ATN International, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. ATN provides wireless and wireline services in the United States, Guyana, Bermuda and the Caribbean. The prior-year comparison includes the Alltel U.S. retail wireless business as discontinued operations; it was sold in September 2013.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $75.2 million | $64.8 million |
| Operating income | $16.2 million | $12.1 million |
| Operating margin | 21.6% | 18.6% |
| Income from continuing operations | $10.4 million | $5.9 million |
| Net income attributable to ATN shareholders | $7.8 million; diluted EPS $0.49 | $8.8 million; diluted EPS $0.56 |
| Operating cash flow | $(9.0) million | $25.0 million |
| Capital expenditures | $8.7 million | $15.4 million |
- Revenue rose 16.0%. U.S. Wireless increased 33.8% to $28.4 million, International Wireless increased 8.0% to $23.1 million, and Wireline increased 4.7% to $21.5 million.
- Operating expenses rose 11.7% to $58.9 million, slower than revenue growth. Operating income increased 34.5%. Interest expense fell to $0.2 million from $2.3 million, chiefly following repayment of term debt in September 2013.
- Consolidated net income rose to $10.4 million from $9.9 million, but shareholder-attributable income declined because Q1 2013 included $4.0 million of after-tax Alltel discontinued-operation income and non-controlling interests received a larger share of continuing-operation earnings in 2014.
- Cash and cash equivalents were $352.8 million at March 31, 2014; restricted cash was $58.8 million. Combined cash and restricted cash of approximately $411.6 million was down from $434.6 million at year-end. Total debt was zero; the company had a $100 million revolving facility and reported compliance with its covenants.
- Cash used in continuing operating activities was $6.6 million. Total operating cash use was $9.0 million, including discontinued operations. The quarter included $32.9 million of income tax payments, primarily related to the Alltel sale. Cash flows from investing activities were $11.8 million positive, including a $19.2 million decrease in restricted cash; this was partly offset by capital spending.
Changes, outlook and risks
- U.S. Wireless growth reflected network capacity and technology upgrades, increased data demand, and base stations increasing to 605 from 567. Management expected further 2014 revenue growth, but at a slower rate, partly because contracted wholesale data prices were expected to decline.
- Management forecast 2014 capital expenditures for continuing operations of $65–70 million, mainly funded from cash and operating cash generation. It expected depreciation and network operating costs to increase as investment and traffic grow.
- ATN had received $7.3 million of approximately $21.7 million in approved Mobility Fund support. Compliance with FCC construction and other terms is required; approximately $9.9 million of letters of credit secured obligations, with no draws reported at quarter-end.
- The Guyana government’s potential action affecting GT&T’s exclusive wireline and international long-distance rights could reduce revenue. Digicel’s legal challenge to those rights remained pending.
- ATN reported that its Aruba telecommunications license expired January 15, 2014. The government sought an approximately $4.0 million renewal fee and approximately $1.0 million in overdue spectrum charges; ATN contested the assessments and was seeking resolution.
- Management disclosed ineffective disclosure controls as of March 31, 2014 because material weaknesses related to a new Guyana billing system and GT&T accounting personnel remained. Remediation efforts were expected to continue through 2014. Management nevertheless stated that the interim financial statements were fairly stated in all material respects.
- Other identified risks include competition, regulatory changes, foreign-market political and currency risks, roaming arrangements, technology and network investment, supplier reliance, severe weather, and access to capital. The filing also recorded approximately $0.7 million of Q1 general and administrative expense to correct prior-period transactional-tax understatements; management said the correction was not material to current or prior periods.
Important facts for investors to verify
- Whether U.S. Wireless traffic growth offsets expected wholesale price declines and supports management’s revenue outlook.
- Cash generation after the unusually large tax payments, and the funding and execution of the $65–70 million capital expenditure plan.
- Release timing and any indemnity claims against the restricted Alltel-sale escrow funds.
- Progress in remediating the disclosed internal-control weaknesses and any resulting reporting or billing issues.
- Developments concerning Guyana exclusivity and the Aruba license and fee dispute, as well as compliance with Mobility Fund conditions.