ATN International, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. ATN provides wireless and wireline telecommunications services in the United States, Guyana, Bermuda and the Caribbean.
Financial results and position
| Metric | Q1 2012 | Q1 2013 |
|---|---|---|
| Revenue | $183.1 million | $172.9 million |
| Operating income | $18.1 million | $17.8 million |
| Operating margin | 9.9% | 10.3% |
| Consolidated net income | $8.9 million | $9.9 million |
| Net income attributable to ATN shareholders | $9.3 million | $8.8 million |
| Diluted earnings per share | $0.60 | $0.56 |
| Cash from operating activities | $21.0 million | $25.0 million |
| Capital expenditures | $19.1 million | $20.9 million |
Operating cash flow less capital expenditures was approximately $4.1 million, versus $2.0 million in Q1 2012. At March 31, cash and equivalents were $140.8 million; total debt was $272.1 million, including $19.6 million current debt. Revolver availability was $99.9 million. ATN reported compliance with its credit-facility financial covenants. Total assets were $908.2 million and total equity was $399.7 million. The quarterly dividend was $0.25 per share, compared with $0.23 a year earlier.
Changes and management commentary
- Revenue declined 5.6%. U.S. wireless retail revenue fell 6.2% to $81.3 million, primarily with fewer postpaid subscribers; wholesale revenue fell 14.9% to $40.3 million, reflecting asset sales and roaming partners moving traffic off ATN’s network.
- International wireless revenue grew 13.4% to $21.4 million, supported by subscriber growth and seasonal roaming. Wireline revenue declined 5.4% to $20.6 million.
- Operating income decreased 2.0%, while operating margin improved to 10.3%, reflecting lower total operating expenses. Interest expense declined to $2.4 million from $4.0 million, partly due to lower debt and credit-facility margins. Lower affiliate earnings and increased income allocated to non-controlling interests contributed to the decline in ATN-attributable earnings.
- U.S. retail wireless subscribers totaled about 590,000, including 413,000 postpaid and 177,000 prepaid. Postpaid subscribers were down from 448,000 a year earlier; quarterly customer churn increased to 4.07% from 3.22%. Management expected elevated postpaid contract expirations to continue into Q3 2013 and anticipated further postpaid subscriber and revenue pressure.
Outlook, transactions and risks
- ATN agreed to sell certain assets used in its Alltel business to AT&T for approximately $780 million in cash. Closing was expected in the second half of 2013, subject to customary conditions including FCC approval. Alltel generated approximately 62% of Q1 revenue and 24% of operating income; results remained in continuing operations pending approval.
- Management forecast 2013 capital expenditures of $95–$105 million, assuming the Alltel sale closes as anticipated, and said current cash and credit availability should meet needs for the next twelve months.
- ATN had a provisional award of approximately $68.8 million in Mobility Fund grants, subject to further filings and final FCC approval, with network-buildout requirements and potential letter-of-credit exposure. It received approximately $2.0 million of high-cost USF support in Q1.
- Risks include competition and roaming-partner traffic shifts, postpaid customer losses, foreign-market and regulatory risks, and possible changes to ATN’s Guyana wireline exclusivity. The company disclosed a $5.0 million accrual for regulatory, litigation and related matters. A renewed Guyana claim by CTL was described as without merit; the filing notes CTL had previously asserted damages exceeding $200 million in a separate U.S. case.
- Interest-rate swaps hedged $143.0 million of debt; $125 million remained exposed to variable rates. The swaps had a $10.1 million liability fair value at quarter-end. Management reported disclosure controls were effective; it also described prior control-environment issues at its GT&T subsidiary and related management changes.
Investor facts to verify
- Whether and when the Alltel asset sale received FCC approval and closed, and the final proceeds and scope of assets sold.
- Subsequent postpaid subscriber, churn and wholesale roaming trends, including the impact of contract expirations and smartphone promotions.
- Actual 2013 capital expenditures and progress and conditions for Mobility Fund and broadband stimulus grants.
- Developments in the CTL matter and other regulatory or tax proceedings, including the adequacy of the $5.0 million accrual.
- Debt repayment, variable-rate exposure, covenant compliance and cash available after dividends and investment needs.