Ladies and gentlemen, thank you for standing by, and welcome to the ATN International Third Quarter 2019 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to your speaker today, Mr. Justin Benincasa, Chief Financial Officer. Sir, please begin.

Great. Thank you, Operator. Good morning, everyone, and thank you for joining us on our call today to review our third quarter 2019 results. With me here 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 for his comments. I'd like to point out that this call and our press release contain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause actual results to differ materially from those described. Also, in an effort to provide useful information to investors, our comments today include non-GAAP financial measures. For details on 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 on our website at atni.com or the 8-K filing provided to the SEC. And I will turn the call over to Michael for his comments.

All right. Thank you. Good morning, everyone. There is a lot to like about this quarter. We feel good about the current direction of most of the businesses in our portfolio, though there are always some challenges, and there's still much to do to fully realize their potential and to achieve greater growth. International Telecom continued to deliver on our 2019 expectations of substantial cash expansion and solid underlying growth. U.S. Telecom took a big step forward towards the much discussed repositioning and stabilization, though there is more to come. Vibrant Energy continued to round out its operating capabilities and buildable pipeline. And so good highlights, good quarter, and I'll move on to the additional details, starting with our largest segment, International Telecom. And trends here, very consistent with the first half of the year, which are expanding cash flows after the completion of major network expansions, rebuilds and upgrades in recent years, broadband subscriber and revenue growth on the back of those investments and the return to normal operations in the Virgin Islands. We expect these positives to continue into the next quarter. And of course, the fourth quarter GAAP comparisons will be better than this quarter because last year's fourth quarter did not have the benefit of special FCC support. While we are still examining plans and opportunity for next year, we do not see any significant near-term expansion from current capital expenditure levels to support the existing book of business in the segment. Data subscribers for this segment ended the quarter over 127,000, which is up nearly 9% year-on-year, a similar pace to the second quarter. Mobile subs, on the other hand, were down by 5%. Now this had a very modest impact on wireless revenue as they were largely low ARPU subs. But we believe we…

All right. Thank you, Michael. To get into some of the financial information. For the third quarter, total consolidated revenue -- reported revenues were $115.6 million adjusting for the onetime items of $7.2 million of SEC hurricane support, which benefited last year's third quarter, and for revenues related to the U.S. solar portfolio sold in late 2018. Recurring revenues increased 5% from last year. Consistent with the trends we saw in the first half of the year, we continue to report steady revenue growth and improving profits in the International Telecom segment. The U.S. Telecom segment also showed significant improvement this quarter over averages in the first half of the year, benefiting from a full quarter of CAF II federal support revenue and for the FirstNet transaction that Michael mentioned earlier. Consolidated adjusted EBITDA for the quarter was $33 million, below the $38.9 million in the prior year. However, adjusting for the onetime FCC funding and the solar sale, adjusted EBITDA would have been up 14% from last year. Looking at the segments and starting with the International -- with International Telecom. Revenues were $81.3 million compared to $83.9 million last year and adjusted EBITDA was $25 million compared to $28.6 million reported last year. Excluding last year's FCC funding, revenues would be up 6% from $76.7 million and adjusted EBITDA would be up 16%. Consistent with the first half of the year, much of the year-over-year growth relates to post-hurricane recovery in the U.S. Virgin Islands and strong subscriber and revenue growth in the markets, where we've made investments in upgrading and expanding our fiber networks that Michael mentioned. We do continue -- we do expect continued improvement in EBITDA margins as we make additional progress, growing market share and reducing expenses in the U.S. Virgin Islands. Capital expenditures…

[Operator Instructions]. Our first question or comment comes from the line of Ric Prentiss from Raymond James.

Obviously, it was a good quarter on the U.S. Telecom side, you called out a couple of items there. Can you help us understand the magnitude of what the FirstNet transaction benefited in the third quarter, given the maintenance contract and the tower backhaul piece?

I think I'll let Justin add to it, but it's not really that part. It's just really related agreements in terms of moving that out of the way. So it's -- I think -- I would think of it as sort of interim roaming revenue.

Okay. And as we think going forward, how you're going to report that? Or help us, from the outside, model it, how should we think about what happens to the number of base stations, and therefore, the roaming business versus how we think about modeling out the maintenance and tower backhaul from the FirstNet contract?

I think you'll see -- I mean, as towers come online as part of the construction, right, then we'll have the maintenance and the leasing and transport start to kick in and the roaming wind down, but the nature of the arrangement doesn't have a lot of volatility in that. It's not perfect, but there's not a -- there's not going to be a lot of moving around. There's sort of a relatively -- we anticipate at least a relatively smooth transition from a revenue standpoint overall.

Okay. And that leads to stabilization and then growth, I think, you were saying. What kind of level are you looking at? Because obviously, you are committing some CapEx to do the towers and the backhaul.

Yes. I think that there's some different layers of economics related to it. I mean I think from a return on invested capital, I think we ended up at a reasonable place and feel good about it. The -- when we talk about growth, we're not necessarily talking about that transaction. That's really sort of a stable, predictable paying. It will be a little -- the revenue line, as Justin alluded to, will have some movements and some direct costs in the build period, but the sort of operating income, EBITDA impact is not going to be very volatile. It should be pretty steady. What we're really saying is, as we work to stabilize this segment, and this is a big step in that direction, it also puts us in a position to spend more time on and get more -- and see more of the impact of growth initiatives if we're successful. So it's really when we say that, we're not referring to this contract.

Okay. And then I think in the quarter there was like a $2 million write-down for a noncontrolling equity item. Can you help us understand a little bit about what that might have been or what segment it was involved with?

Sure. It's really -- I'm not sure segment matters that much, but it's one of our minority investments that we made a couple of years ago. It's -- we're required the way we hold things under the accounting to mark-to-market. And so there was a significant new round of money with some strategic and big financial investor and one of the things we invested in and have a minority position in. And that came in at a level that required us to mark down our original investment. But if you ask us where -- what we feel about the investment, we feel very good about that round coming in.

And it's the nature of that accounting that's just going to get a little lumpy, right? You'll write them down, you'll write them up, you write them down, you write them up kind of stuff.

Yes.

Hopefully, more of the latter.

Yes. Hopefully more of the latter, right.

Great. Great. Okay. And then there also was a comment about discussing preliminary discussions with strategic partners on the Renewable Energy side. Can you update us? Obviously, it's been talked about for something like quarters and years as far as what might be happening there, but does this feel like a little more firm discussions? Or how should we think about what you're talking about with the Renewable Energy side?

Well, tell us how you really feel, Ric. You're right though. We feel the same way, honestly. We do feel good that we're kind of in a position where it's a really good operating platform. We have a very solid pipeline, including a lot of shovel-ready. But as we said before, we don't see us -- ourselves being a sole or maybe even primary funder of a large-scale solar build in India. And so always in this model, we were looking for capital partners. And I think we're now in a position where we think that's potentially easier to execute on. But there's, as always, no guarantees.

Okay. And then, the millimeter wave auction forms are turned in. I don't think I saw you guys in the millimeter wave. I assume that's possibly related to millimeter wave doesn't work that well off in the more rural areas. But what about other interests, like CBRS or we also have with the RUDOF, the Rural Digital Opportunity Fund. How should we think about how you're looking at spectrum and other FCC auctions?

Yes. We're like everyone looking at it. It is somewhat of a changing moving target, but still -- there's always value, and we have to look at it all. In terms of millimeter wave, you're right about the recent auction, although I will point out that in a couple of our key markets, for example, the Virgin Islands, we have quite a big holding of millimetric wave spectrum. And so I think we, maybe, didn't have the need in some markets as others did. And then when you talk about extreme rural markets, it's a little bit of a stretch at least for us to see the value proposition. And CBRS is different. CBRS were very active in the CBRS, obviously, examining the GAA piece, which I think you understand, but for other people on the call is sort of dynamic licensing of spectrum on a location and use basis, priority basis. We expect to make use of that, particularly in our in-building business. And we're looking at our options with respect to future auctions of the specific licenses related to that spectrum. So I think that mid-band looks attractive for a lot of the applications and business models we have.

Right. Anything on the RUDOF?

Say that, I'm not sure I understand the question correctly.

Yes. The Rural Digital Opportunity Fund, a lot of discussion with the FCC recently on kind of helping rural areas?

Oh, right. Well, I think that's going to take some time. We look at every one of those funds. Sorry, I didn't realize the acronym. But we have people looking at that in addition to whatever you want to call it, CAF III. There are some state initiatives that we're looking at in places we serve. There's a lot going on there. I think some of it's going to take some time to sort out, but we're on it.

Our next question or comment comes from the line of Greg Burns from Sidoti & Company.

I just wanted to follow up on the U.S. Telecom segment and get a better understanding of what's happening to the AT&T portion of that business. So did the roaming revenue get reset at a higher rate and now this is the new level? And we have a hand off between roaming and the maintenance revenue going forward? Or is there any kind of nonrecurring? Or does it step down from here? Or is this kind of the new level?

So Greg, I'm not going to get into specifics, I'm not sure we can even under our agreement with our customers and not sure it's material in terms of exactly what they're doing with their traffic and so on. But I think that the way to think about it is, there is some seasonality in this number. In future years, that seasonality may decline. We'd expect it to decline as the -- certainly, with respect to that customer as the FirstNet agreement kicks in, which will move it from kind of a roaming to backhaul and maintenance, too. So as you mentioned.

Okay. And then internationally, the revenue growth is outpacing subscriber growth. Could you just talk about that dynamic and why that is...

Can you say that again? Our speaker was kind of faint. Would you say that again, Greg?

Yes, just internationally, just looking at the revenue growth you're generating there. It looks like subscribers were down, revenue growth was up. Can you just talk about that dynamic, what's driving that?

Well, really, the important subscribers are up, and that's the big subscribers and broadband.

[Indiscernible] these are on mobile.

Right. Yes. That's fair. But in terms of all our recent investment that a lot of that was heavily focused on fiber networks and alike. And so we're pleased with the broadband sub growth. And so that's up. But as Justin rightly interjected, the mobile numbers are down. And as I said, it's really not any big economic impact, but we'd like to see that go the other way. And we do think there's potential to have to go the other way, but we have to execute better.

Okay. And then lastly, you had a press release out about Geoverse, I think, putting together an LTE network. And I always thought of that business as more of a fiber business. So is there also a wireless component to that? Or has their scope expanded? Can you just discuss that?

Yes. I think you might be blending 2 things, Greg, because we do have some things we're pursuing on the fiber side, early stage. But Geoverse is really about in-building wireless connectivity. So carrier-grade secure next-gen in grade. So some people talk to you about it. It's the private LTE market, the CBRS market, I mean, we think it's a little more sophisticated than that, but that's -- it's really a wireless product.

Okay. Sorry, I confused the 2 kind of start-ups. Okay. So that win, was that -- do they have other projects that are being deployed? Or is that kind of one of the early wins? And what's the pipeline of opportunity look like for that business?

Yes, we're trying to give them a little space in terms of talking about it and that's why I alluded to talking about next quarter. We are -- we feel very good about the positioning of Geoverse. The industry is still positioning. So we're building, but the real big growth, we think, is to come. And what it's really about is positioning yourself to be a big piece of that growth. And I -- so I think it's kind of too early to offer predictions on that other than that's what we're going after.

Our next question or comment comes from the line of Allen Klee from National Securities.

Just following up on U.S. Telecom and the roaming revenues. Can I -- can you help me understand if this is something that is kind of onetime, it kind of increases? Or you kind of expect the kind of higher run rate over the next couple of quarters on that roaming rate revenue?

I think just move aside the nomenclature, I think if you look at the segment, the simplest thing to say is, we think this quarter is more indicative of financials, the type -- the broad target of financial results we'd expect from the segment than the last 2, right? That's the easy part. And we do think there was some seasonal benefit in this quarter that maybe made it a little higher than we'd see in the...

The third quarter is always our seasonally strong quarter.

But it didn't have any onetime items in it.

Okay. So if you look at the third quarter, it was a little bit better than the -- well, I'm looking at a different number. Okay.

It's a little bit better than the year ago quarter.

Right. And so is it fair to kind of think that's kind of the run rate going forward, like a little bit better than the quarters -- the year-over-year quarters?

Yes. It's kind of what we laid out in the press release that we do expect it to kind of -- that trend to continue.

With the ups and downs of that seasonality.

Yes. Right. Right.

Okay. And then in the International Telecom, your EBITDA margins have been -- it seemed like they're plateauing a little bit in the low 30s. Is your thoughts at that likely kind of where they stay or that because of everything you're doing that you think that can kind of go up over time?

I think that over time, right? What we've said in the past is, we move slowly in these markets because we need to move slowly in these markets. I still think there's room to expand the margins for sure in the U.S. Virgin Islands, which is a big piece of revenue. So I do think we can -- we'll see them. It won't be dramatic in any one quarter, but it will be slowly increased over time as we just get -- we say they're back to normal down there, but there's still work to be done.

Okay. And then could you maybe just talk just conceptually, when you think about kind of allocating capital, of just generically what type of things ideally you would love to be looking for?

Well, I think there's a couple of different things, and that's a broad question. I mean, if you think about it from -- generally, there's certain things. We look always at the competitive environment, the long-term risk reward scenario. So a classic example of that is the investments we've made in extending our fiber networks in these markets, where we feel like we have a very good competitive position. And we see a long tail on earning off those investments. And so those are the kinds of investments we'll continue to make as we see the opportunities. And then there are other investments we're making, where we're making some smaller earlier-stage investments because we think a lot -- there's areas in communications side of the business that are ripe for change, and that presents, I guess, risk, as always, but it also presents a lot of opportunity. And so we're -- we want to make sure we have irons in the fire to take advantage of some of those opportunities and find some growth initiatives. So the way we would view those types of investments is different. It's a different risk reward equation, potentially much higher rewards with rapid growth but more risk because it's earlier in the cycle.

Okay. And then in -- yes, one last thing. In U.S. Telecom in the wire line piece of it, the revenue run rate has dropped there in the last two quarters. Is that -- can you tell me like what's going on? And is that kind of the new run rate?

Yes, that's probably the new run rate. That's our wholesale business that's mostly internal that we used before, has some third-party revenues associated, but it's very low margin. So you see it kind of coming on. If it goes down, it also takes a lot of expense out with it. So it's probably a good run rate.

[Operator Instructions]. Our next question or comment comes from the line of Hamed Khorsand from BWS Financial.

So just want to start off with the U.S. Telecom. If this is -- there was no -- nothing onetime in there. Is that sustainable as far as the margins are concerned going forward with the change up in the business model to include FirstNet?

Again, I think the margins, as we said, margins are a little bit rosier because of -- in the wholesale side of the business because of the seasonality that we talked about. And once the FirstNet business gets into full swing, that kind of effect will go away. And there are some things on the other side, right? Running through U.S. Telecom are also the expenses of some of these earlier-stage businesses. Those are not going to be a net negative forever, right? We think they're going to grow into positives. But in the worst-case scenario, they at least don't no longer burn. So there is some potential on the other side, if you're looking at the entire segment. But for the near term, I think, the way to think about it is, it's probably higher than normal -- a little bit higher than normal because of the seasonality.

Right. And what I would add to that though, too, is, we've talked about on the construction side of the business, right, we're going to have $1 of construction revenue and $1 of cost associated with that. That will -- the reported margins on that will drag down because of that. So -- but if you pull that out, you can take Michael's comment.

And it shouldn't affect the construction thing shouldn't really have much impact on the absolute numbers on operating income.

Exactly. It's just more of a margin.

Okay. And then switching gears here to your U.S. Virgin Island business. Does the -- Liberty acquisition of your AT&T business, does that change up the competitive landscape for you at all?

Yes. I mean, just factually, it does, right? So you now have Liberty instead of AT&T, assuming they get approved. And we'll see what that brings. I mean, obviously, AT&T is a national operator, very well known on the wireless side, which is really where they compete with us. Liberty, less well known to the U.S. side of it from a wireless standpoint, but they're known, too, in the Caribbean. So we'll have to see.

Okay. And then lastly, what kind of initiatives are you taking on to improve the mobile business and international, the 5% decline this past quarter?

It's just in some markets, it's -- unfortunately, it's really basic execution on sales velocity, marketing and being creative. And we're clearly not doing enough to win over new customers with a value proposition that they recognize in those markets. And that -- and we don't think it's because underlying from an economics and network quality that we don't have that value proposition. So we think it's primarily distribution and marketing that we have to execute better on.

Do you think you got to reduce prices at all?

I don't think that's -- no, I don't think that's really the issue.

We have a follow-up question from Mr. Ric Prentiss from Raymond James.

I wanted to come back to make sure I didn't catch the number. I think, Justin, you mentioned what the early-stage drag was in the quarter and then, Michael, you kind of referred to it. I just want to make sure I had the right number of what the early-stage investment drag was in 3Q?

The early stage was a little under $1 million. So we had some of it a year ago, but it's grown by a little under $1 million.

Right. But last quarter, it was more like $1.5 million. So it's already getting a little better on a sequential basis, it sounds like then?

Yes. Yes. On a sequential basis, yes.

Okay. And then I'm glad you called out that construction -- FirstNet construction, obviously, no margin basically. Will you be calling out how much FirstNet construction was as you think about reporting fourth quarter and then through mid-'21 just to help us understand how much of that business in the revenue line item it is?

Yes. Yes. We definitely will. It's going to stand out. So we really need to. Yes.

Yes. That would be good.

And the cost.

Yes. Yes, exactly. And then I think in the early part of the prepared remarks, you mentioned, obviously, it's early for 2020 thoughts, but that don't see any near-term change to the current capital spending. Was that in reference to International? Or was that more total? Just trying to think through on the U.S. side, as you do more tower and backhaul work, how does the $10 million to $15 million this year look as we go forward?

My reference was to International, but I think a lot of what we talked about in terms of the -- on the U.S. side is we've already been talking about that equation of construction costs versus payments. So I think it falls into that -- a lot of the rest of it falls in a different bucket. But my comment was focused on International. I think the way you think about it is, those major investments we made in -- particularly in the wire line network but also some wireless, we think they have some room to run selling off that investment.

Right. And that some of the costs for this tower backhaul with FirstNet construction will be expensed, but does get capitalized, you called out $5 million for 2019. It feels like, I guess, then that -- as you look into 2020, that $10 million to $15 million for domestic could still also be kind of a good planning tool?

Yes. We will spend more on towers and backhaul infrastructure, if you will, in 2020, right? And we'll give more guidance on that in the fourth quarter. But you should expect to kind of see that increase into '20, probably some of it will carry into 2021 as well.

Yes. That's what I was getting at. Okay. It felt like, to me, if you're doing $5 million this year and the project ramps, it will be more of that coming. Okay.

Exactly. Right. We're working hard to minimize the kind of CapEx on the rest of the network, if you will, but okay.

Okay. Looking forward to the update on the inflection point for the early-stage initiatives next quarter also. I promise not to estimate JVIR questions yet.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

That's all we have, everybody. Look forward to speaking with you after the fourth quarter. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.