ATN International, Inc. quarterly report, Q1 FY2020

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ATN International, Inc. — Q1 2020 Form 10-Q

Business context and period: Unaudited results for the three months ended March 31, 2020, compared with Q1 2019; balance sheet compared with December 31, 2019. ATN operates International Telecom, US Telecom and Renewable Energy businesses. The filing notes a revised revenue presentation: communication services now includes mobility, fixed and carrier services; managed services and renewable energy are included in other revenue.

Financial results and liquidity

  • Revenue: $110.9 million, up 7.4% from $103.3 million. Communication services revenue increased 7.4% to $107.9 million; other revenue was $3.0 million.
  • Operating results: Operating income rose to $7.3 million from $2.1 million. Operating margin was approximately 6.6%, versus 2.0%. Depreciation and amortization increased 8.7% to $22.5 million.
  • Net income and EPS: Consolidated net income was $2.4 million, compared with $0.7 million. ATN stockholders’ net loss narrowed to $1.0 million from $1.6 million; diluted loss per share was $0.06 versus $0.10. $3.4 million of income was attributable to non-controlling interests.
  • Cash flow: Operating cash flow was $15.5 million, down from $18.8 million. Capital expenditures were $14.1 million, versus $17.8 million; operating cash flow less capital expenditures was approximately $1.4 million. Investing activities used $16.8 million and financing activities used $13.9 million.
  • Cash and liquidity: Cash, cash equivalents and restricted cash totaled $147.0 million at quarter-end, down $15.4 million from year-end. The $200 million revolving facility had no borrowings and $189.2 million available after letters of credit. Management said available cash and credit were expected to meet working-capital and capital-expenditure needs for at least 12 months.
  • Debt: Reported debt was approximately $85.5 million, primarily the $60.0 million Viya loan and $26.2 million One Communications loan. The company had $18.1 million of variable-rate debt outstanding. It was compliant with the 2019 Credit Facility and One Communications covenants; the Viya covenant breach for 2019 had been waived in February 2020.
  • Equity returns: The quarterly dividend was $0.17 per share. ATN repurchased $1.6 million of stock under its repurchase plan during the quarter.

Material changes and operating drivers

  • US Telecom: Revenue increased 27.0% to $27.3 million, principally from FirstNet-related carrier services and Connect America Fund Phase II revenue. Segment operating income improved to $2.2 million from a $3.5 million loss.
  • International Telecom: Revenue rose 2.5% to $82.3 million, mainly due to broadband growth. Operating income declined 2.9% to $13.5 million as expenses increased, including as US Virgin Islands operations normalized after hurricane disruption.
  • Renewable Energy: Revenue declined 13.3% to $1.3 million due to lower production and rates; the operating loss widened to $0.5 million.
  • Other expense: Net other expense was $3.8 million versus $0.2 million of expense in Q1 2019. Q1 2020 included a $2.0 million write-down of a previously acquired non-controlling investment and a $0.9 million foreign-currency transaction loss.
  • Foreign currency: Foreign-currency translation reduced other comprehensive income by $4.4 million; accumulated other comprehensive loss increased to $7.9 million.

Outlook, risks and contingencies

  • COVID-19: Management reported no material impact on the Q1 financial statements from its assessment to date, but warned that later periods could be materially affected. Risks include lower mobility, fixed, roaming, managed-services and solar demand; customer concessions, delayed payments and higher bad-debt expense. The company said 2020 capital expenditures would be below its earlier forecast, but uncertainty about vendor, contractor and government reopening made a revised amount unclear.
  • FirstNet: ATN expects approximately $80–85 million of construction revenue over the next two years, largely offset by construction costs and with minimal operating-income impact. Management expected a relatively steady operating-income contribution from 2020 onward; post-construction carrier-services revenue may have contractual step-downs and caps. A new facility allows up to $75 million of borrowing against eligible FirstNet receivables.
  • Government support: The $79.9 million Connect America Fund Phase II award runs over 10 years; $1.9 million was recognized in Q1 2020. The company also reported $15.8 million of E-Rate construction grants awarded, with construction obligations beginning in June 2020. These programs carry operating, reporting and construction requirements and potential clawbacks.
  • Guyana risks and disputes: Changes to the regulatory regime could affect GTT’s exclusive license and carrier-services revenue; the timing and outcome remain uncertain. A disputed tax matter totals $44.1 million, for which ATN accrued $5.0 million. Related litigation and spectrum-fee disputes remain unresolved.
  • Other risks: Management cited competition, roaming arrangements, network investment and capacity, supplier dependence, regulation, natural disasters, foreign-exchange movements and access to capital. The filing states disclosure controls were effective as of March 31, 2020.

Important facts for investors to verify

  1. Whether COVID-19 effects on customer payments, subscriber demand, roaming and renewable-energy production materially change subsequent-quarter results and cash flows.
  2. FirstNet construction timing, costs, receivable financing usage, and expected economics after site acceptance.
  3. Progress on planned capital-spending reductions and whether liquidity remains adequate while supporting operations, dividends and investment activity.
  4. Developments in Guyana’s licensing and tax disputes, including potential exposure beyond the $5.0 million accrual.
  5. Compliance with debt covenants, the status of the Viya waiver and any borrowing under the FirstNet receivables facility.