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Executives

Justin Benincasa - Chief Financial Officer

Michael Prior - President and Chief Executive Officer

Analysts

Richard Prentiss - Raymond James

Hamed Khorsand - BWS Financial

Gaurav Jaitly - UBS

Billie McIntire - Stifel Nicolaus

Adam France - Keane Capital

Atlantic Tele-Network, Inc. (ATNI) Q3 2007 Earnings Call November 2, 2007 11:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Atlantic Tele-Network’s Third Quarter Results Conference Call. During the presentation, all participants will be in a listen-only-mode. Afterwards, we’ll conduct a question-and-answer session (Operator Instructions).

As a reminder, this conference is being recorded Friday, November 2, 2007. I would now like to turn the conference over to Mr. Justin Benincasa, ATN Chief Financial Officer. Please go ahead, sir.

Justin Benincasa

Thanks operator. Good morning everyone. Thank you for joining us on our quarterly call as we review the third quarter 2007 results. As usual, with me here is Michael Prior, ATN’s President and Chief Executive Officer. During the call, I’ll be covering the relevant financial information for the quarter and Michael will be providing operational update.

Let me start off first with the cautionary language concerning forward-looking statements. This call may contain forward-looking statements concerning our goals, beliefs, expectations, strategies, objectives, plans, future operating results, and underlying assumptions, and any other statements that are not of historical facts. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including the factors referenced in the earnings press release issued yesterday and those described in Item 1A, risk factors of our Form 10-K for the year ended December 31, 2006 and our other SEC filings. We undertake no obligation to update the information contained in this call to reflect subsequently occurring events or circumstances.

With that out of the way, let me talk a little bit about the financial performance for the quarter. The third quarter was another good quarter for us with revenue delivering strong year-on-year growth particularly in our wireless category. During this quarter, we generated total revenue of $47 million, up $5.7 million or 14% from the same quarter in 2006.

Wireless revenue was $21.5 million for the quarter, up $4.4 million or approximately 26% compared to the third quarter of ’06. Local Telephone and Data Revenue totaled $11.8 million; up approximately 300,000 from 2006 and international long distance revenue was up 7% to $12.6 million from $11.8 million last year.

Overall revenue for the third quarter was up sequentially just over 6% from the second quarter, helped in part by seasonally higher traffic in our U.S. rural wireless business. We did however felt a drop off in our wireless revenue in Guyana this quarter from last quarter; largely due to lower handset sale proceed and one-time credit given to certain customers in the third quarter.

Operating income for the quarter totaled to $17.6 million, up $2.7 million or 18% from the same quarter of 2006. Non-cash expenses fairly consistent with past quarters’ increased with depreciation and amortization expense of $6.8 million and $213,000 of non-cash stock-based compensation.

Net income for the quarter was up 24% from $7.6 million in the third quarter of ’06 to $9.4 million this quarter, giving us earning per share of $0.61 compared to $0.63 in 2006.

Capital expenditures for the quarter totaled approximately $12.9 million; again, consistent with previous quarters. The majority of the money was spent on the continued expansion of our GSM and CDMA network at Commnet and our GSM network in Guyana.

Guyana spent a little less than half of the $12.9 million with the majority of these expenditures increasing capacity and coverage on our GSM network, along with cost associated with the replacement opportunities of our fixed wireless.

The bulk of the remaining capital expenditures was spent on additional GSM and CDMA base stations and cell sites to Commnet. During the quarter, we added 23 new GSM and CDMA base stations in 11 new sites, ending the quarter with a total of 333 base stations and 225 cell sites.

Just looking at the balance sheet, they’re fairly consistent with past quarters. As of September, we had cash balances of approximately $61 million. Our outstanding debt still remains at $50 million, leaving us with a net cash position of little over $11 million.

The assets and liabilities held for sale of approximately $13 million and $1.3 million respectively are related to the pending Commnet sale that we mentioned in the press release, and Mike is going to speak a little bit more about that in a minute.

And lastly, I want to provide some supplemental segment information in advance of the 10-Q filing. Keep in mind that the following numbers are before taxes and minority interest, and segment revenue and operating results for the quarter have been adjusted for intercompany eliminations of depreciation and management fees.

The rural wireless segment had revenues of $16 million and operating income of $7.9 million, which included $1.9 million of depreciation and amortization. International integrated telephony generated revenue of $25.1 million and produced operating income of $11.5 million, which included $3.9 of depreciation and amortization.

The domestic telephony segment had revenue of $3.7 million, operating income of $580,000 and depreciation and amortization expense of $431,000. Wireless television and data revenue was $2.2 million and had operating loss of $404,000, which included depreciation expense of $522,000.

Now, I’d like to turn the call over to Michael to give you an update on our operations.

Michael Prior

Thanks Justin. Hello everybody. Once again pleased with the results this quarter, and as usual, I’m going to give you a little color and some additional operating specifics.

First of all, on the rural wireless business, we handled 107 million minutes of use for the quarter compared to 73 million in the third quarter of 2006, so that’s up about 47%. The growth in minute volumes is still being driven by a combination of network expansion and same site minutes growth.

On a consecutive quarter basis, the growth also came from our typical increase in Summer time traffic. The big news in this sector, of course, is our decision to exit two of our markets in Midwest with the pending sale of those network assets to a major carrier and our agreement to build at least 70 sites in another area.

While this is entirely consistent with our model and the return on our exited markets are both good and within our targets. We recognize that investors who want to understand what it means going forward. And shortly after that we reduce that – we expect it to reduce the growth rate of our rural wireless business in the near-term. We do still expect solid year ending growth in that business in 2008, but in the short-term we think the market’s being built were not on its own, and that’s one way to be itself.

Moving to Guyana. In Guyana, we continue to add coverage and capacity to our network. Justin gave you the CapEx numbers earlier. Both, our overall and GSM subscriber base grew. GT&T ended the quarter there with 330,000 wireless subscribers, 307,000 of which are GSM subscribers, and that compare to the 261 total or 169,000 GSM a year early – in the year earlier.

And it compares to 305,000 total and 274,000 GSM in the previous quarter. Our national competitor, which is requesting a or even anticipating change marketing heads twice this year, they’ve changed the VM once. And if you read the press down there, they are chasing almost daily shops that are up.

I guess, you can say, we are mostly flattered by their concern but you know we’re trying to avoid that kind of approach to the market and we’re still trying to keep our team with the heads down focusing on customers and focusing on delivering results.

And we also continue our work on expanding and upgrading the wireless networks, as I mentioned earlier. Although, you know we do expect that the activities to start to flow somewhat in 2008. While, we are on Guyana, let’s also cover local and international, they’re the two main revenue strengthening there.

On local side, we’ve continued volume growth 147,000 access lines versus the 117,000 a year ago. In the fourth quarter, we’re also watching our new cellular wireless Local Loop Service to replace the fixed wireless technology.

There are the main vendors and the longer supportive. We expect to have around 8,000 customers using this technology by the end of 2008. The vast majority of those of course are existing customers that we’re transferring over to this system.

The upgrading also allow us to seamlessly and smoothly expand the data services available to those local customers, so in the longer term it will represent a nice upgrade for our customers those are the services we can provide.

Data continues to growth for recent quarter down there still not the type of numbers you would see in more developed markets but it continues to grow. And we’re hopeful that economic growth will reset over the longer-term. And on that note, some investors have been (inaudible).

In Guyana there’s quite a hub out the result of the UN Arbitration between Guyana and Sovernet they’ve been intending for years and it was over a disputed offshore areas between the countries. And these were offshore that are thought to be very good prospects for oil. And in fact Guyana had been exploring oil there when Sonam made a claim on it and then hosted exploration activities some years back.

So they factor oil exploration and everybody and Guyana is hopeful that that will present future revenue and economic growth. On the international side, our international revenue maintained healthy levels as just been noted. We have and will encourage to increase expense on expanding and improving our satellite connection because of the problem (inaudible) international and you see fiber line but overall it’s holding up well.

For our local and data business in New England similar story as previous quarter, we are very pleased with the growth and sales of small businesses continued very low churn amongst business customers. It’s an indication that we are doing a good job of casting the customers and providing services to them.

But we’re still battling the dial-up decline on a year-on-year comparison. And just some quick stats, we did about 314,00 business lines representing about 6% increase on a consecutive quarter basis and a 32% increase year-on-year.

Residential lines and dial up were flat on a consecutive quarter basis and of course dial up is well dialed on the year-over-year. Sovernet along with other New England CLECs this is another major service people have been following agreed to the settlement terms of Fairpoint, which is buying the Verizon lines and reversed force trust transaction.

And that settlement is leading the mark TFD probably service for approval. I think approved which we would generally expected to be approved at this point. Settlement to give up minimum three years of certainty on the costs and availability of network element. And there is still the regulatory control on available or even pricing after that.

In Bermuda, subscribers ended the quarter about 20,150 that’s down from 23,000 subscribers from year earlier and 20,700 at the end of the June. As in the first couple of quarters the main drivers are both on the year-on-year comparison involves in our smaller prepaid subscriber base.

Data subscribers and revenue growth have been a bright spot and operating profits were actually flat year-on-year. And we also as mentioned in the press release had the news that we finally got the data roaming soft and its clarification there is data roaming is up on the EVVO Rev A portion. And it takes a little further technical times, but we has had no data longer whatsoever and that was the first half.

In the Virgin Islands, data sales continue to drive both residential wireless, high speed and high capacity links. That’s a governmental business; we had about 3,900 broadband data set at the end of this quarter compared to 2,400 a year earlier. So it’s a very nice growth rate. Television sets are pretty flat.

And I think operator that’s concludes my portion. And we’ll take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes form the line of Richard Prentiss with Raymond James. Please proceed with your question.

Richard Prentiss - Raymond James

Good morning, guys

Michael Prior

Good morning

Richard Prentiss - Raymond James

Let me off with the one, for instance star one. I will want more color if I could Michael on the carnet. As we look out there, the $17 million price. Can you give us any kind of indication and kind of what sort of revenue we should take away on a run rate basis and its hard I know because its annual, its got cyclicality to it.

But just kind of what numbers are we looking at and then if we look at it could be up to maybe 20% of your base station and I guess some different base station because I was going to check a final answer. But we seen it to a more kind of help in understanding, what we should be taking away as we get right to add these new markets into it.

Michael Prior

Sure. That’s fine. Let me do that. The answer to your first question I think in order. I think that we expect a net effect of the sale. And the new markets bill, in that excludes the other bill but the (inaudible) part of an agreement and same carrier. We expect that to produce as $1 million to $2 million less revenue in the quarter, in the first couple of quarters to next year.

And that’s based only on the minimum billed not – not us ending up building more in the area, which is not a typical at all in our past practice and history. But just to be conservative, we use minimum bill in that.

Justin Benincasa

And is there any Illinova (ph) contributed on its own to excluding it new markets on its own contributed a little less than 10 million of our year-to-date revenue in a row while the segment.

But let me just so that kind of gives you an indication where we are going as I said, you still expect overall solid growth next year in the segment. But it’s important to understand that this is not what we would view as a cyclical sale or monetization of an asset.

This is really part of the strategic motto with the key customer and so we don’t look at this. When we’re evaluated doing it. We do not let the case like typical sale of a business or an exhibit of a business.

We really looked at what is the assessment to customer, what these assets were long-term slated to do versus other asset we could build. And that is to see the understanding what we’re doing here. So when people have asked us in the past, what is your overbuild rate and how we look at that?

And we’ve already said that, the new areas were building generally has pretty low overbuild risk and that’s why we target them. And we have a couple remaining that have some and included in the general NOI where really the biggest way, I think, overbuild because we have very, very…

Atypically, we had to two fairly dense towns in there with a lot of traffic who calls those town that had a lot traffic. And we made a decision in the matter of time when it makes to, and it was really largely one area we are serving and would make sense then to you, so that carryover to build that.

And so we’ve been talked to them about a very -- I think smart strategic way for us to make that move and worked very well for both them and us.

Richard Prentiss - Raymond James

And so, when you talk about the $10 million year-to-date that gets us back kind of that $1-$2 million per quarter delta and then in the early course.

Michael Prior

No, no. Sorry, that there is no -- because the $10 million year-to-date is more than the net, like it. Because when I gave you the $1 million to $2 million last revenue quarter and including the effect of the build that we agreed to do simultaneously.

Richard Prentiss - Raymond James

Right. So the $10 million is kind of the growth down?

Michael Prior

Exactly. Yes, that’s correct, for nine months.

Richard Prentiss - Raymond James

Got you. And then, that’s kind of a little heavier seasonality to it maybe because of summer trial and back-to-school time. So if we think of a annualize it, do not think about what fourth quarter might mean?

Michael Prior

I don’t thing the annualize will be far-off because the third quarter there can be a little lower but September at the collage time is huge. So that makes up a little for dry August being lower and there were some tourist areas. Because we attacked these altogether, we did not want to be left in sort of the slower things, property.

The seasonality is not substantial. I think you can use that nine months of revenue to get to your rough annualized.

Richard Prentiss - Raymond James

Okay. And as we look into ‘09 your thought are that these new market that you’ll be spending on for spectrum purchase and lease then CapEx to build the sale-side. Do you think that will take that revenue per quarter in ‘09, back up to being at least flat to being positive answer, working on a net basis?

Michael Prior

Yeah. I mean, it’s hard to, we’re planning to tell you about the new areas we go into Rick, because we don’t know entirely, but we certainly don’t think this going to stop its overall growth. And how much the new market contributed to and we can’t be really sure 18 month out. But we have a decent guess on it that we’ll provide you over the next six months or actually next three quarter.

So, I think that, its bit hard to go beyond that. But yeah, and typically we find more opportunity everywhere we go. And part of this is doing something that makes a lot of sense for customers, and we’re also hoping that they help us in general.

Richard Prentiss - Raymond James

Okay. And then as we look at potential for more of these type things, any other that you think it’ll be selling or is there more possibility to get bigger areas where they want you to step up and build more customers?

Michael Prior

Yeah. I mean, I thought and opt to say, first of all, this is we don’t have perfect view of the future anymore and anyone else got it, particularly when you talk about very big carriers and what they might do.

But right now sitting here today I would say we do not expect this side beyond to be anywhere in the near term. We think this was unusual because we don’t really have much of any areas left that had decline in characteristics with this to an extent.

And, as to the second part, yes, we do think there are areas of additional possibility well beyond this new market that we were agreed to build. And some of that is the continuing need to fill some light base in it concentration the big carriers are on technology upgrade and fighting about in their areas where they really battling for subscribers.

And some of the results there’s been a lot of consolidation and movement and that content open up some opportunities in areas that they make sense for us to step in strategically. But nevertheless we move-up, we just think we like our chances for finding additional areas in ’08, ’09.

Richard Prentiss - Raymond James

Now we guess as AT&T buys Adaptor, as Verizon buys ROL and TMobile buy SunCom, people that are worth buyers might be just a little concern of what the roaming access is going to be in those areas, being bought by private equity?

Michael Prior

You’re right. That’s fair.

Richard Prentiss - Raymond James

Okay. Next question for you, you guys have increased the team. You got a all competitor from Bellsouth now down there, talk just little about what’s going on the M&A environment, what you guys are looking at, what you are seeing, are prices higher, prices low, your balance sheet sitting there waiting to go?

Michael Prior

Yeah. I mean, I think at this part, what we view is our opportunity and again to drive returns is certainly in the M&A area. It has then historically and obviously when we hire to provide service, that was a growth in that direction. The first, I guess, you can’t, if you going to be discipline buyer. You can predict exactly when or if anything will happen. I would say to answer to our question of the market though, I definitely think, its improved for the buyers. They experience, there is clearly less capital chasing things around, people are nervous, the telecom sector is less or high in some quarters, and we level that. We’re going to be here for a long time and that’s our plan. And so, we love it when they start coming down there and we still think with our balance sheet, as our track records that we have a good low cost capital, to wait in there and make the move.

But its all; we thought it always comes down to price point is up strategic phase. We're going to be ready in Kenya to be (Inaudible) on that.

Richard Prentiss - Raymond James

Okay. But, still put it on, an over buying spreads; and good luck guys.

Michael Prior

Yeah, thanks.

Operator

And our next question comes from the line of Hamed Khorsand, with BWS Financial. Please proceed with your question.

Michael Prior

Good morning.

Hamed Khorsand - BWS Financial

Great quarter guys.

Michael Prior

Thank you.

Hamed Khorsand - BWS Financial

I just had a question regarding the sales sides disagreement that you have. Is there, this transition period with the FDI regulatory approval? Will the transaction be complete, will there be revenue continue to be generated from that assets?

Michael Prior

Yes, yes. I mean, they will, until this deal closes, revenue continue to be generated for normal. And that’s why we focused on the first two quarters of the next year. Assuming that it's unlikely for there to be any significant effect in the fourth quarter? And we've hit the ground running our earlier trends of constructive sites, so we are under construction for the number of sites already?

Hamed Khorsand - BWS Financial

Now, given the current transition period but when will the build happen. Are you guys doing the build wall (ph) in transition, or will you wait until the deal is complete? And that’s since you build out of the new market?

Michael Prior

Yeah. That's what I was just saying as we are already build out, we have already build that sites. And so we are up and running.

Hamed Khorsand - BWS Financial

Okay. All right. Thank you.

Michael Prior

You’re Welcome.

Operator

And our next question comes from the line of Gaurav Jaitly of UBS. Please proceed with your question.

Gaurav Jaitly - UBS

Thank you. Good morning guys.

Michael Prior

Good morning, Gaurav.

Gaurav Jaitly - UBS

Just a question on the margin this quarter; you guys saw some pretty good operating leverage here. It looks, specially the number that Justin gave out. In the slide mentioned, it looks like Comet pretty much had 100% incremental margins sequentially.

I mean, I know its not the right way to look at this probably, but just going forward. Should we think about this, it makes sense that is very high operating leverage of the business. But just in terms of margins of the business, it will just be helpful if you can help us think about, just expenses and how much scale you're having system that you can accommodate growth without the increasing expenses that much.

Michael Prior

I mean Gaurav I think how I would look at those margins of that business is. Yeah, we did September was a great quarter in terms of margins. I would tend to say that from looking forward that those margins will probably come down after that. And should be moving into these markets. So, and we bring up thoughts that will have all the costs and the revenues will be coming as we go. So, I would tend to say that, this quarter was higher than we probably had until '08.

Gaurav Jaitly - UBS

Okay. And then just on Guyana, if you could just, I actually jumped on the call a little bit late. So, I apologize if you addressed this. But just in terms of the competitive actively from Digicel. Have you seen more, have been getting more aggressive, it looks like that you had a risk organized into that quarter? On the Wireless side, just wondering what are the dynamics on the Wireless side over there.

Michael Prior

Yes, they are always aggressive. They are like a big bully. They like to throw their way around, like to be aggressive. I don’t feel that changing in the short-term certainly hasn't at all during the year. So, that’s the nature of the market right now. At some point the market, it will tend to reach somewhat of an equilibrium, I would say.

But I don’t think that it's there yet. Even now, it's just too soon to tell, but we continue to be very competitive in terms of promotions and handset subsidies. We think we have the better value proposition but they are very good which they would extend the promotions and they are very visible markers and win so lot of money asset.

But, we're right there with them.

Gaurav Jaitly - UBS

Fine. Great. Good luck. Thanks, guys.

Michael Prior

Thank you.

Operator

And our next question comes from the line of Dolly McIntyre (ph) with Stifel Nicolaus. Please proceed with your question.

Billie McIntire - Stifel Nicolaus

Hi, guys. Good morning.

Michael Prior

Good morning, Dolly. We can tell everybody it's --

Billie McIntire - Stifel Nicolaus

Sorry? Yes. I don't know if in was going to make a change. I think you guys have said in -- for a while now that your tax rate should average out to around to 50%? Oh, no. And sort of asking the same question, I just wanted to know -- it looks like it's gone a little bit lower this quarter?

Michael Prior

Yes. That should be -- that isn't -- because it's going to be lower. I have been more of guiding into the mid 40s and it sounds this is around a little between lower 40s and mid 40s. But the -- I think it's -- I think around up of 44% to 45% range is probably where we'll end up.

Billie McIntire - Stifel Nicolaus

Okay. So --

Michael Prior

So, 50s is all to bring a factor.

Billie McIntire - Stifel Nicolaus

Okay, okay. So, going forward, the mid 40s.

Michael Prior

Right.

Billie McIntire - Stifel Nicolaus

Should we go to -- okay. And the other, the only thing I just wanted t see if you guys could talk about -- have you had any more conversations with the government in Guyana regarding your life (indiscernible) and if there's been any movement at all since last time when you talked.

Michael Prior

We previously had a discussions but there has been a lot of clamor for it in the press. Recently in fact, I picked a day in the press, the -- somebody from the government announced that they wanted to reconvene (indiscernible) discussions with us shortly. And I think he had said Luxembourg (ph) gets again clearing and move into early next year to down. So, that's the word from the government and as we have always said, we're ready to bounce on them and willing to talk. So, if that works and we really should be sitting down early -- the early next year. But it doesn't always follow up straight-forward line, knowing from the past.

Billie McIntire - Stifel Nicolaus

All right. Okay.

Operator

And your next comes at this time from France with Keane Capital. Please proceed with your question.

Adam France - Keane Capital

Hey. Good morning, guys. Thanks for taking my call. Can you all speak to where the ’07 CapEx should end up now and why did the your roll during any stab at ’08 this time?

Michael Prior

You know we're going out for staff in that way. So I don't want to guess on that. Yes, we're working through in all those numbers. But I think the '07 is probably going to come in the mid 40s. I think I have been standing with them probably 43% to 47%. I said thank we'll be riding them outrange properly.

Adam France - Keane Capital

Great. Thank you guys.

Michael Prior

Okay.

Operator

And there are no further questions of this time.

Michael Prior

Great thanks operator. Thank you everybody.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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