ATN International, Inc. quarterly report, Q2 FY2021

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ATN International, Inc. — Q2 2021 Form 10-Q

Business context and period. Unaudited results cover the quarter and six months ended June 30, 2021, compared with the same 2020 periods. ATN provides telecom services in international markets and the U.S.; its India solar business was sold in January 2021. Alaska Communications was acquired on July 22, 2021, after the reporting date, so its results are not included.

Key financial metrics

Amounts below are in millions of U.S. dollars unless noted.

  • Revenue: Q2 revenue was $123.9 million, up 13.5%; communication services revenue rose 6.3% to $113.0 million and other revenue increased to $10.9 million, principally reflecting $9.3 million of FirstNet construction revenue. First-half revenue was $248.4 million, up 12.9%, including $21.6 million of FirstNet construction revenue.
  • Profit: Q2 operating income was $2.9 million versus $7.0 million; operating margin was approximately 2.3% versus 6.4%. Net income attributable to ATN shareholders was $2.0 million, down 57.5%, or $0.13 per diluted share versus $0.30. For the first half, operating income was $6.3 million versus $14.3 million and operating margin was approximately 2.5% versus 6.5%; net income attributable to ATN shareholders increased 26.5% to $4.7 million, or $0.30 per diluted share. Consolidated net income, before non-controlling interests, fell to $7.6 million from $10.7 million.
  • Cash flow and investment: First-half operating cash flow was $27.5 million, down from $40.4 million, primarily due to lower operating income and working-capital needs tied to FirstNet construction. Investing activities used $25.3 million; capital expenditures were $41.9 million versus $32.0 million. Financing activities used $11.2 million. Cash, cash equivalents and restricted cash totaled $96.0 million at June 30, down from $105.0 million at year-end.
  • Debt and liquidity: Debt, net of deferred financing costs, was $87.7 million at June 30, including $17.2 million under the FirstNet receivables facility. ATN had no borrowings under its $200 million CoBank revolver and reported $184.0 million available after letters of credit; the receivables facility had $57.4 million available. ATN reported compliance with CoBank financial covenants. These figures precede the Alaska acquisition financing.
  • Dividends: The quarterly dividend remained $0.17 per share; $0.34 per share was declared for the first half.

Material changes versus the prior comparable period

  • International Telecom revenue increased 7.6% in Q2 and 4.7% for the first half, supported by fixed broadband and mobility growth and some recovery in tourism-related roaming. Segment operating income was broadly flat in Q2 and slightly lower for the first half.
  • U.S. Telecom revenue grew 33.3% in Q2 and 40.4% for the first half, mainly from FirstNet construction and fixed broadband. Segment operating results shifted to losses of $0.6 million in Q2 and $1.1 million for the first half, as construction and other growth-related costs outpaced revenue.
  • Higher construction costs, SG&A and transaction costs contributed to consolidated operating-income declines. Depreciation and amortization decreased, while interest expense also declined year over year.
  • First-half other income was $2.3 million, compared with a $2.3 million expense in 2020, mainly reflecting gains on non-controlling investments. The Vibrant solar sale reduced reported renewable-energy revenue; ATN retained a 33% interest accounted for under the equity method.

Outlook, risks, contingencies and unusual items

  • Capital spending and FirstNet: Management expected 2021 capital expenditures of $45–$55 million for International Telecom and $45–$50 million for U.S. Telecom, excluding Alaska Communications. FirstNet construction revenue was expected to total approximately $80–$85 million through 2022, largely offset by construction costs and with minimal operating-income impact. The build had been delayed; about 40% of sites were complete at June 30, with an additional 25% expected by year-end and the remainder in the first half of 2022.
  • Alaska acquisition: ATN completed the approximately $340 million cash acquisition on July 22, 2021, obtaining about 52% of Alaska Communications’ common equity and control. Financing included $220 million drawn under Alaska’s new credit facility and a roughly $70 million investment by Freedom 3 investors; ATN also drew $73 million on its CoBank facility and subsequently repaid $10 million. Purchase accounting was incomplete at filing, so pro forma results and purchase-price allocation were not yet available. Management cited expected synergies of approximately $2 million over 18 months; realization is uncertain.
  • Government support: Viya lost the Connect USVI award. Its legacy High Cost support is scheduled to fall to two-thirds of the prior amount ($10.9 million) in the first year, one-third ($5.5 million) in the second year, and zero thereafter. The timing and financial effect warrant monitoring. ATN also reported $20.1 million of expected RDOF support over 10 years, pending FCC confirmation.
  • Legal and regulatory matters: ATN disclosed Guyana tax disputes totaling $44.1 million and accrued $5.0 million; it also accrued $1.1 million in connection with enforcement of a Trinidad & Tobago judgment of approximately $2.8 million. Guyana licensing changes may increase competition and regulatory costs. Outcomes and timing of these matters remain uncertain.
  • Other risks and unusual items: COVID-19 had no material adverse effect on reported results through June 30, but renewed travel restrictions could hurt tourism-dependent Caribbean markets and equipment availability. Q2 tax results included a $3.4 million benefit from reversal of an unrecognized tax position, partly offset by interest expense on tax positions. The filing also describes possible clawbacks if grant or spectrum-license requirements are not met. Management said it was in compliance with applicable requirements.
  • Management stated that current cash, short-term investments and credit availability were expected to meet working-capital and capital-expenditure needs for at least the next 12 months; this assessment predates the acquisition financing and integration demands.

Most important facts for investors to verify

  • How much of revenue and cash flow is recurring service revenue versus FirstNet construction, and whether FirstNet costs and timing track management’s expectations.
  • The post-acquisition debt, interest burden, liquidity, covenant headroom and final purchase accounting for Alaska Communications.
  • Progress on Alaska integration, the expected $2 million of synergies, and exposure to its competition, federal support audits, labor agreement and pension obligations.
  • The schedule and magnitude of Viya’s High Cost support reductions, and developments in Guyana licensing, tax and litigation matters.
  • Whether operating cash flow recovers as FirstNet receivables and construction working capital convert to cash, alongside planned capital spending and dividends.