ATN International, Inc. — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context
ATN provides wireless and wireline telecommunications services in the United States, Guyana, Bermuda and the Caribbean, and operates distributed solar-generation facilities in the United States. Wireless services generated approximately 67% of FY 2015 consolidated revenue. ATN added its renewable energy segment following its December 2014 solar acquisition; the prior-year comparison is therefore affected by acquisition timing.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $355.4 | $336.3 |
| Operating income | $78.6 | $85.6 |
| Operating margin | 22.1% | 25.4% |
| Income from continuing operations | $32.1 | $58.0 |
| Net income attributable to ATN shareholders | $16.9 | $48.2 |
| Diluted EPS attributable to ATN shareholders | $1.05 | $3.01 |
| Cash from operating activities | $139.2 | $78.0 |
| Capital expenditures | $64.8 | $58.3 |
FY 2015 cash from operating activities less capital expenditures was approximately $74.5 million. At year-end, cash, cash equivalents and restricted cash totaled $398.3 million, including $93.3 million held by foreign subsidiaries and permanently invested outside the United States. Working capital was $384.1 million. Debt totaled approximately $32.9 million, comprising $6.3 million current and $26.6 million long-term; ATN had no borrowings under its $225 million revolving facility and had $10.6 million of letters of credit outstanding.
Annual revenue rose 5.7%, including $21.0 million from solar operations. U.S. wireless revenue grew 1.5% to $155.4 million, while international wireless revenue fell 7.9% to $81.7 million. Wireline revenue increased 1.4% to $86.5 million. The operating-income decline reflected higher operating costs, depreciation and transaction charges. A $19.9 million loss on deconsolidating the Turks and Caicos business was a major contributor to the reduction in pre-tax income. The effective tax rate increased to 43.0% from 32.7%.
Fourth-quarter revenue was $82.9 million, versus $88.5 million in Q4 2014; operating income was $8.2 million versus $19.6 million. Net income attributable to ATN shareholders was $4.2 million versus $12.6 million.
Material changes, outlook and notable items
- Management expected U.S. wireless revenue and margins to decline in 2016 as ATN reduced rates for a major customer in exchange for longer-term contracts. It expected data volumes to continue increasing.
- ATN anticipated 2016 telecommunications capital expenditures of $60–$70 million and planned to pursue further renewable-energy investments. It expected current cash and credit availability to cover working capital and capital expenditures for at least 12 months.
- Two material acquisitions were pending at filing: Innovative, for approximately $145 million, expected to close in mid-2016; and a transaction giving ATN a 51% interest in KeyTech, involving approximately $42 million cash, targeted for completion by the end of Q1 2016. Both required regulatory approvals. These were expectations in the filing, not completed transactions.
- ATN declared FY 2015 dividends of $1.22 per share, up from $1.12 in 2014. Future dividends remain subject to board discretion, cash needs, credit restrictions and other factors.
- Key risks include dependence on a few U.S. wireless customers (AT&T and Verizon accounted for 17% and 19% of consolidated revenue, respectively), competition and network investment needs, and the risk that carriers build or acquire networks that reduce roaming demand. U.S. wireless contributed approximately 44% of consolidated revenue and, excluding corporate overhead, 72% of operating income.
- ATN’s Guyana operations generated approximately 25% of consolidated revenue and face regulatory and litigation uncertainty over GT&T’s exclusive fixed and international service rights. The filing describes disputed Guyana tax assessments totaling $32.4 million; ATN had accrued $5.0 million for related matters and believed the government would be obligated to protect GT&T’s stated 15% return if it were held liable.
- Other exposures include solar PPA and incentive-program performance, weather and vendor dependence, and contingent obligations. ATN estimated contingencies of approximately $33.2 million and accrued $5.0 million. The filing also reported $18.9 million of gross unrecognized tax benefits, including interest and penalties.
Most important facts for investors to verify
- Whether the Innovative and KeyTech transactions closed, their final terms and financing, and the resulting effect on debt, cash and non-controlling interests.
- Whether the anticipated U.S. wireless rate reductions produce the expected longer-term contracts, and how they affect 2016 revenue, margins and cash generation.
- Developments in Guyana’s exclusivity, regulatory and tax disputes, including potential revenue effects and the adequacy of recorded reserves.
- The sustainability and composition of solar revenue, particularly SREC and performance-incentive exposure, PPA collections and project operating results.
- How cash held overseas, capital spending, acquisition funding and credit-facility covenants affect liquidity and the ability to maintain dividends.