ATN International’s (ATNI) CEO Michael Prior on Q4 2019 Results – Earnings Call Transcript

ATN International, Inc. (NASDAQ:ATNI) Q4 2019 Earnings Conference Call February 20, 2020 9:30 AM ET

Company Participants

Justin Benincasa – Chief Financial Officer

Michael Prior – Chief Executive Officer

Conference Call Participants

Allen Klee – National Securities

Rick Prentiss – Raymond James

Greg Burns – Sidoti & Co

Hamed Khorsand – BWS Financial

Operator

Good afternoon, ladies and gentlemen, and welcome to the ATN International Fourth Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call might be recorded.

I would now like to turn the conference over to your host, Mr. Justin Benincasa, Chief Financial Officer. Sir?

Justin Benincasa

Great. Thank you, May. Good morning, everyone, and thank you for joining us on our call to review our fourth quarter and full year 2019 results. As usual 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 with that I will turn the call over to Michael for his comments.

Michael Prior

All right, thanks Justin. Good morning everyone. Well, our operating units continued the positive performance of the third quarter, and as a result of the second half of 2019 was a major improvement over the first half, and we expect these tailwinds to carry over into 2020.

International Telecom posted another solid revenue increase and even stronger EBITDA growth. And we believe there is room for improvement in competitive performance. U.S. Telecom was a very similar story to the third quarter as more progress was made on solidifying wholesale revenues while we work on developing growth opportunities in other areas. Unfortunately, this progress was not reflected in our reported earnings per share. Based on market developments and the year-end review, we concluded that we needed to write-off the goodwill of our India Renewable Energy business, though that business continues to make strides in landing new customers and developing further pipeline. Currency losses in Asia Pacific did not help either.

With that, let me get into some additional details, starting with International Telecom, and then I will conclude with some thoughts about the year as a whole and the outlook for 2020. So again, starting with International Telecom, as I said, our largest segment continues to perform well. Revenue and EBITDA were up both year-on-year and on a consecutive quarter basis. We are reaping the advantages of the substantial network investments from previous years, particularly in fixed data services for consumers and businesses. Operating margins are getting stronger. And capital expenditures for this segment were $120 million lower for 2019 than 2018, for an annual capital intensity to be about 13% for this segment.

While planned and expected, the benefit to free cash flow was important. And outside of opportunistic growth investments, we would expect 2020 to follow suit. The acquisitions we made in 2016 and the investments that followed, have added valuable scale to this segment, which we can see in the operating margin and save for the large, rather large hiccup of the 2017 hurricanes, they are also producing the cash flows we expected.

Where we’ve had less success is in growing mobile revenue and subscribers. For the quarter, we ended up with roughly 284,000 mobile subs, which is down from about 300,000 a year ago. And while this had a negligible impact on wireless revenue as – the losses were mostly in the low end of ARPU subs, we are determined to reverse that trend this year.

In video subs, as with the many markets, continued to decline about 8% year-on-year, as did voice subscribers, though at a lower rate. Data subscribers, of course, were the key here and ended the quarter and the year just shy of 130,000, which represents an increase of roughly 8% year-on-year.

Looking forward, while we have room to continue to grow data subscribers and broadband households, we think the larger opportunity is in enterprise data services, where we see potential in multiple markets.

Moving to U.S. Telecom – or wait, first thing to notice is what a difference the half year makes. While not as good as the unusually strong third quarter, which benefited from seasonal factors, results for this segment this quarter were well above results from the fourth quarter of 2018 and the quarterly performance from the first half of 2019. And we have a lot going on in this segment. We are working hard in the large and complex requirements of our piece of the FirstNet build-out, and we are continuing to focus attention on growth initiatives, both in and outside of wholesale.

We’ve touched on most of these before, but they include enterprise, high-speed data services, neutral host opportunities then our traditional rural operating areas and private LTE solutions elsewhere. Broadly speaking, I would divide these opportunities into those that are focused on building networks and providing services to wholesale and retail customers in rural areas, and those that are focused on the in-building our enterprise on-site market for secure carrier class wireless connectivity. In some cases, we are more in a build-and-position mode, and in others, we are in a straightforward customer-acquisition mode. We will look to provide more detail as these things develop over the course of 2020.

And with respect to private LTE, I know we’ve had questions from investors about that, so to just give a little more color. We are going after this through our Geoverse subsidiary, and Geoverse has begun deploying into several verticals and is also partnering with multiple players interested in taking advantage of its network layer solution. What we see is the next stage of industry development of in-building and enterprise solutions is still early in its development. But we and many other participants expect things to move fairly quickly in 2020 and certainly, 2021, with the advancement of the CBRS and 5G technology ecosystems, and as building owners and occupants realize there is a much more powerful, secure and reliable solution than Wi-Fi available.

In Renewable Energy, while the revenue was relatively immaterial on a consolidated basis, the team was busy pursuing two large builds for top-tier corporate off-takers, and we hope these activities lead to a larger contribution as we get deeper into 2020.

And as noted in our press release, we have invested approximately $32 million over the past three years in four early-stage companies with telecom technology or services business models. In rough order of investment size, these include: an international communications tower and neutral host company, two wireless technology companies and a developer of a new satellite antenna technology. While this company features still in relatively early stages of development, we are optimistic about creating shareholder value here, both through financial returns and through the contribution, in some cases, of technologies or solutions that leads to other business success at ATN.

We’ve also made controlling investments in several other businesses, including a private LTE in-building company and managed and cloud services business and a long-haul fiber initiative. The managed services business, Fire Mines, is growing nicely for a young company and is contributing to the product set of both our international and U.S. Telecom businesses. The Fiber business is in protracted discussions with customers and what unsurprisingly is proving to be a long sales cycle business. The in-building company, Geoverse, which I just discussed, has developed a strong solution and positive momentum.

So to summarize for the quarter, I think the key takeaways are: while operating income and net income were negatively impacted by some impairments and other losses related to certain of our minority and overseas investments, our largest businesses performed well. And we were able to continue the positive momentum in our telecom segments through year-end. And our visibility is quite a bit better today than it was a year ago. We like where these businesses are right now, and we expect continued positive comparisons as we move into 2020.

And with that, I’ll hand it back to you Justin.

Justin Benincasa

Great. Thank you, Michael. Just beginning with some of the relevant financial data. For the fourth quarter, total consolidated reported revenues were $112.1 million, up 4% from last year’s reported total of $107.8 million. Adjusting for the sale of the U.S. solar portfolio, completed in late 2018, revenue increased 7% from last year. Throughout the year, we consistently reported steady revenue growth and improving profits from the International Telecom segment.

The U.S. Telecom segment also showed significant improvement this quarter over last year, and its revenue and EBITDA performance in the second half of the year was up 27% and 140%, respectively, from the first half of 2019. This reflects the benefits from the CAF II Federal Support Award that we won in 2018 and increased wholesale revenue as part of the FirstNet transaction.

Consolidated adjusted EBITDA for the quarter was $28.5 million, an increase of 22% over 2018 adjusted EBITDA of $23.4 million. Adjusting for the sale of the U.S. solar portfolio, adjusted EBITDA increased 39% year-on-year.

Looking at the segments and starting with the International Telecom – starting with International Telecom, fourth quarter revenues were up 6% to $83.1 million from $78 million last year, and adjusted EBITDA increased 29% to $26.6 million from $20.6 million.

As Michael mentioned in his comments, much of the year-on-year growth comes from post-hurricane recovery in the U.S. Virgin Islands and continued high-speed data subscriber and revenue growth in the markets where we’ve made investments in upgrading and expanding our fiber networks.

Capital expenditures in the segment totaled $42 million for the full year, coming in lower than the $50 million we expected as timing of some of the spend has pushed forward into 2020. We reduced capital expenditures by $118 million in 2019, which represents a substantial free cash flow improvement for the segment, which was one of our main goals for the year.

For 2020, we expect capital expenditures to be similar to 2019 levels at $45 million to $50 million. In the U.S. Telecom segment fourth quarter revenues totaled $27.8 million, up from $24.9 million a year ago. And adjusted EBITDA was $8.3 million, up 28% from $6.5 million in the fourth quarter 2018. While we had expected a small portion of the construction revenue from the FirstNet agreement to start this quarter, the construction schedule was pushed out slightly. We now expect a small portion of the approximately $80 million of construction revenue to be reported in the first quarter of 2020 and continue through mid- to late 2021.

I should note again, though, that this revenue will be offset by construction costs and, therefore, have minimal impact on EBIT and operating income over the build period.

Capital expenditures for the segment were $17.5 million for the full year 2019, slightly above our estimate. We were expecting higher capital expenditures in – we are expecting higher capital expenditures in 2020 for this segment at $35 million to $40 million, which includes approximately $20 million for tower construction and building backhaul that we will own and lease back as part of the FirstNet agreement.

Year-on-year, EBITDA for the quarter included approximately $0.5 million in additional operating costs associated with our early stage businesses.

In Renewable Energy segment, revenues were $1.2 million for the fourth quarter, down slightly from third quarter and the prior year after adjusting for the sale of the U.S. portfolio net – adjusting for the sale of the U.S. portfolio I mentioned earlier.

Adjusted EBITDA was $146,000 for the quarter.

We reported consolidated net loss for the quarter of $9.8 million or $0.61 per share. Included in the loss for the quarter was $5.8 million of goodwill impairment charges and a loss on disposed assets from our India solar operations, given the changing market conditions and related delays in execution.

Other expenses of $1.8 million included approximately $3 million of currency losses in the quarter. The majority of these losses are from the currency devaluation of our 2017 investment in the Australian tower company. In addition to our initial 2017 investment, we recently made an additional investment in January that took our ownership above 20%, which will require us to change our accounting method to equity investment method in 2020.

Our income statement – other income statement items to note, the effective tax rate for the quarter was 67%, reflecting a mix of country operations and the impact of several discrete book tax items, including non-deductible losses that impacted both the quarter and the year. We expect the tax rate to revert to more normal levels in 2020. Also included in operating results was $1.5 million of non-cash stock-based compensation expense for the quarter.

Looking at the balance sheet. We ended the quarter with total cash and short-term investments of $162.8 million and total debt outstanding of $86.4 million. And we mentioned – as we mentioned in the press release, cash from operating activities was down this year compared to last, primarily due to the $27 million tax payment we made this year on the 2018 gain on sale of our U.S. solar operation.

And with that, operator, we’ll like to open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] First question is from the line of Ric Prentiss – or sorry, Allen Klee from National Securities. Your line is now open.

Allen Klee

Yes, hi. The first question is, when you were talking about the U.S. business, I thought I heard you say that maybe there wasn’t construction revenue in the quarter related to FirstNet and then maybe you’d get some in the first quarter of 2020. Did I hear that right? Because then in the text, I thought that…

Justin Benincasa

Yes, yes. We ended – we thought we might have some in this quarter, but the schedule is pushed out. So we’ll have a small amount in the first quarter of 2020, and then it will kind of ramp from there. So it is – there is none in the fourth quarter.

Allen Klee

So all the gains in that segment really came – I mean you have the CAF II, but what else would you point to for the benefits in the U.S. business for the quarter?

Michael Prior

Just improving wholesale revenue?

Allen Klee

Okay. And then when you talked about some of the opportunities in that segment for 2020, you listed areas where you thought you could sell more within retail and wholesale. Could you maybe just expand a little bit into how that would work?

Michael Prior

Yes, I think…

Justin Benincasa

Retail and enterprise, just to be clear, too, sorry.

Michael Prior

Yes, yes. I think there’s also opportunity also, but that maybe takes a little longer. And so the main issue, as Justin said, is retail and enterprise are the main focus. And a lot – the main driver there is high-speed data services, whether it’s fixed wireless solutions to households or to businesses and sometimes fiber to businesses. So it’s under the CAF II. We had to build out and support and offer those services in a lot of these areas. We have the backhaul. We have the network. We have the people in place. And so we’ve been ramping up the selling. And I think, while we made some progress in 2019, we see an opportunity to improve upon that in 2020.

Allen Klee

Would that suggest that outside of FirstNet and CAF II that the segment overall might be more like stable in 2020, excluding those two things rather than being in decline?

Michael Prior

Yes. I think so. I think that this definitely should. We expect some positive contribution from this initiative to the revenues for the segment for sure. And I think we don’t see major pull downs from where we are today. There is some areas that are – that will decline puts and takes. But I think it’s – so I think the short answer is, that’s fair to say.

Allen Klee

Okay. I’ll ask one more question, just relating to the Renewables business. I sort of heard two different things. One, a goodwill write down, which implies the outlook isn’t – or – is not quite as good. But then also that you’re winning some put through that you have some two new customers to add on. Is the way to think of the business now that this quarter’s run rate is kind of reasonable for the first half and then maybe it modestly increases in the second half? But – or it’s hard to know, like, to what degree that could potentially increase? If you could add any color on that. Thank you.

Michael Prior

Sure, Allen. It’s Michael. I don’t think we’re going to forecast – we don’t usually do that anyway. But I also think that the movements are not likely to be material to the company as a whole. I think what we’re trying to say is there is – there are some good developments and good reasons to expect some growth there, it takes time, right? So you land the customers, you build out. So it takes time for the revenue to follow the sort of customer acquisition success. And so that will mute the near-term benefit. And the difference between that and the write-down is really a lot of our initial investments took too long to monetize, if you will. And that’s really underlying what hurt that analysis and why we chose write-off.

Allen Klee

Great. Thank you. I will get back in the queue.

Operator

Your next question is from the line of Rick Prentiss from Raymond James. Your line is now open.

Rick Prentiss

Hey guys. Sorry about the head fake. A couple of questions for you. First, I missed the number, sorry, but I’m busy, earnings morning already. What was the impact of the early-stage companies in the fourth quarter numbers?

Justin Benincasa

It was an additional $0.5 million over last year.

Rick Prentiss

And what was last year, just in…

Justin Benincasa

Yes, it’s probably $1 million last year. So it’s probably about $1.5 million this year.

Rick Prentiss

Okay. And then the FirstNet project, as we have been expecting a little bit in the fourth quarter for the construction side, you mentioned how it’s pushed off and then it be small in 1Q. What’s led to that delay? Was it weather? Was it timing from AT&T, FirstNet, equipment? What kind of led to almost like a half year delay, maybe?

Justin Benincasa

I think it was just a combination of stuff, really. It’s just sites work. It’s just typical stuff, honestly. I don’t think there is anything you can…

Michael Prior

It’s a – I would add, it’s a big overall program. And so there’s that complexity to get that starting momentum, both on our side and on the customer side.

Rick Prentiss

Got you. So a big project. It takes a lot to get wheels running and then once you do, it starts flowing. Any issue with permitting, zoning? We keep hearing, obviously, the FCC and others are trying to get small cells going in urban areas, but are we seeing pushback in any permitting and zoning and the FirstNet target area?

Michael Prior

There’s – in our areas, there’s a – I think we feel pretty good about where we are there, but there’s always some that are taking longer and others, it’s not easy. So you’re right, that is always – can be the long pole in the tent. But I don’t think we have a particular concern there in our areas. I mean we know them well and we know the process well.

Rick Prentiss

Okay. I know I’m bouncing around a bit here. But in India, Renewable Energy is not Telecom, but while the Telecom department, telecom and the telecom fees that are getting imposed and interest in India, any concerns about as of U.S.-based company operating in India? Because a lot of foreign companies are starting to get nervous about the telecom side of India.

Michael Prior

Yes. I mean, I think India is a very promising market and exciting market in a lot of ways. But there is a tendency to do right turns, left turns, sometimes even U-turns by government just has a history of that. Not keeping a steady path that really encourages investment and really honestly, lowers their cost to capital, is the way I think of it. So I don’t think it’s helpful to the pace of foreign direct investment that they need and want to grow that economy. But I still think it will get through that. It will just continue to have growing pains. And in the solar area, we’ve seen a little bit of that. I think the main feature in solar, honestly, and renewable energy has been massive amount of interest in it, which continues. And so in some respects, it’s a buyer’s market, but we still see real value in the assets that are being built.

Rick Prentiss

Okay. And you touched on a little bit in your comments about Geoverse. But we get the question a lot about why do you need private LTE? Why would people maybe want enterprise 5G solutions inside of a factory or a different business as opposed to using Wi-Fi? So could you elaborate a little bit on kind of why building owners or enterprise people would want a private LTE or a private 5G network, but built by some neutral host?

Michael Prior

Sure. And I think I’d add to that, it’s also, what I know I didn’t really mention in my remarks. It’s also – I also think we’re moving to a much less cumbersome, much more cost-effective solution than the DaaS solution, too. So it also affects. So there’s kind of two aspects, which is a better solution than Wi-Fi presents today. And then the second aspect is so-called 5-bar coverage indoors, bringing macro network coverage indoors. So on the first aspect, Wi-Fi is inherently not as safe as protocol as the cellular protocols, if you will. It’s – it doesn’t allow nearly as many connected devices as the emerging 5G technologies will allow. And it’s not nearly as robust in terms of what you can put in it.

I don’t know that there are network slicing technologies involved with Wi-Fi. So it’s – Wi-Fi is – has its purpose and will continue to have its purpose. But I think it’s just – if you really going to go to the next level and put mission-critical systems on your wireless connectivity, I think Wi-Fi is not a great answer, right? And if you look at other places in the world, like Europe has been actually other places in the world, like Europe has been actually well ahead on this in terms of industrial IoT, and you can see that.

You need to know you’ve got a very reliable, very secure solution, you want to be able to connect multiple devices and sensors, and you want to be able to do it at low latency. So I just think there’s a tremendous amount to offer and what didn’t exist before. I mean, I think part of what’s enabling this is also regulatory innovation, right? So the whole CBRS development, with the FCC-led and other jurisdictions are now looking at or copying or doing similar things, really enables you to have that licensed spectrum indoors, that the enterprise can drive as opposed to waiting for a macro carrier to get around to it.

And the other advantage you have on that perspective, it’s – without setting up and having to do RF coordination with multiple carriers, you can set up a multiple carrier capable solution. So as occupants change and their preferred carrier changes. You don’t have to make any changes. So I think there’s a reason there’s a lot of excitement around this, but it’s still early, right? The devices are just starting to roll out sort of the mainstream devices like the iPhone or other to fair in roll out with CBRS-embedded. There are other areas. We produce sims that we can put in customer devices today, but the ecosystem is still developing.

Rick Prentiss

Yes. And the last one for me is then, obviously, the minority interest have continued to grow $25 million in the 2019, $32 million over three years. You laid out a couple of them. But how should we think about how much of your checkbook, because you still have a pretty flush checkbook, how much more of your checkbook are you looking to put into minority interest? And then when would we get a sense of how best from us on the outside valuing what you’ve already invested?

Michael Prior

Sitting – we do evaluate things as they come. As you know, well, Rick, right? So everything has that caveat. But sitting here today, I wouldn’t expect the minority investments to be that large in the next three years as they were in the last three years, just because there’s some unusual items in that. And because we have – we think we have ample opportunities ahead of us with some of these – some of the existing investments, controlled investments we talked about to put money to work. But if an exciting opportunity comes along, we’re going to look at it.

So I think it was unusual because you really had two of those investments really drive that number, and both are not sort of normal. The Australian neutral host business is one where, in a lot of other areas, we would have done it as a controlled investment if we did it. And the ex-com investment was just kind of what we thought is a special opportunity.

Rick Prentiss

And the new satellite technology, was that the one-web one, that is it?

Michael Prior

No, this is an antenna technology. One-web was quite a bit longer ago. This is a new antenna technology, and it’s a relatively small amount of money.

Rick Prentiss

Is it a steerable antenna, flat antenna? What kind of satellite antenna technologies are you thinking about?

Michael Prior

Flat, passive, multi bands, it’s pretty interesting. But I don’t – it’s a small investment for us, and it’s – I don’t really want to be their disclosure vehicles.

Rick Prentiss

All right. Thanks.

Operator

Your next question is from the line of Greg Burns from Sidoti & Co. Your line is now open.

Greg Burns

Good morning.

Michael Prior

Good morning.

Greg Burns

Just one on the International Telecom. You’d mentioned the growth in the wireless part of that business has been lagging your expectations. So what are your plans? Or how do you intend to maybe turn that part of the business around and get some growth out of that side of the business?

Michael Prior

Yes. I think the first one is do a better job on sales and marketing, right? That’s – in a couple of markets, we know and the leadership teams know that they can and should be doing a better job on customer acquisition and the marketing side. And then there’s an element of recovery. I mean some of that was the Virgin Islands, where – just was not our focus. We didn’t want to focus on growing a new mobile product while we were building recovery of the core fixed line data business. And with that done, we’re now in a position to put more attention on that growth side. So it’s a combination of things. But frankly, it’s not rocket science, we just simply haven’t executed

Greg Burns

Okay. And then when we look at the operating margin on the International segment, obviously, you get more scale there. You’ve seen some nice margin expansion this quarter. How should we think about – now do you have a long – or medium- to long-term target of where you think the operating margin on that business can be? Is there further room for operating leverage on the International side of the business?

Justin Benincasa

Hi, Greg. It’s Justin. I think we definitely have room to keep moving that up. If you go back when we first bought those properties in 2016, we said it’s just going to take us some time. And if you go back and look at the kind of the quarter before the hurricane, we’ve moved those margins up on International, pretty significant amount. And I think we still have room to go. It’s just going to be slow. It’s just a slow kind of process to kind of work your way through it in these small markets.

Greg Burns

Okay. And then in the U.S. Telecom, you’d mentioned $20 million for backhaul and site built. Was that part of the AT&T-FirstNet? Or is that actual like CapEx that you’re spending for your own network?

Justin Benincasa

It’s our CapEx in relation to that contract, whether it’s our CapEx, our assets.

Greg Burns

Okay. And lastly, just on some of the investments like Geoverse and others. Rick had asked about making some further equity investments. But in terms of putting operating capital or increasing the spend to grow some of these businesses, what’s your view on that this year? Where are we at? Should we expect increased investments that might show up in the P&L this year to get those businesses to accelerate the growth of those businesses?

Michael Prior

Yes. I think it’s – it is case by case. In some cases, I don’t expect it because there’s other funding sources, particularly in some of the minority investment. Investments in other cases, I think the answer is yes, but largely success-based. I don’t see a big increase in the pace on the control things outside of success-based deployment, if you will.

Greg Burns

Okay. Thank you.

Michael Prior

Yes.

Operator

[Operator Instructions] Your next question is from the line of Hamed Khorsand from BWS Financial. Your line is now open.

Hamed Khorsand

First off, on the FirstNet-related question is, because of the push out, does that mean anything from a maintenance revenue standpoint? Does that get pushed out as well? Or do you think any of that gets recognized in Q1?

Justin Benincasa

No. We would need to do the construction before we flip over to the maintenance. But in the meantime, we pick up the roaming revenue.

Hamed Khorsand

Okay. And because of that roaming revenue, is that what drove the Q4 U.S. revenue higher this past Q4?

Justin Benincasa

Yes. The wholesale and the CAF II, yes.

Hamed Khorsand

Okay. No, what I’m trying to understand is it recurring in any aspect? Are you able to maintain pricing? Or do see any kind of volume increase beyond just what you have with AT&T on the FirstNet deal?

Michael Prior

I think there are things we’re pursuing, but there are puts and takes in that area. So – but I think I’d refer to the answer before on that. I think on the FirstNet side, it’s outside of construction revenue, which is really not meaningful economically. There’s – we’re not expecting any big movements. It should be fairly steady state

Hamed Khorsand

Okay. All right. That was it. Thank you.

Michael Prior

Sure.

Operator

We have our follow-up question from Mr. Allen Klee from National Securities Corporation. Your line is now open.

Allen Klee

So earlier, you said that in the quarter that the adjusted EBITDA loss for emerging investments was around $1.5 million. Is it your thinking that it kind of stays at that rate on a quarterly run rate in 2020? Or it moves higher or lower?

Justin Benincasa

I would say it kind of – it will hover around that rate. But I think as we gain success, it’ll – it could grow before we – as we continue to invest in it. But I don’t think it be materially in the short term.

Allen Klee

So when you say grow, you mean it could become a large – a little bit of a larger loss in – on a quarterly basis in 2020?

Michael Prior

It could, but it’s lending the way we’re operating, we’re really lending those operations now with our other operations in U.S. Telecom. So it’s a little hard to do a perfect allocation. But I think what Justin is trying to say is there is – there – as you’re ramping up a new product, and as you have success, the expense can expand faster than the revenue in the early days, right? So there could be some of that, but we’re not necessarily expecting that to be material in the 2020 numbers.

Allen Klee

Okay. Thank you.

Michael Prior

Sure.

Operator

At this time, I would like to turn it back to the speakers for any further comments.

Justin Benincasa

With no further comments, everybody, thank you, everyone, and we’ll see you in a couple of months for Q1.

Michael Prior

Thanks, everyone.

Justin Benincasa

Take care.

Michael Prior

Bye.

Operator

Thank you, presenters. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, and have a wonderful day. You may all disconnect.

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