ATN International, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the ATN International First Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to Justin Benicasa, Chief Financial Officer. Thank you, and please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us on our call to review our first quarter 2020 results. With me here, sitting a socially safe distance from me, is Michael Prior, ATN's chief executive officer. During the call, I'll cover the relevant financial information, and Michael will provide an update on the business and outlook. Before I turn the call over to Michael... 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 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 on these measures and reconciliations to comparable gap measures and for further information regarding the factors that may affect our future operating results, we refer you to our earnings release on our website at atni.com or to the 8K filing provided to the FCC. And I'll turn the call back to Michael.

Thank you, Justin. I kind of like having you a distance away. Let me keep that. All right, joking aside, obviously major, major changes going on, the understatement over the past couple months. And because of that, I'm going to limit the amount of time I spend in my prepared remarks covering the historical results in order to make sure investors get a sense of our outlook and potential impacts from the coronavirus pandemic. Sammy said that I want to note that this is the third quarter in a row of significantly more positive results from our telecom operations. There are still some areas that need improvement, but the overall trajectory has been strong and shows real progress. International telecom experienced moderate revenue growth and another quarter of strong broadband subscriber gains. And U.S. Telecom delivered results that reflected recovery in that business. Similar to the fourth quarter and far ahead of one year ago. Consolidated operating income and net income also would have shown greater improvement, but some negative items that Justin will touch on held us back from a strong profit performance. Since the coronavirus outbreak turned into a global pandemic in the last part of the quarter, we have taken a number of actions to adapt and to keep our employees and customers safe. So far, we have been fortunate in not having any related health impacts to our roughly 1,600 employees, and we have been able to keep substantially all of our services running. We have not taken any major hits to date, and we are moving rapidly to adapt our operations to the current uncertain environment. As to outlook, we feel pretty good about the underlying strength of our business and demand for our services. But we do expect there will be an impact from the economic pain facing our customers and the communities in which we operate. That said, our ability to weather any adverse impacts and to take affirmative actions to add value to our businesses is strengthened by our positive net cash position and substantial liquidity. So with that, I'll turn to the individual operating segments, starting with international telecoms. So this segment turned in another solid quarter. Revenue and EBITDA both showed modest growth, mainly due to increased broadband and other fixed data revenue. Mobile revenue was flat, and mobile subscribers were down year over year. Data subscribers, however, increased 8% year over year, roughly consistent with recent quarters. And voice subscribers actually increased during the quarter, as more customers took up our bundled broadband and voice offerings in several markets. And just so we'll walk you through the cash flows, but this quarter continued the strong performance of 2019 in that regard. So looking at the likely coronavirus impact on this operating segment, keep in mind that more than half of our international telecom revenue comes from markets that rely on tourism as a major economic contributor. Right now, there is very little travel into or out of any of these markets, and hotels, restaurants, taxis, and many other small businesses are hurting. That impacts our revenues and margins directly today, but the indirect impact could be greater if there was a prolonged downturn. Against that, I'll note that more of our revenue comes from residential customers, and it will take severe impacts indeed for them to stop buying high-speed internet or mobile phone service altogether. As a smaller matter, we are actively working not only to adapt our operations to the changed circumstances but to take the opportunity to achieve additional operating efficiencies such as increased digital engagement with our customers which lowers care and billing costs and improves their experience. Both customers and employees are having to adapt to new interfaces and technologies and we believe that progress will remain post-crisis. Each of our international telecom businesses are looking closely at their operating and capital costs to see where they can reduce or defer cash outflows as we build up additional resiliency in the face of the uncertain short-term future. Some of these changes may have long-lasting benefits. In addition to these more defensive or protective moods, in light of our relative financial strength, we are also looking at investments and moves we can make today that could have a multiplier effect in the recovery. Among other things, this includes helping our customer base and building loyalty through discounted services, waiver of late fees, free Wi-Fi spots for those without connections and other measures. Looking to take market share through selectively investing in capacity and capabilities in the heart of the crisis. Looking for smaller, so-called bolt-on deals that can expand our territory, scale, or service breadth. And working with government to deploy solutions that help with its pandemic response and in economic recovery. Our goal is not just to weather this storm, but to position our businesses to thrive. Moving to U.S. Telecom, this was the third consecutive quarter in the segment's recovery. The change is apparent in the year-on-year comparisons. Revenue and EBITDA are up, with the main drivers being the FirstNet deal and CAF2 revenue, as much discussed. But there are some other smaller items going in the right direction as well, including enterprise and fixed wireless broadband sales and some promising smaller wholesale fiber network investments. From what we can see today, we think this segment is less sensitive to coronavirus-related impacts than our international telecom segment. A substantial majority of our revenues and cash flows comes from multi-year fixed-price contracts or government subsidy programs. Nothing is risk-free, but we are not expecting changes to any of those contracts. The pandemic-related effects on this segment are mainly tied to a slowdown in the timing of expected growth. At the moment, the government restrictions and measures we have taken for the safety of our employees have put initiatives on hold, from WISP sales activities to larger strategic customer discussions in private LTE. However, for the time being, we are still making some progress in advancing customer discussions and winning some in-progress or inbound commercial and consumer business. Lastly, with renewable energy segment, this segment showed no year-on-year revenue growth despite progress in 2019 bringing additional facilities forward, building the customer pipelines. Pre-coronavirus, we were expecting to see solid revenue expansion in the first few quarters of this year as a result of those activities. Now, we expect revenues to decline further in the second quarter due to factory shutdowns at the direction of the Indian government. We are undertaking cash conservation measures during this time to try to prevent negative operating cash flows while our customers' electricity needs are at historically low levels. So in summary, as I said at the outset, we feel good about the underlying strength of our business and the demand for our telecom services. While our operations have been relatively recession-resistant in the past, we are in unchartered territory at the moment. The impact of the measures governments, companies, and individuals have taken to reduce very serious health risks is, of course, a big unknown. It's hard for us to predict the negative impacts on our various operations when we don't know how long government measures will last and how individuals and businesses will react as these measures ease. But we will try to give you a sense of it as we go along in incoming quarters. And really, the fundamental message is you control what you can control. At the moment, we're focusing on three major areas. In order of priority, they are adapting our operations to the pandemic to enhance employee and customer safety and comply with changing government requirements, deal with new operational limits and customer interactions, examining all cash flows carefully to see where we can further enhance our financial condition in the face of market uncertainties, and looking at smaller and larger strategic moves we can undertake to create