ATN International, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless otherwise noted. ATN operates U.S. and international telecommunications businesses and renewable energy operations in India. It sold its U.S. solar business in November 2018.
Key financial results
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Revenue | $103.3m | $104.5m | Down 1.1% |
| Operating income | $2.1m | $4.2m | Down 49.8%; operating margin approximately 2.0%, versus 4.0% |
| Net income (loss) | $0.7m | $(2.3)m | Consolidated result improved |
| Net loss attributable to ATN shareholders | $(1.6)m; $(0.10) per diluted share | $(5.6)m; $(0.35) per diluted share | Loss narrowed |
| Cash provided by operations | $18.8m | $22.5m | Down $3.7m |
| Capital expenditures | $17.8m | $51.9m | Lower mainly because Q1 2018 included U.S. Virgin Islands hurricane restoration spending |
| Cash, cash equivalents and restricted cash | $172.6m | $192.9m at Dec. 31, 2018 | Down $20.4m during the quarter |
| Debt | $90.1m, net of deferred financing costs | $91.0m at Dec. 31, 2018 | No borrowings under the revolving facility at March 31 |
| Current assets / current liabilities | $261.1m / $141.3m | $275.8m / $140.7m at Dec. 31, 2018 | Current ratio approximately 1.85 |
Dividends were $0.17 per share. Operating cash flow less reported capital expenditures was approximately $1.0m; this is a simple calculation, not a company-reported free-cash-flow measure.
Material changes and business drivers
- Wireline revenue rose 25.2% to $60.2m, primarily reflecting recovery and normalization in the U.S. Virgin Islands and broadband growth in other international markets.
- Wireless revenue fell 17.7% to $41.6m. U.S. Telecom wireless revenue declined $7.0m, including $2.3m associated with the 2018 sale of 100 cell sites and $4.7m from reduced roaming traffic. International wireless revenue also declined, including lower U.S. Virgin Islands roaming.
- Renewable energy revenue decreased 74.4% to $1.5m, primarily because the U.S. solar operations had been sold; growth from newly operational India projects partly offset the decline.
- International Telecom operating income increased to $13.9m from $5.6m. U.S. Telecom shifted to a $3.5m operating loss from $5.2m of income, while Renewable Energy shifted to a $0.2m loss from $1.9m of income.
- Q1 2018 included $30.9m of hurricane rebuild capital spending and $34.6m of insurance proceeds; Q1 2019 rebuild spending was $0.1m. Management said restoration was substantially complete but a return to pre-hurricane revenue could take significant time or may not occur.
Liquidity, debt and notable items
- On April 10, 2019, after quarter-end, ATN replaced its $225m revolver, which matured in December 2019, with a $200m revolving facility maturing April 10, 2024. Approximately $8.0m of performance letters of credit were issued and undrawn at closing.
- ATN reported $60.0m of Viya debt and $30.9m of One Communications debt. It had received a waiver for Viya’s 2018 year-end leverage covenant noncompliance; One Communications covenants were met at quarter-end. ATN said it was in compliance with the then-current revolving facility covenants.
- Adoption of lease accounting on January 1, 2019 added operating lease right-of-use assets and liabilities; at March 31, operating lease liabilities were $67.2m. The adoption did not affect equity.
- Q1 investing cash outflow included a $10.0m convertible debt investment in an early-stage venture and $5.0m of purchases of short-term investments.
- The effective tax rate was 62.3%, affected by discrete tax items and the mix of income and losses among jurisdictions.
Outlook, risks and contingencies
- Management expects U.S. wholesale wireless revenue and margins to continue declining because of lower roaming traffic and the cell-site sale; it expects significantly lower U.S. Telecom capital spending going forward.
- ATN expects International Telecom revenue may rise as U.S. Virgin Islands operations normalize, but cautioned that pre-hurricane revenue recovery is uncertain. It expects international capital expenditures of approximately $50m–$55m for 2019. U.S. Telecom capital expenditures were expected to remain consistent with 2018, excluding new initiatives and early-stage business spending.
- Management expected moderate 2019 growth from India solar projects, subject to project timing and financing. No consolidated revenue or earnings guidance is provided in the supplied filing text.
- ATN was awarded $79.9m over 10 years under the Connect America Fund Phase II and expected payments to begin in mid-2019. It also had approximately $15.4m of E-Rate construction awards, with completion obligations between June 2019 and June 2020. These programs carry operational, reporting, construction and potential clawback requirements.
- Guyana regulatory changes could threaten GTT’s exclusive rights; related government discussions were ongoing, and consolidated litigation was scheduled for trial in Q2 2019. A disputed Guyana tax assessment totals $44.1m; ATN accrued $5.0m and said it could not predict the outcome.
- Other disclosed risks include competition, dependence on roaming relationships and key vendors, network investment and cybersecurity needs, natural disasters, foreign-currency fluctuations, access to capital, and regulatory and tax uncertainty.
Most important facts for investors to verify
- Whether U.S. Virgin Islands customer recovery and wireline revenue progress as anticipated, and whether the business can approach pre-hurricane levels.
- Trends in U.S. wholesale roaming traffic, customer relationships and margins after the cell-site sale.
- Execution, funding and returns for international network upgrades, India solar projects and early-stage investments.
- Compliance with debt covenants and the financial impact of the Viya waiver, the new revolving facility and Guyana tax and regulatory proceedings.
- Timing and conditions for Connect America Fund and E-Rate receipts, including fulfillment of program requirements.