ATN International, Inc. annual report, FY2023

ATN International, Inc. — 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide separate fourth-quarter results. Amounts are in U.S. dollars.

Business context

ATN provides fixed and mobile telecommunications, carrier network services, and managed IT services in rural and remote U.S. markets, including Alaska and the western United States, and in Bermuda, the Cayman Islands, Guyana, and the U.S. Virgin Islands. Its strategy emphasizes fiber and fiber-fed broadband expansion and a shift toward carrier managed services. At year-end, ATN reported approximately 768,900 broadband homes passed, 214,400 U.S. broadband customers, 157,000 international broadband customers, and 409,000 international mobile subscribers.

Key financial results

Metric	2023	2022	Change
Total revenue	$762.2 million	$725.7 million	Up 5.0%
Operating income	$13.2 million	$7.9 million	Up $5.2 million
Operating margin	1.7%	1.1%	Improved
Net loss attributable to ATN stockholders	$14.5 million	$5.6 million	Loss widened
Diluted loss per share	$1.25	$0.67	Loss widened
Cash from operating activities	$111.6 million	$102.9 million	Up $8.7 million
Capital expenditures	$196.2 million	$168.0 million	Up $28.1 million
Interest expense	$42.7 million	$20.4 million	Up $22.3 million

Communication services revenue rose 6.2% to $735.1 million, while construction revenue declined 32.6% to $10.6 million as fewer FirstNet sites were completed. Operating expenses increased 4.4% to $749.0 million. Higher interest expense was the principal pressure below operating income; ATN reported a $27.5 million pretax loss and an $8.8 million income tax benefit in 2023.

International Telecom revenue increased 4.2% to $370.7 million and operating income rose 2.7% to $53.4 million. U.S. Telecom revenue increased 5.8% to $391.5 million, but the segment continued to report an operating loss, $5.5 million versus $5.7 million in 2022. Consolidated results also include corporate overhead.

Debt, liquidity, and cash flow

At December 31, 2023, cash, cash equivalents, and restricted cash totaled $62.2 million, including $12.9 million of restricted cash. Debt, net of unamortized financing costs, was $516.9 million; the separate customer receivable credit facility had $46.1 million net carrying value. Total current assets were $281.3 million and current liabilities were $293.2 million. Management stated that cash, short-term investments, and available credit were expected to meet working-capital and capital-expenditure needs for at least 12 months.

Undrawn availability was reported as $136.4 million under the CoBank facility, $15.0 million under the receivables facility, and $40.0 million under Alaska Communications’ revolving facility. ATN generated $111.6 million from operations and used $165.1 million in investing activities and $163.3 million for capital expenditures as presented in the cash flow statement; government capital-program disbursements and reimbursements are reported separately. The filing’s segment capital-expenditure disclosure is $196.2 million, including reimbursable spending.

Scheduled debt principal payments are $24.3 million in 2024 and $316.6 million in 2026, the latter including substantial Alaska facility maturities. ATN reported compliance with its CoBank financial covenants at year-end. The covenant limits the defined total net leverage ratio to 3.25-to-1.0. Variable-rate debt was $180.9 million; management estimated that a 100-basis-point rate change would change annual interest expense by approximately $1.8 million.

Material changes and unusual items

• Revenue growth reflected higher fixed and mobility revenues, the Sacred Wind acquisition’s contribution, and business growth in Alaska. Higher subscriber-related, marketing, regulatory, and professional costs offset part of the growth.
• ATN incurred $11.2 million of restructuring expense, including network termination and employee termination costs.
• Interest expense more than doubled, reflecting higher borrowings, higher floating rates, a full year of Sacred Wind debt expense, and new GTT facilities.
• 2023 included a $4.2 million increase in Sacred Wind contingent consideration, partly offset by a $2.6 million gain related to the Vibrant transaction settlement.
• Operating cash flow improved year over year, while investment spending remained elevated. ATN said it had made a strategic decision to reduce capital investment in 2024 and return toward more normalized levels beginning in 2025.

Outlook, commitments, and risks

• ATN forecast 2024 capital expenditures of approximately $110 million to $120 million, net of reimbursements. The filing does not provide clear 2024 revenue, earnings, or EBITDA guidance.
• The FirstNet build was 88% complete at year-end. ATN expected substantial completion by the end of 2024, with the remainder in early 2025; estimated remaining construction costs were approximately $10.1 million. FirstNet construction revenue is expected to have minimal operating-income impact.
• A new Verizon carrier managed services agreement provides for approximately $200 million of payments over an initial seven-year term. ATN expected the build to be substantially complete by the end of 2024; the agreement includes performance milestones and termination provisions.
• ATN’s FCC Replace and Remove reimbursement allocation was up to approximately $207 million, about 40% of requested costs. The filing reports $47.3 million of related receivables expected to be reimbursed within 12 months and $17.1 million received during 2023 in its detailed discussion; another section describes receipts as approximately $18 million. Funding shortfalls, reimbursement approvals, and completion timing remain risks.
• The FCC announced that the Affordable Connectivity Program would end in the second quarter of 2024 unless Congress authorized additional funding. ATN warned that loss of the subsidy could make broadband less affordable for some customers and lead to subscriber losses.
• ATN depends on government support for a portion of its revenues and faces compliance and buildout obligations. It reported $107.6 million of communication-services revenue from listed government programs in 2023. Potential changes to support programs, including an FCC proceeding concerning Alaska support, could affect results and liquidity.
• ATN accrued $16.3 million for legal, tax, and regulatory matters. These include a USAC/FCC inquiry into Alaska Communications’ Rural Health Care program and unresolved Guyana spectrum, litigation, and tax disputes; outcomes and possible additional exposure are uncertain.
• Other risks include higher financing costs, competition from fiber, wireless, and satellite providers, execution of major network projects, supply-chain and inflation pressures, cybersecurity or network outages, severe weather, foreign-exchange exposure, and pension and labor obligations.

Important facts for investors to verify

• Whether operating cash generation can support debt service and the planned reduction in 2024 capital spending, particularly given the 2026 debt maturities.
• Actual progress, cost, reimbursement, and deadline extensions for the Replace and Remove program; reconcile the filing’s approximately $18 million and $17.1 million reimbursement disclosures.
• FirstNet and Verizon build milestones, customer acceptance, and the expected revenue and operating-income contribution after construction.
• How the possible end of ACP funding and changes in other government support affect subscriber retention, revenue, and deployment commitments.
• Developments in the Alaska Rural Health Care audit and Guyana proceedings, including whether the $16.3 million accrual remains adequate.
• Execution of the 2024 capital plan, compliance with debt covenants, and floating-rate exposure. The auditor reported effective internal control over financial reporting and issued an unqualified opinion; the US Telecom goodwill valuation was identified as a critical audit matter, with estimated fair value exceeding carrying value by 16%.