ATN International, Inc. (ATNI) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the ATN International Q2 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today’s conference Mr. Justin Benincasa, Chief Financial Officer. Sir, you may begin.

Thank you, operator. Good morning, everyone and thank you for joining us on our call to review the second quarter 2017 results. With me here is Michael Prior, ATN’s President and Chief Executive Officer. During the call, I’ll be covering the relevant financial information and Michael will be providing 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, 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 of these measures and reconciliations to comparable GAAP measures and for information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or to the 8-K filing provided to the SEC. And with that, I’ll turn the call over to Michael for his comments.

All right. Thank you, Justin. And a little bit earlier good morning to everybody on the call. So, overall operating results for the quarter were strong with growth in both revenues and across all profitability measures, as we benefited from the investments made last year in expanding our International Telecom properties and the absence of some high transactional integration and similarly unusual expenses that were incurred last year in the second quarter. International Telecom was a bright spot with improvements coming from three different areas. Recent investments and expansion, growth and profitability measures in existing businesses and markets and little less important, but still important overall finding exits for smaller non-strategic businesses. US Telecom declined slightly, but more important of course are the changes and looking environment for that business, which I will cover in more detail shortly. Renewable Energy was similar to the first quarter, but down on the year because of the reductions in US solar incentive payments and the impact of our India build out which is still in a pre-revenue stage. Outside the existing segments and businesses and since the first half the year has been quiet from the perspective of additional expansion investments which is fine for the moment as we have plenty to do relating to last year's transactions. And now I’ll turn to some more specifics starting with International Telecom. So the second quarter was similar to the first in that the main driver of year-on-year growth was the two investments we closed last year. Though in the 2016 second quarter we did have a fairly sizable partial contribution from our Bermuda expansion, roughly two thirds of the quarter. The third quarter will be the first apples-to-apples quarter, excluding some of the smaller dispositions we have made in between, which reduces revenue, but not EBITDA. Organically we saw a number of positive movements, led by continued growth in high speed data subscribers and the benefit of cost cutting measures in selected markets. Wireless subscribers in ARPU each grew at an annual rate of just under 3% despite the maturity of many of our markets. And we ended the quarter with approximately 303,000 subscribers for the segment and a blended ARPU $19.72, which is heavily weighted by the large number of prepaid customers in Guyana in that number. Blended churn was 2.7%, which is a good number especially considering the number of prepaid subs. Data subscribers totalled about 102,000 at the end of the period, but its comparisons aren't really meaningful because of the subscribers coming from the addition of the Virgin Islands market in early July. However, on a pro forma basis we estimate data subs to be up approximately 20% organically. Videos subscriber totalled about 53,000 for the end of the quarter, with comparisons to the prior year not meaningful for the same reason I just mentioned. But again here we estimate then on a pro forma basis video, subscribers would be down by about 5% over the year, as cord cutting, cord shaving and transition activities had negative impacts. In addition, as with other providers the large investments and improvements we've made over the past year in our high speed data network in a number of areas helps accelerate the substitution of over-the-top video solutions for standard cable TV offerings and so contributes to the video losses. But on the other hand much of the acquired TV systems were in particularly bad shape and we have made or in the process - or in the process of making a number of improvements in the service quality and reliability. That should help alleviate that in the future. Speaking of improvements, we are basically on track in terms of cost and timing for most of our major wireless and wireline network expansion plans and upgrades. The lion's share of those activities will be completed in 2017 with some of the fiber expansion and video upgrade plans continuing into 2018. Moving to US Telecom. The important thing to discuss here is the forward guidance we gave in the press release, so I’ll start with that. Long time followers of ATN know that we resist forward guidance outside situations of acquisitions, dispositions or fundamental change. And US Telecom we feel that we're in the latter situation, which was what concerns when we noted last quarter that this business was facing headwinds. The best way to look at things is that over the past few years in particular we faced an environment of continual repricing, which lowered revenue per megabyte per minute. But at the same time was offset by growth in megabytes resulting from higher consumer usage and major capital investments and capacity and technology served. The pricing pressure was also offset by growth in our geographic footprint, as we continue to build new cell sites throughout this period. Now we have the impact of all of the repricing that's been done. But we will not have the benefit of growing volume or footprint as the carrier seek to cap their cost of covering rural areas in the midst of falling ARPU's and increased costs in their core strategic markets. Adding to the pricing pressure and revenue impacts is the timing of one of our customer’s exercise of the purchase option of 100 sites. Although we've discussed this option arrangement in the past in revenues we'll feel the impact of these sales, and it's important to recognize that we've benefited from this arrangement in the form of roaming revenues received over the last five years. And I - lastly I’d note that this is the last such option arrangement that we have with carrier customers. So we still believe that the shared infrastructure solution for non-strategic areas that we offer has an excellent value proposition, particularly in the current environment. But, despite that we do not know when or even if we will have the opportunity to take that core model further. In the meantime, with the build requirements to say essentially taken out of the business, we will see much lower capital expense and we will also look to reduce operating expense below current levels. On the revenue side, we are working on our strategy and looking in a number of tangential areas as well for growth opportunities. But there's nothing right now to point to as likely having a significant near term impact. Moving to Renewable Energy. The quarter was similar to the first quarter. US Solar revenues were down on a year-over-year basis because of the expiring state solar subsidy payments in California, and because India revenues had not yet started. In India, we made progress on completing additional power plants and synchronizing with the grid, but unfortunately we are still waiting for regulatory approvals in order to begin billing our commercial customers and to determine the value of previously banked power. As is often the case with new projects construction and approval delays have put us behind where we had expected to be at this point. But we don't have any fundamental concerns about receiving the regulatory approval, about the quality of the plants or the demand for the power being generated. Also slow in part due to the construction delays is the placement of project data on the initial India projects. This has an impact at our Phase 1 bills, but it is flowing us down on commencing the next stage of expansion, as we want a greater clarity on debt terms and availability before expending much more equity capital. As a result of all of this, we are not likely to see significant revenue from India until 2018, which means we are a quarter or more behind where we thought we would be when we last discussed the timetable. So just to summarize, our International Telecom operations are proceeding as expected and we are pleased with the overall progress we are seeing there. In US Telecom, we expect to see similar revenue performance in the third quarter compared with this year second quarter, followed by lower fourth quarter reflecting typical seasonality and then even more significant shortfall in 2018. We will try to mitigate a small part of the impact in US Telecom by lowering operating expenses. In addition, we will pare back our 2018 capital spending in this segment, which will add to the increased operating cash flow that we expect to achieve in our International Telecom operations, since we will be completed many of the large network investments there. In the meantime, we continue to explore opportunities to invest in our balance sheet around our expertise and experience and infrastructure services and related areas. And now, I’ll turn it back over to Justin.

Great. Thank you, Michael. For the second quarter total consolidated revenues were $123.2 million, up 23% from a $100 million in the prior year, while consolidated adjusted EBITDA increased to 11% to $38.2 million, representing a 31% margin. Reviewing results by segment, our US Telecom revenues were $37 million, down from $43.9 million in the prior year and adjusted EBITDA was $19.4 million, down from $21.5 million in 2016. These results include a $3.7 million year-on-year decline in wireline revenue, that was mainly related to the sale of our Northeast wireline business, which closed in the first quarter. The EBITDA impact from that sale was negligible. The $3.2 million decrease in domestic wireless revenues reflect the impact of the new contractual rates and revenue caps that we discussed last quarter and Michael just mentioned, further detail in our second quarter earnings - earnings release. This revenue reduction was also the main reason for the decline in adjusted EBITDA. As Michael mentioned, the situation will affect our second half revenue performance and will be more visible in our 2018 as we expect the only remaining site purchase option to be exercised early in the year. The sale of the 100 sites together with the impact of the reduced rate and revenue cap is expected to result in 2018 revenues for the US Telecom segment of between $105 million and $115 million. We do expect to record a gain on the sale of these sites with additional cash proceeds from the sale will be minimal. Operating expenses in the second - in the segment are tied to operating multiple technologies and high traffic volumes. And while we're already found the easier savings we're looking for ways to further reduce operating expenses. And as Michael noted earlier, we also expect that capital expenditures in that segment will be significantly less going forward benefiting overall free cash flow. In the International Telecom segment revenues were up significantly again this quarter, reflecting the impact of our Bermuda and USVI acquisitions, increasing $31 million or 62% from previous - the previous year and adjusted EBITDA increased 55% to $23.9 million. In the Renewable Energy segment, revenue was even with the first quarter, but decreased 14% to $4.9 million from the similar period last year and adjusted EBITDA was down $1.1 million to $2.7 million year-on-year. As Michael noted earlier much of this is from the expired energy credits and we also saw a slightly weaker energy production this quarter due to the not so great weather conditions here in the Northeast compared to last year. Operating expenses were up again this quarter, as several projects became operational in India ahead of the ability to recognize revenues. Consolidated company operating income for the quarter was $15.8 million, which included $22.3 million of depreciation and amortization expense and also included in operating expenses for the quarter were $2.1 million of non-cash stock based compensation expense. Similar to the first quarter, we had a 19% effective tax rate for the quarter and a 20% effective rate year-to-date as we benefit from having multiple - having profitable operations in zero tax jurisdictions, along with anticipated tax benefits from the sale of our wireline business in the first quarter. Looking at the balance sheet, at June 30 we ended the period with cash and short term investments of $239 million. For the six months ended June, cash provided by operations was $65.4 million and we ended the quarter with total debt outstanding of $159.7 million, which is up slightly following the refinancing of our renewables operations. Capital expenditures in the quarter totalled $32.8 million of which approximately $6.6 million was incurred by our US Telecom operations, $21.3 million by our International Telecom segment and $3.7 million in Renewable Energy segment. Year-to-date capital expenditures was $78.5 million of which $49.8 million was incurred by the telecom segment and $25.5 million was related to construction of solar projects. As we mentioned previously these spending levels in telecom reflect major network expansion upgrades in multiple markets and should be significantly less in 2018. And with that, operator we'd like to open the call up to questions.

[Operator Instructions] And our first question comes from Ric Prentiss from Raymond James. Your line is now open.

Thanks. Good morning, guys.

Morning.

So first couple of questions on the US Telecom side. I think Justin you just mentioned the cash proceeds will be small from the sale, is that correct. Is that because you guys basically had like a five year contract to receive all the money and then it's coming to an end just trying to understand the prospect….

Yeah, it was really - the structure of the deal was, it was that most of the cash and purchase price received over the five year contract. And so it's kind of deferred on our balance sheet right now.

Received as roaming revenue down is that…

Yeah. The excess [ph] over roaming.

Okay. And the guidance…

So it hasn't gone, I think the way to explain it, hasn't gone, a piece of it that’s identified as excess, hasn't run through the P&L yet.

Right.

But the cash is been received.

It was received over the contract period.

And so there's still some money flowing through the income statement and that's why then part of the reason why we see a drop down in 2018?

That's right. I mean, basically all of it - we are focused you know, all of it will go away in 2018, right. So…

Right, so there was revenue on those hundreds sites that we recorded, along with deferred purchase price and all of that. So the deferred purchase price will be the proceeds from the sale and the revenue goes away.

And will come in below the line, right. So it won't affect that number we gave on revenues.

The cash proceeds will be minimal?

That’s correct.

Correct. And that’s because they've been received already.

Right, okay. And the guidance of – I know you hate giving it, in 2018, 105 to 115, did you say that was for US Wireless or that's for US Telecom?

US Telecom.

Okay. So that would include the remaining kind of small portion of excess in there?

Yeah, yeah, which is pretty small, but yes.

And then as we think about that business, it's that kind of 50 plus percent margins. How fast do the costs go away? I assume very quickly because any backhaul or electric costs would go with it. So is that kind of the frame we should be using?

You know, what I would say it's difficult to pinpoint as we look for ways to kind of reduce cost, but there is a certain amount of the cost structure that's fixed because it’s either based on supporting the technologies or supporting the volume of traffic. So we are anticipating we're going to see a fairly significant you know, compression in the margins, because there's only so much to that fixed cost, we can get. The fixed cost remains, but there is only so much variable cost remaining to work on.

But to add that, I mean, I think Ric you're pointing to on 100 sites, yes, the fixed cost with those hundred sites go away, but the bigger impact is a combination of the impact there. But the other impact is you know, what I talked about which is you have no offsetting growth again flowing through the price cuts. So that's you know, that's still going to result in a significant impact down the line from the revenue drop.

Great. Okay. And like you said, I think no thoughts of footprint expansions either right now?

No.

So that's…

I think the carriers you know, for the most part unless its some how strategic or you know, or related to something else they are doing or not really looking to add to cost without a real clear add to revenue, which is what you know, for the most part its happening right now with adding to remote rural coverage.

And particularly with the first net rollout, it looks like there will be some plans for them to expand areas themselves?

Yeah, they have to think about, if you are taking about AT&T sure, that's in the mix of how they think about the future and how much they partner with players like us and how much they do and what that is.

Do you guys also had participated in the 600 mega [ph] auction. Is that then something you might monetize then, if you're kind of looking at cutting CapEx in the area? That was a capital purchase for a long-term asset. Maybe you're not going to get much of a return on then.

Yeah, I think we examine that. I mean, you're right, it's a consideration. I would say that's always the way we think about it. We you know, we think about the benefit of monetization now versus monetization later, you can do that in strategic transactions sooner or you can do it much later, it's really based on your thinking through the future. And then there's the in-between aspect of using directly in the business. And I think they'll be definitely some of that, a good chunk of what we bought I think has value in the business. But there's you know, there's maybe a piece to that, we could look to monetize sooner or later and it really depends on perceptions of value.

Have you guys looked at all, obviously there is lot of buzz of about 5G and small cells and fiber. Update us and kind of what your thoughts are or maybe it doesn't fit very well into for rural shared infrastructure, but just kind of what your thoughts are?

We think, I mean, we think shared infrastructure period in small cells is backhaul or all part of that will grow. We think you know, you think of sort of passive sharing to active sharing it will grow. I think the trick is you know, what's the business model around it, what are the assumptions, because those - a lot of those businesses do have pricing risk in the long-term, because of the customer concentration. And the carriers are understandably very cautious about entering into a situation again like they did with the towers companies, where they feel that they've got cost base rising way beyond their growth rate. So as long you're I think realistic about all of that in assessing the risk there's opportunity. I think the carriers absolutely need third parties to help build that infrastructure and that ultimately is more efficient. So we are actively as with many others looking at those areas. There's some like - some of the pure backhaul plays I feel that are – and I could completely be wrong are overvalued for you know, for the risk down the line of repricing. You know, you've seeing movements like Verizon announcing the purchase of a lot of fiber in order to make sure they have a stick and a carrot in their hand on backhaul contract. So it’s just - that's just an important consideration.

Okay. Thanks, guys.

Yeah.

And our next question comes from Barry Sine from Drexel Hamilton. Your line is now open.

Hey, good morning, gentlemen. Let me follow up on Ric's comments on the domestic wireless and the option. Do you have the date that they have to give you notification to exercise that option? I'm assuming there has to be an FCC license transfer for that. So that would delay it and that is probably not beginning of the year, it's probably sometime mid-year. If they did exercise that we would see that close?

No, I think the process of closing in the way we've you know, this is the last of a series of those we've done. And you know, I think both carrier [ph] and we have gotten pretty smooth in working that and in part of the way we did that, we structured the spectrum as a lease. So that you know, those clearances don't really matter. So it’s much more about clearing the cell sites and the documentation and all that. But it was set up to go pretty smoothly and you know, we will make every effort to make sure it does. I mean, that’s part of our relationship promise.

And clarity on the exercise date and the close date?

Yeah, it is early 2018. But the important part is we don't think there really any economics in that, in 2018 that what we're saying, you know, and that's not significant.

Yeah.

Okay. Shifting over to international, on the US Virgin Islands and the Bermuda properties where you made the investments last year. I appreciate the update you gave on what you're doing with network capital spending. Could you talk about where you are in terms of your marketing? Are you where you want to be in terms of the offers that are in the marketplace? Are you delaying that until you get enough network upgrades done and then where are you on the back office part of the changes in order to drive margin improvements in those markets?

Yeah, those are all good questions and kind of things we’re heavily focused on. We're still working through all that. So we've made progress on. We've re-branded in both Bermuda and the Virgin Islands. But in terms of - and you know, we've been happy with the quality of that effort. But there are pieces of the bundle if you will that still need improvement. So the biggest and most obvious one is in the Virgin Islands, we are still working off our old wireless network. And we are doing a complete upgrade that we expect to finish at the end of this quarter and then really launch in the fourth quarter. So that one's to come. And similarly in the Bermuda market, the cable TV product needed a lot of work, right, ahead and then under-invested in and you know, we've gotten a lot of things improve in terms of the network, but there's still more to be done to improve the customers experience and really have the kind of positioning and customer satisfaction where we want to have.

Okay. And then staying on international. If you could give us an update on some of the competitive trends in the Guyana market. And then obviously there is been some regulatory issues that you've talked about in the past, if you can update us on where that market stands?

Yeah. In that market the competitive dynamics are you know - we are building and have invested in last few years very significantly in the wireline network and the broadband network, which also benefits the wireless network and we've also - that is there. So we think the offerings are really coming together, probably more important as we've also done a lot of work internally with team and positioning and that's starting to show some fruit. But on the wireless side we still you know, as we still have a ways to go to have the, kind of competitive stance we want and you've seen signs that maybe we certainly come back from the bottom, but you haven't seen signs that we've you know, become a leader yet. But we think we're well-positioned to be – to really improve there, and make sure our competitor will continue to try to respond as well. But in terms of regulatory you know, there is regulatory issue in really all markets. The Guyana market is different in that. There's been a lot you know - there's been discussions on again, off again between us and the government for years about opening up the wireline sector more and really reforming the whole telecom sector, which were in favor of and the government acknowledged that publicly. I mean, it's really a question of government resources more than anything else in terms of the timing of getting that done. And you know, we predicted timing of that in the past and we've always been wrong. So we just decided we'll just forebear and we'll keep - you know, we’ll stick our netting and keep improving the business.

Okay. And then to tie that all together, on the International Financial Telecom segment. If I look at your revenue EBITDA numbers sequentially versus 1Q and I appreciate the fact you're giving more and more operating metrics on that business. Maybe I'm reading too much into this, but it looks like we're seeing some early signs of improvement. Are you - would you agree with that, are you are you happy with the early signals that you're seeing coming out of those markets, where you expect to be?

Yes. We always expect to be a little bit farther along I think, but yes, we are pleased, we are seeing signs of that improvement for sure. We have a lot of confidence in the leadership teams and what they're doing right now. And so we feel good about that, but there are things that we would like to go faster. Our approach as we've said before has been to get the customer experience right first, and second, work on other efficiencies. So that's been the way we've prioritized it. But the second part especially with Justin right here really matters, right. So we want to see that happen too and you know, to improve margins and things. But I think the first stage is gone well.

With Justin on that.

We all are.

Last question. Turning to the India renewables business, a little bit of a surprise in your remarks today and you called out some regulatory delays. That's a country that you know has been known to have regulatory problems and you know, what assurances can you give us you know, this is not going to spiral two quarters or years or just not get approvals. You still sound relatively confident that this is a minor delay, but whenever you hear regulatory challenges and the word India in the same sentence you know, your hackles go up?

Yeah, fair enough. I you know, clearly can't make a guarantee. But I can say that there's nothing we see today that makes us feel that these delays are anything unusual or anything you know, indicative of a change in policy approach or like. I mean, you know India for the most part both federal and state governments have been pushing hard to get additional power generation into the next. And so we think the fundamentals continue to be strong, the governments continue to be behind it and it's really a question of you know, bureaucracy, some slowness and it's not 100% always the local regulator. We might miss the timing on a little bit of the sequence and then kind of pay for that because of the process. So it is laborious in India as anyone knows, even when you have absolute you know, no problem government likes what's going on, the amount of steps you have to go through and the personal you know, submitting of papers and continuing to you know me you know, just makes it makes it slow. And we knew that was a part of the business going in and it's just been a little bit slower, some of which as I noted in my remarks is because of our construction delays and some of it is on the regulators side. And so I started just to sum it up. So you're right, we still feel that there's nothing fundamental there and we still feel that that will get done.

Okay. And also the last question on the renewables business, if I look at CapEx in 2Q in that segment versus 1Q, obviously a big step down. So are you kind of holding off on CapEx until you get a little more visibility on these delays and what should we expect for capital spending in the second half of the year in the renewable segment?

We kind of – Barry, its Justin. We updated in the guidance on that and a lot of it's around the financing timing too. So that's why it's a little bit of a push out and it might be more of a push into ‘18 than in the second half, because we've kind of done this, I think as Michael noted the first phase was kind [indiscernible] all of the equity capital and now we're refinancing, so we've got to get the refinancing done and then reinvest it. So it's a little bit more of a push out. So I think you'll see much lower in the second half and let things kind of accelerate along a little quicker. So it's kind of tethering between end of ’17 and ‘18.

And I'm assuming regulatory approvals are key to getting that financing?

Yeah, they are. I mean, they help with the bigger financing yes for sure because then you're – it’s a lot proven, and they're all operational and the revenue is flowing.

Okay. Thank you both for indulging all of my questions.

No, absolutely.

And the next question comes from Allen Klee from Sidoti. Your line is now open.

Yes, good morning. Just going back to the US Telecom segment. I just wanted to understand your comments on margins for ‘18. You are losing some profitable - very profitable business, but you're going to try to cut costs. How do we think about the net impact on margins there?

You will see, I mean, you know, the nature of the business as I mentioned is there is a certain amount of cost that are adjusted there. So there will be some fairly significant margin compression in ’18, which has to be, because we're still going to be running traffic, but we won't be getting the revenue on it.

As much.

As much, right.

Okay. And then in International for similar on, how do you think about the path towards - you have - I think your EBITDA margin was around 29% in the quarter, in terms of the timing to try to get to kind of where you think is more optimal.

Yes, I think we would hope to start to see progress in those margins as we go through 2018. We don't think they will be major. It will be major initially and there are two components. There is you know, there's the revenue growth side, including you know, we hope with wireless in the Virgin Islands and some of the other areas. And then there is the hard work of working through you know, making the organizations more efficient. And again, given our sequence that you know, its first catch the ball if you will and then run and catch the ball is get the offerings right and then we'll go to the next sequence. So I think - I don't think you'll see major improvements, but we hope if we're successful they will start to gather a little bit, you'll start to see in this you know, the next four to six quarters….

I think, the thing to keep in mind is that, as we move through launching all these networks and repackaging wireless, and should have higher marketing expense to get these things launched and somewhat offsetting that will be things we're doing in the back office to reduce cost. But you won't see it necessarily come through on a consolidated, but it's shifting and where we're spending the money…

In the near term…

In the near-term. Did that make sense Allen?

Thanks. A smaller question, but just so I can maybe help understand your business a little better. In International Telecom equipment revenue, these past two quarters, it was a higher raise than last two quarters of ‘16 and now it's kind of at a lower rate. Maybe if I could just understand what's going on there and how you think about that going forward? Thank you.

Yeah, that's just the underlying ebb and flow of different marketing offerings in the growth add phase. There's nothing you know, I don't think there's any significant change in trends there to talk to. I mean, there are times where we'll have promotions around launches and that's you know, an example, Justin talk about with you know, the initial launch in the Virgin Islands you expect to see equipment expense really go up and there are other markets where we may from time to time use that and we really think that as you know, a piece of the marketing budget and you know, one of the tools in the tool box there. But there's nothing kind of fundamental change.

Okay. Thank you so much. Thank you so much.

Are there questions operator?

Yes. Our next question comes from [indiscernible] Your line is now open.

Thank you. Good morning, guys.

Good morning.

Couple of questions. First one just I guess a broad question on those opportunities that you see to diversify your portfolio. Obviously you still have a lot of cash on the balance sheet and capacity to pursue various acquisitions. So where do you see most attractive opportunities right now and what precludes you from pulling the trigger, I’d say?

Yeah, we see actually in number of areas we're exploring. I think we see it in you know, some of the fairly obvious telecom infrastructure plays, shared infrastructure side that we spoke about earlier in the call in response to a question from Ric Prentiss. We see that in US and non-U.S. markets as having some potential and we see some tangential things, as we have - we really, our telecom market are well behind you know, more advanced growth markets in terms of the - some of the add on offerings in tangential areas, some of the managed services that and things like that. And we think there is potential there in smaller markets. And then we you know, we also continue to believe the renewable energy sector is going to continue to grow, in some ways it's growing faster than we would like in that capital is flowing very quickly. You know, markets go very quickly to a high capital inflow into the sector, which brings down potential returns and sometimes to a point where we don't find them attractive from a risk reward basis. But we still think as India gets going we have additional mindshare for looking for opportunities to further expand that.

Okay. In terms of CapEx, could you help us I guess, size potential declines in CapEx or discuss some of the things that obviously [indiscernible] there in 2018 or just 2017 in terms of CapEx?

Yeah, I mean, I think the main one to talk about International Telecom segment, you want to talk about that?

Yeah, I mean I think you know, we’re not done fully baking in ’18 yet. I think you are just to kind of apply industry standard, kind of spend metrics level, so you’d probably put about half of what we forecast for this year.

Okay. And last question in your international markets, if you could talk a little bit about your spectrum position and whether you think it's sufficient given the rise of data and demand for data, as those markets transition to 4G and eventually 5G and whether there are any options that could be meaningful coming up in software markets?

Its, Justin. What I mean to say is, it’s huge tremendous, but I think in most markets it’s you know, we are quite comfortable with where we are today in terms of our spectrum availability in…

Place like the Virgin Islands, we have a really great spectrum position and place like Bermuda, its enough for where we want to be today, in Guyana its skinnier and I - but I mentioned in both Bermuda and Guyana, our competitor in the same situation. So it's really about getting the governments to see that it helps everybody to release more spectrums to the players. And that will be needed if they want the you know, the wireless data infrastructure to continue to grow without having it be cost prohibitive to the users.

Okay. Thank you.

Yeah.

And our next question comes from Hamed Khorsand from BWS Financial. Your line is now open.

Hey, good morning. Just a simple question. Are you able to charge the customers in India there that are set up for renewables but you just can't build them?

We are producing the power. And we can't build them until we have what's called the Open Access certification done, which you know, the regulator - later needs to do. And when I referred to bank power, there is an ability which we just can't estimate an exact number, so we can't really put anything through the P&L. But there is an ability to then sell to your customer or potentially to the grid generally the power we're producing today, and then catch up to it. But it's not a huge number at this point.

Okay. And then in terms of that keeps growing the customer base, so that you can build them right now?

No, absolutely. I mean, I think we are - I think in terms of the - what is built and operational, we have the customers we need. But we have built up a pipeline of both customers and grid connections going forward and land to build. And so we're really, we're staged to be ready, but it really depends upon the sequence of events we talked about, get this first one you know, first phase operational billing and get the debt in place, so that we know how that will affect the economics for us going forward and then continue.

Okay. And then could you clarify, you said 100 sites for US Telecom, what does that 100 sites equate to as far as base stations because it seems like it's very lopsided as far as the revenue rolling off for 2018?

You know, I'm not sure how many base stations are on, but it's ascended to hundred…

Yeah, more or less the same number.

So it's…

But some of that though Hamed it's the combination of the rates, the caps and the sale and so.

So you're giving us, so the press release I think it was thousand base stations, a 100 site, there are 100 base stations about 10% of the revenue [indiscernible] quite a bit more?

Right. But that includes though like I said, the rate – that includes rate reductions cap, plus the sale. So it's not always related to sale.

Right. Plus the sale, plus that sale as we talked about 400 [ph] elements you know, [indiscernible] to make generate, you know you could argue it’s a little higher. But the main point is the one I made earlier and Justin just made, which is you've got the impact across the existing base stations that are left at the same time.

Okay. Got you. Okay. Thank you.

Yeah.

And we have a follow up question from the line of Ric Prentiss. Your line is now open.

Thanks, guys. I have a couple other extra ones on the renewables. When you talk about the regulatory approval process in India, do you need to get that regulatory approval process each time you work on a site? Is it per jurisdiction or is it just hey once I get this regulatory approval I can ramp the build schedule you were talking about?

There is a layer of it and it’s kind of complicated, but what I refer to is the open access to education. I hope I get this right. Is that you can get it, you can get the certification for multiple customers at the same time in a whole plant, if they are ready or you can do it piece parts by five customer by piece of the plant. And in some cases it's made sense for us to do the latter and in some cases of the former. So is it's really the way to think about it is all the megawatts that you're selling off to people through this method, which is all of what we're building need approval under the Open Access certification.

So then each time you can open up one of the plants and have more megawatts, you're going to be near through the process?

That's right. That's right. And the process has been established, it’s been around for quite a long time because it's not limited to renewables, and so a lot of industrial customers and they like we build, diesel gen sets and do it. So the process is fairly well understood, it's just a question of did you get into the cycle at the right time and now you have that - you know, if you didn’t, you have to wait for you know sort of bureaucratic delay and you know, more then if there is any fundamental question.

Is it fair to say that you'll build that process in bureaucracy layers into your next iteration of expansion, and that is far as timing of the…

Yes. Yes absolutely. I think we're you know, we're learning in terms of sequencing. I think we’ll also get smoother at it that shortened times, but you know we're learning from the sequencing and all that. But you always do have a bureaucratic delay risk because you know, at some point in time you can get in a situation where it's you know pushing on a wet noodle. You know it's not really, it should be straight forward, but you're just waiting for you know, it to get in the list of priorities.

And are you looking with your balance sheet capacity, are you looking at markets outside of India as well for renewal?

Yes, we are. You know, it's a higher bar, the bar gets lower, as we move along and you know, the India, you know, a group gets fully operational. So it's a prioritization approach. And when we look at other markets if there are new markets to us, there is a number of hurdles for that, both in terms of returns and do we have the right partners in the market, do we feel – you know, we adequately understand the risks.

And….

Yes, sorry go ahead.

And you know, downturn at what regions of the world you might be looking at?

I can't really, I mean, I think because we have looked at things in a variety of different regions. So I you know, I can't really narrow it down, but the farther a field it is or the smaller the place or the trickier the political situation you know, that’s less likely we are to go there, you know where it is. So you could kind of go if you look at the sector you can go through and see the markets that are - where the government and the utilities have set up an environment where you know, investment is more straight forward into the sector and those are the - those tend to be the ones we look at unless we otherwise have somebody with great knowledge of the market.

Now as you get the project financing and refinancing in place, you mentioned that you'll be able to give us some more clarity on kind of the CapEx revenue, expense return drivers. So hopefully that's still on track. And then as you look at other countries how replicable is the India model or how different might it be?

I think most of them are a bit different than the India model. A lot of countries are more connected with paying into you know, the great company itself as your customer or the state. And what we liked about the India model, it’s similar to our US and similar to a kind of a net metering arrangement in the US with commercial industrial customers. But this is pretty fluid. I mean, you know, our team would know better than I, but I think that there are governments looking at implementing new policies to encourage that foreign direct investment in the sector really across the place. And to go back to your return thing, you're right, I mean, I think it's to uncertain now I mean, right, if you think about the capital and in the delay to revenue, well that's a negative on returns to date, right. So today if you stop the music, today we're below where we wanted to be. But there are things that could happen that we could do, that could you know put us right back to where we expected to be it and getting the debt in place, obviously the key component to figuring out what your equity returns are.

And then, I think you mentioned, sort of called out something about some renewable that is expiring, was that some new ones expiring in the quarter or is that just on a year-over-year comparison?

That was just the year-on-year, I would say this first quarter.

Right, so it's nothing new that came up?

No.

And there's nothing further that you expect to say that the renewals expire going forward?

There are - it's you know, several years out that the you know, the kind of the Northeast US wire [ph] program expired, but it's several years out.

Okay. All right. And then last question appreciate your time, in the international market, a lot more focus on bundling, I think you mentioned that, how do you view bundling going forward, does it work, does it reduce churn kind of how you're thinking of bundling, because we don’t see a lot of bundling in the US?

Yes, I think it's a very different environment in these markets. You know, the closest proxy in the US would be a specialized, small you know, kind of contained rural or regional market. But you know, like a Shantelle [ph] right. It’s probably the best example. I think we have never believed that the one bill really matters all that much, but I do think - the way we think of it is, we can provide, we can be kind of agnostic and provide the connectivity that the market needs in whichever way is most attractive to the consumer and most efficient for us economically. And I think consumers do. There is some benefit to them if it's done right to having the relationships hold together. So you know, you're a lot - you know, you can determine what the thing is that they care more about that you have a competitive advantage on and use that in your pricing of the bundle to help. So we think it does have value and it and it does work. But if any piece of your bundle is you know, is not competitive with the other offerings you know, it's got to be closed or it doesn't really work. Does that make sense Ric to your follow up? I think we lost him. Operator, any other question?

[Operator Instructions] And we have no further questions.

Okay. That's all we have folks. Thank you everyone. We'll see you in a few months.

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.