ATN International, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are noted separately below. Amounts are in U.S. dollars unless stated otherwise.
Business context
ATN operates U.S. and international telecommunications businesses and solar power operations in India. Its three reporting segments are U.S. Telecom, International Telecom, and Renewable Energy. In November 2018, ATN sold its U.S. solar business; India remained its renewable energy operating market at year-end.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $451.2 million | $481.2 million |
| Operating income | $61.0 million | $55.3 million |
| Operating margin | 13.5% | 11.5% |
| Net income attributable to ATN shareholders | $19.8 million; diluted EPS $1.24 | $31.5 million; diluted EPS $1.94 |
| Operating cash flow | $115.9 million | $145.7 million |
| Capital expenditures | $185.9 million | $142.4 million |
| Cash, cash equivalents and restricted cash | $192.9 million | $219.9 million |
| Debt, including current portion | $91.0 million | $155.8 million |
| Working capital | $135.1 million | $181.2 million |
Operating cash flow less capital expenditures was negative approximately $70.1 million. Cash balances exceeded reported debt by approximately $101.9 million, though cash location, restrictions, obligations, and subsidiary-level financing affect availability.
Material changes versus 2017
- Revenue fell 6.2%, principally because U.S. wholesale wireless revenue declined $34.1 million, reflecting lower roaming rates and traffic, contractual revenue caps, and the July 2018 sale of approximately 100 cell sites. The sale also contributed a reported $15.2 million gain.
- International Telecom revenue increased 3.0% to $313.6 million. The segment recorded $15.5 million of additional, hurricane-related FCC support in 2018; ATN said this level of support is not expected to recur. Segment operating income rose to $45.0 million from $28.3 million.
- U.S. Telecom revenue declined 25.8% to $115.5 million and segment operating income fell to $36.8 million from $55.3 million.
- Renewable Energy revenue increased 6.2% to $22.2 million, while segment operating income rose to $13.4 million. Results included the U.S. solar sale; future renewable energy revenue is expected to be lower following the divestiture.
- Operating income increased 10.3%, but shareholder net income declined 37.1%. Income tax expense was $18.9 million in 2018, compared with a $1.3 million tax benefit in 2017; the respective effective tax rates were 35.1% and negative 2.8%.
Liquidity, debt, and capital allocation
- ATN had no borrowings under its $225 million revolving credit facility at year-end. The facility matures December 31, 2019, and management expected to enter a replacement agreement before maturity.
- Debt declined substantially, in part because the buyer of the U.S. solar business assumed approximately $57.3 million of debt. The sale had a stated total transaction value of approximately $122.6 million, including $65.3 million cash consideration; approximately $6.5 million was held in escrow.
- Capital expenditures rose to $185.9 million, including $80.2 million for U.S. Virgin Islands network restoration and resiliency work. Management estimated 2019 capital expenditures of $50–55 million for International Telecom and $13–15 million for U.S. Telecom, excluding new initiatives and early-stage business spending. India expansion depends substantially on financing availability.
- ATN declared $10.9 million of common-stock dividends in 2018 and reported $37.7 million remaining under its $50 million repurchase authorization at year-end.
Outlook, risks, and unusual items
- U.S. Virgin Islands recovery: Hurricanes Irma and Maria damaged networks and disrupted service. ATN spent $80.2 million on restoration in 2018 and said network restoration was substantially complete, but a return to pre-hurricane revenue levels could take significant time or may not occur. The additional $15.5 million of 2018 FCC support is not expected to continue at that level.
- U.S. wholesale wireless: Management expected revenue and margins to continue declining because of lower roaming traffic and rates, contractual caps, and the site sale. ATN expected capital expenditures in this segment to be significantly lower.
- International and India growth: Management anticipated potential recovery in U.S. Virgin Islands wireline revenue and moderate growth as additional Indian solar projects become operational. India expansion is subject to access to third-party financing, land, grid connections, and bankable power-purchase agreements.
- Viya covenant: Viya did not comply with its 3.5-to-1 net leverage covenant for 2018. The lender waived the breach on February 25, 2019. The filing also describes increased permitted intercompany advances to fund hurricane restoration.
- Contingencies: Guyana’s government may implement legislation introducing telecommunications competition, putting GTT’s exclusive license rights at risk. GTT also has disputed tax assessments totaling $44.1 million; ATN states that potential amounts may be offset by contractual protections and had accrued $5.0 million for the matters. Related Guyana litigation remained pending, with a trial expected in the second quarter of 2019.
- Unusual items and taxes: 2018 included $26.4 million of net gains on dispositions of long-lived assets and a $10.6 million net increase in unrecognized tax positions. ATN reported gross unrecognized tax benefits, including interest and penalties, of $34.7 million at year-end.
- Other risks: Dependence on major U.S. wireless carriers and Guyana operations, competition, regulation and USF funding changes, natural disasters, foreign-exchange exposure, network cybersecurity, and substantial operating and capital needs.
Fourth-quarter snapshot
For the three months ended December 31, 2018, revenue was $107.8 million, operating income was $10.3 million, net income attributable to ATN shareholders was $1.1 million, and diluted EPS was $0.07. The comparable 2017 quarter reported revenue of $107.7 million, operating income of $41.3 million, shareholder net income of $43.5 million, and diluted EPS of $2.71. The filing’s annual discussion identifies material disposition gains and differing tax results; investors should review quarterly notes and reconciliations before treating the year-over-year earnings comparison as representative.
Most important facts for investors to verify
- Reconcile the U.S. solar transaction gain: the MD&A cites a $12.4 million gain, while the disposition note presents a $10.3 million gain after transaction costs.
- Track U.S. wholesale wireless revenue, roaming rates and traffic, carrier contract caps, and the financial effect of the 100-site sale.
- Monitor U.S. Virgin Islands subscriber and revenue recovery, restoration costs, and the FCC’s decision on future USF allocation and eligibility.
- Confirm ongoing compliance with Viya’s loan covenant after the February 2019 waiver, and review the revolving facility refinancing ahead of its December 2019 maturity.
- Assess the outcome of Guyana’s regulatory and tax matters, including the $44.1 million disputed assessments and the $5.0 million recorded accrual.
- Evaluate whether India project financing, construction, offtake agreements, land rights, and grid access support the stated growth pipeline.