a significant decline expected in 2018.

Exact timing is always difficult to precisely predict, but we currently estimate that total telecom expenditures in 2017 will be between $95 million and $115 million, and our projected 2017 build spend in the Renewable Energy segment is currently estimated at between $40 million and $60 million but, again, this is highly dependent on final financing terms and timing.

So to sum up, the 2016 fourth quarter represented a solid finish to a very eventful year for us and, as Michael said, we've set the stage for further progress in 2017. So with that, operator, I would like to turn the call over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Ric Prentiss, Raymond James.

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Ric Prentiss, Raymond James - Analyst [2]

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Thanks. Good morning, guys. A couple. First, on the Renewable Energy side, was a little surprised by the California credit expiring. Was that something you guys had anticipated? And then I think, Justin, you mentioned that the impact in 2017 would be $2 million. Is that compared to 2016 or what is that based on?

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Justin Benincasa, ATN International, Inc. - CFO [3]

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That is compared to 2016, yes. So it is a $2 million drop off from 2016 to 2017 and, as I said, there was a little bit of out-of-period stuff in the fourth quarter. It was something we totally were aware of; we probably should have been a little bit more upfront about it though, I guess or --

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Ric Prentiss, Raymond James - Analyst [4]

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Yes, I guess we just look at it -- the thing about the Renewable Energy is it was seen as a very stable type of business and, I think I heard Michael say, there is no other subsidies expiring in the next five years?

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Justin Benincasa, ATN International, Inc. - CFO [5]

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That is right.

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Ric Prentiss, Raymond James - Analyst [6]

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Okay. So now this kind of creates a new base level. What was the impact then within fourth quarter on the renewable energy credit that we should look at? Is it just as simple as looking at third quarter to fourth quarter and backing out the $0.5 million out of period?

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Justin Benincasa, ATN International, Inc. - CFO [7]

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Yes. I mean there is a little bit of seasonality in production there but, yes.

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Ric Prentiss, Raymond James - Analyst [8]

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Okay. And then on the US -- sorry, the International Telecom business, you mentioned that there was higher expenses and you guys also thought audit fees, billing system conversion. How should we think about that going forward? Are the audit fees done? Are the billing system conversions done and the effect that they could have on results done?

And do you think you return back -- because we're trying to figure out what caused margins to go from 29% in that segment in third quarter when you had pretty much, I thought, full operations down to 25%. So just trying to think what is the better jump-off number as we look into 2017?

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Justin Benincasa, ATN International, Inc. - CFO [9]

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You know what I would probably say is there was probably about $1.5 million of costs in the fourth quarter that was of that nature in the segment. So it is --

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Michael Prior, ATN International, Inc. - President, CEO [10]

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And I would say there are other factors too that are going to plague the margins in 2017. All right? So some of it is kind of integration follow-up, things that we had to catch up to, things we think we can fix. They are different categories, but there is also -- we talked a little bit about some smaller kind of rationalizing we did.

While that will bring revenues down a little bit, it will improve margins and it should be positive to cash flows and the rest of the items on the P&L. So I think, directionally, we still see it where we have been talking about. We still see chipping away and continuing to improve margins in that segment, absent some adverse development.

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Ric Prentiss, Raymond James - Analyst [11]

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Right. I think originally you thought kind of mid-to high 20s in the near-term and then getting it up into the 30s a little more long-term. Is that still the view?

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Justin Benincasa, ATN International, Inc. - CFO [12]

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Yes, yes, yes. And I think -- go ahead, sorry.

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Ric Prentiss, Raymond James - Analyst [13]

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Go ahead.

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Justin Benincasa, ATN International, Inc. - CFO [14]

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I was just going to say if you are looking kind of the -- you take the second half of the year in total is probably the best way to look at margins.

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Ric Prentiss, Raymond James - Analyst [15]

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Right. Makes sense, makes sense. And then the last one for me is on renewables. Obviously the pacing can vary. You mentioned $40 million to $60 million of CapEx in renewables in 2017. What should we think about that level in 2018? You mentioned Telecom dropped significantly in 2018 but I would guess Renewable might be actually up 2018?

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Michael Prior, ATN International, Inc. - President, CEO [16]

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Yes, sitting here today I would hope it would be up. In other words, I would hope we are able to act on the opportunities we see. There is a couple tricks to that. One is in terms of the India business, we are just saying we still have to make sure that the debt financing, the project financing, comes in at the levels within the range we expect.

If somehow that -- and there is no reason we don't expect that -- but until you have it, you can't be sure. As long as that happens, I think we see continuing to build rather rapidly. So that is probably the biggest factor determining the pace at which we expand. I think we see a pipeline in terms of the grid connections, the land and the customer demand that is still in that original territory we talked about.

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Ric Prentiss, Raymond James - Analyst [17]

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Right.

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Michael Prior, ATN International, Inc. - President, CEO [18]

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And the other thing, Ric, to just add to that is, we are always looking at other possibilities in Renewable, in particular, and some of the things we could do will be recorded as M&A almost. So if you are acquiring developed portfolio and some of the things will come through in CapEx if we are acquiring pipeline like we did in India and so that one is a little harder to predict because we are looking at a number of things.

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Ric Prentiss, Raymond James - Analyst [19]

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Right. You had mentioned in your comments that figure $2 million of high-margin revenue by 4Q 2017 in India and then rapidly grow in 2018. How should we think about what that could grow in 2018, what kind of return on -- if you put $40 million to $60 million to work in 2017, I assume not much of that has turned into revenues by the end of 2017, but just trying to think through what that capital then means as far as return and looking into out-year growth.

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Michael Prior, ATN International, Inc. - President, CEO [20]

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Yes, I think we are not at a point yet where we want to give what that number might be for 2018. I mean if we have -- if we are successful with the project refinance, I think maybe we can give some more indication then, but that is clearly the, I guess, the tip of the iceberg for what we would hope to do in India. So up quite a lot, and if we build as planned and are able to finance as planned, you will start to see it come through a lot faster in 2018. And so, at this point, it is better to talk about that qualitatively.

In terms of returns, I mean there are more operational and execution risks in India and some currency exposure and things like that. So I think for us we have been targeting from the beginning and still see the potential for returns that are well north of the US and more developed renewable market returns.

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Ric Prentiss, Raymond James - Analyst [21]

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And so I guess final question would be is just that $2 million of quarterly revenue, does that represent full deployment of that $40 million to $60 million and then earning revenues on it? I'm just trying to --

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Michael Prior, ATN International, Inc. - President, CEO [22]

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No, no. That is closer to what we will have spent through maybe the first quarter of this year.

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Ric Prentiss, Raymond James - Analyst [23]

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Okay, that is really helpful. We were just looking at that CapEx number and the revenue number trying to justify and reconcile.

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Michael Prior, ATN International, Inc. - President, CEO [24]

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Yes, no, that CapEx number is mostly new revenue, new cash flow.

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Ric Prentiss, Raymond James - Analyst [25]

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Great. I appreciate it. Thanks, guys.

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Operator [26]

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Barry Sine, Drexel Hamilton.

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Barry Sine, Drexel Hamilton - Analyst [27]

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Good morning, gentlemen. A couple questions on capital spending if you don't mind. If you can start out with the Domestic Telecom sector. You gave the CapEx guidance for Telecom, both Domestic and International combined. I don't know if you were able to break that out domestically.

And if you could talk about domestically, what do you have in the pipeline for 2017 capital spending? Are there a significant number of sell-side additions and is there anything on the pipeline? I know you have talked in the past about perhaps going back to the carriers and discussing 4G upgrades. Any of that in the pipeline?

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Michael Prior, ATN International, Inc. - President, CEO [28]

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So I guess let me try to get your questions in order and just jump back in, Barry, if we miss some of it. We have -- there is a mix of projects we have going on. There are some projects which are in the nature of expansion that we think will bring additional revenue. An example of that would be the wireless upgrade in the Virgin Islands.

We are putting in a very strong, at least we expect, very strong 4G LTE network, enhanced coverage capacity, etc. and we think and plan to try to realize on that with growth in market share and revenue and cash flows.

Cayman is similar. We are building fiber, passing new homes, penetrating further into those homes passed, and so we see some growth with that. On the other hand, there are -- and, you know, some of that is true too in Guyana.

On the other hand, there are some spends in both U.S. Telecom and in places like Bermuda that we think are going to be more in the nature of preserving or continuing to generate existing revenues and cash flows.

The problem with being in small markets is it can be very lumpy so we have a fair amount going through now in those markets, but we think it will level out quite a bit and we still think those are good investments despite not creating necessarily revenue growth. So, Barry, jump in if you have -- if I missed some of it, which I am sure I did.

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Justin Benincasa, ATN International, Inc. - CFO [29]

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And the split, Barry, I can help a little on your question on the split of that. So last year, if you talked about the Telecom, just to keep the math simple, the Telecom segments did $100 million, right? We did the $30 million, $32 million in the U.S. and about -- and $63 million in the International.

If we did another $100 million, it would definitely be lower in the U.S. and more in the International, but there is still a pretty good chunk in the U.S. as well. But it is down off of that -- we are thinking we will be down off of the $30 million this year though.

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Barry Sine, Drexel Hamilton - Analyst [30]

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Okay. Maybe we could zero in a little bit more in terms of where you are on 4G LTE upgrades, so if you go to domestic Bermuda, USVI and Guyana with your 4G LTE upgrade, where do you stand and what is the plan?

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Michael Prior, ATN International, Inc. - President, CEO [31]

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In the US, we are fairly far along and upgrading most of our network. In Bermuda, we are pretty far along but there is more to come in 2017, as we highlighted. In the Virgin Islands, that build, as I talked about, that we'll expect to be completed late in the third quarter is also -- will bring us the 4G LTE.

And so what is really left is Guyana and Guyana for now is a 3G-plus. So often been marketed as 4G but not LTE market right now and -- but we are looking at that and some of that is dependent on government spectrum releases.

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Barry Sine, Drexel Hamilton - Analyst [32]

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Okay. And then another way to slice and dice CapEx, if we could talk about it from an expected IRR standpoint, do you have a different one for the U.S. versus International Telecom? And, if so, what are they?

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Michael Prior, ATN International, Inc. - President, CEO [33]

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Different, different --?

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Justin Benincasa, ATN International, Inc. - CFO [34]

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IRR --

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Barry Sine, Drexel Hamilton - Analyst [35]

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IRR expectations for capital spending in the US?

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Michael Prior, ATN International, Inc. - President, CEO [36]

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Yes, I mean, I am not going to give you market by market; we don't do that, but we do look at that. We look at it with every spend we have what we think the risk is and what the rewards are and the markets that are seen as safer, less volatile, we can have a lower return requirement than one we see has higher risk.

I will say that I don't think any of those markets are particularly high risk. I think the nature of those businesses are -- they are providing a very critical infrastructure and service in those markets, partly why we like the sector. And we don't operate in a lot of markets with hypercompetitive or irrationally competitive environments. So I think we tend to look at them similarly.

Part of running a telecommunication service business is you have to continue to invest in your network and it doesn't always go according to plan. Sometimes the industry is moving faster and you have got to invest faster and sometimes it is a little slower. So that is kind of the surround and how we look at it.

A lot of what you look at is these are -- have been, in many cases for us -- we have been in some of these markets for, geez, 25 years and others 18 and so on. I think we think they are long-term cash flow markets, but you have to continue to invest in your network. You have to continue to find ways to surprise and delight your customers, frankly.

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Barry Sine, Drexel Hamilton - Analyst [37]

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Okay and then -- that is very helpful. And then a similar question on the renewables capital spending expected return on investment. You've guided to $40 million to $60 million in capital spending. You have given the $2 million, but that is just a sliver of early revenue from some of that spending. What is your thinking and expectation as you spend that money for getting a return on investment in the international renewables business?

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Michael Prior, ATN International, Inc. - President, CEO [38]

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Well, again, I sort of answered that question. I think the return on investment -- put it in terms of payback -- it should be faster in that market than in the US. We still see those as very nice, long-term assets once you have built needed infrastructure; power plant is the same as a needed network. It should have very long-term potential, but we think the paybacks will be faster.

Of course we want -- you aim for and you want -- you wouldn't invest in a developing market like that without expecting higher returns in part because stuff happens, right? So if not a lot of bad stuff happens, the returns will be very strong; if a small amount happens, they will still be good. (multiple speakers)

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Barry Sine, Drexel Hamilton - Analyst [39]

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And then just last question, on international renewables, I think you have also said that once projects completed there is an opportunity to increase returns by leveraging up and you can put pretty significant leverage on those operations and that would increase the return on equity investment?

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Michael Prior, ATN International, Inc. - President, CEO [40]

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That is right and I think there is more than that. If you look around at the Renewable business, what we see ultimately, if we are able to get to a certain scale, is there is a lot of sort of mezzanine equity, different elements, different structures going in so that the original development sponsor equity can benefit as well from a promote, if you will.

And so I think down the line, it is not just about refinancing with project debt; it is also about attracting equity investors who are happy to invest in infrastructure with steady returns.

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Barry Sine, Drexel Hamilton - Analyst [41]

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Okay. Those are my questions. Thank you very much, gentlemen.

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Operator [42]

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Hamed Khorsand, BWS Financial.

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Hamed Khorsand, BWS Financial - Analyst [43]

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Good morning. The first question I had was on the U.S. Wireless side. Given that it is already mostly 4G now, how much more is there work to do and how much incremental data revenue can you generate out of that business going forward?

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Michael Prior, ATN International, Inc. - President, CEO [44]

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Hamed, there's -- I don't have a precise figure for you in terms of the -- how much work is left to do. I would say we are more than halfway through that.

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Justin Benincasa, ATN International, Inc. - CFO [45]

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Yes, we're (multiple speakers) three-quarters.

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Michael Prior, ATN International, Inc. - President, CEO [46]

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Okay. Justin says probably three-quarters. In terms of incremental revenue, I think in the short term, we don't see much. We think it was kind of table stakes and I think the incremental revenue could come in the longer term from some of the things we are doing to kind of deepen our footprint and find other revenue streams.

But from the point of view of the national carrier customers, they are all in cost-control mode, very serious cost-control mode. And so if they want added capacity or capabilities beyond a certain level then we would have to have a conversation about how to get a return on that. But at this level, I think what we are doing to this -- to date is really to maintain existing streams.

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Hamed Khorsand, BWS Financial - Analyst [47]

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And just a follow-up on that, is there more areas to expand with that business or is it more of an annuity kind of business than wireless?

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Michael Prior, ATN International, Inc. - President, CEO [48]

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I think this -- if you look at the history of our owning this business, which is 11 years and the business was -- had been going on for more than a few years before that, there have been these plateaus before and then we found potential for growth from there.

I think we still are optimistic that there will be potential for growth, but it is hard to sit here and bang the table on it until it is really in front of us. So I guess the conservative way to think about it is more as a -- more in the annuity camp, but that is not, we certainly are -- continue to chase potential to grow this platform and believe in the midterm there is certainly that potential.

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Hamed Khorsand, BWS Financial - Analyst [49]

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Okay. And the other topic I wanted to ask you about was in Guyana, just given what is going on there economically or what could occur there economically, do you need to expand that business further or is it -- or do you have enough wireline capacity there and wireless capacity there if their economy does expand given the oil reserve find?

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Michael Prior, ATN International, Inc. - President, CEO [50]

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I mean, look, I think the oil is there. There is quite a lot of -- already pickup in activity. I mean it does seem serious, so we do expect a macroeconomic lift. It might -- it is probably pretty small in the current year but I think it should build and that should very much help the telecommunications demand.

And we have been for a while continuing every build we do we do in a fairly robust way. We have been building fiber to cell sites from the beginning from a long time ago. So all our -- we have very good capacity on the backhaul to the mobile network.

We invested a lot and have continued to invest in undersea capacity and redundant routing, and we have invested in upgrading the core of the network so we can deliver more sophisticated services to enterprise.

So I think we are pretty well positioned; some of it will require further investment if the demand is truly there, but I think there is benefit just from a general increase in ARPUs particularly on the mobile side that we see is very possible.

Again I wouldn't want to say it is likely to happen in the short term, but I think we see that direction.

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Hamed Khorsand, BWS Financial - Analyst [51]

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Okay. Thank you.

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Operator [52]

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Thank you. At this time I'm showing no further questions.

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Justin Benincasa, ATN International, Inc. - CFO [53]

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We have nothing else, operator. So with that we will sign off and thank you, everybody, and talk to you in a few months.

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Operator [54]

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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.