ATN International, Inc. quarterly report, Q3 FY2023

Full document

ATN International, Inc. — Q3 2023 Form 10-Q

Business context and period. ATN provides fixed and mobile telecommunications, carrier, and managed services in the U.S. and international markets, including the Caribbean. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Financial amounts below are in U.S. dollars unless noted.

Financial performance and position

  • Revenue: Q3 revenue was $191.0 million, up 4.8% year over year; communication services rose 6.1% to $184.6 million. Nine-month revenue was $563.3 million, up 5.5%. Fixed services and business revenue were important growth drivers; construction revenue declined as fewer FirstNet sites were completed.
  • Operating results: Q3 operating income was $6.8 million versus $1.4 million; operating margin was approximately 3.6% versus 0.8%. Nine-month operating income was $9.9 million versus $3.3 million; margin was approximately 1.8% versus 0.6%. Higher SG&A, depreciation, and restructuring costs partly offset revenue growth.
  • Profit and EPS: ATN-attributable net loss was $3.6 million in Q3 ($0.31 per diluted share), compared with a $2.8 million loss ($0.25 per share). For nine months, attributable net loss was $8.7 million ($0.80 per diluted share), versus $4.3 million ($0.49 per share). Increased interest expense was a major factor.
  • Cash flow and investment: Nine-month operating cash flow was $89.5 million, up from $79.0 million. Cash capital expenditures were $126.6 million; the company separately reported $140.9 million of segment capital expenditures, including reimbursable and accrued amounts. Investing cash outflow was $124.6 million. Cash, cash equivalents, and restricted cash totaled $73.1 million at quarter-end.
  • Margins and costs: Q3 SG&A increased 7.8% to $60.8 million. Nine-month SG&A rose 9.6% to $184.1 million. The filing does not provide a consolidated EBITDA figure in the presented financial statements.
  • Debt and liquidity: At September 30, total debt reported on the balance sheet was $498.4 million, excluding the separately presented $44.7 million customer-receivable credit facility. Cash and restricted cash were $73.1 million; current assets were $267.4 million and current liabilities $262.7 million. ATN had $146.9 million available under its CoBank revolver and stated it expected liquidity to cover working capital and capital needs for at least 12 months.
  • Shareholder returns: The quarterly common dividend was $0.21 per share, versus $0.17 a year earlier. ATN repurchased $11.7 million of shares during the first nine months and had $7.8 million remaining under its repurchase authorization.

Material changes versus prior year

  • Q3 communication services revenue increased, led by fixed services; total revenue growth was partly offset by lower construction and other revenue.
  • Q3 International Telecom revenue rose 4.3%, but segment operating income declined 4.5% to $12.8 million. US Telecom revenue rose 5.4%; segment operating income increased to $3.0 million from $0.7 million.
  • Interest expense more than doubled in Q3, to $11.4 million, and increased to $30.7 million for the first nine months from $13.1 million. Management cited higher borrowings, floating rates, and debt assumed with Sacred Wind and GTT.
  • ATN entered a new CoBank facility in July 2023: a $130 million term loan and a $170 million revolver, replacing the prior CoBank facility. It also recorded $4.6 million of restructuring expense in the first nine months, principally for U.S. Telecom cost reductions.
  • Nine-month capital expenditures increased to $140.9 million from $114.0 million. Cash provided by operations increased despite the larger net loss.

Outlook, commentary, and risks

  • Capital spending: Management expected 2023 network and systems investment of approximately $160–$170 million, net of reimbursable amounts.
  • Network agreements: The FirstNet build was expected to be substantially complete by year-end 2024, with remaining work in early 2025; management estimated total construction revenue of $80–$85 million and said construction revenue should have minimal operating-income impact. A new Verizon carrier managed services agreement has an approximately $200 million aggregate value over its term, subject to milestones and service requirements.
  • Government funding: ATN was allocated up to approximately $207 million under the Replace and Remove Program and expected to complete the work by July 2024. It reported a $36.6 million related receivable and $25.3 million accrued at quarter-end. The company also identified $188.6 million in tribal broadband grants as a subrecipient but had received no funding by September 30.
  • Rate exposure: ATN reported $281.6 million of variable-rate debt; a 100-basis-point increase would raise annual interest expense by an estimated $2.8 million. Subsequent to quarter-end, ATN and Alaska Communications entered into SOFR swaps with $50 million and $200 million notional amounts, respectively.
  • Contingencies: ATN had accrued $15.8 million for legal, regulatory, and other potential liabilities. Outcomes remain uncertain in Guyana spectrum, interconnection, and tax disputes and in Alaska Communications’ Rural Health Care Program audit and FCC inquiry; management said it could not predict the final outcomes or potential impact.
  • Other risks: The filing highlights competition, subscriber retention, execution of network upgrades and carrier agreements, government support and compliance, inflation and supply-chain costs, foreign currency, access to financing, and geopolitical and natural-disaster risks. Management stated it expected additional U.S. Telecom restructuring costs in Q4 2023 but no further restructuring costs thereafter.
  • Guidance: The filing provides capital expenditure and project expectations but no clear consolidated revenue, earnings, or EBITDA guidance.

Important facts for investors to verify

  • Whether operating cash flow and liquidity can support the elevated investment program, dividends, and debt service.
  • Debt balances, maturities, covenant headroom, and the effect of floating rates; confirm the impact and coverage of the subsequently entered swaps.
  • Progress, costs, reimbursement timing, and deadline compliance for Replace and Remove, FirstNet, and government-funded broadband projects.
  • Verizon agreement milestone and service-level performance, and whether expected revenue translates into sustainable operating profit and cash flow.
  • Developments in the USAC/FCC review and Guyana legal, spectrum, and tax matters, including whether the $15.8 million accrual remains adequate.
  • Underlying segment profitability and cost trends, especially U.S. Telecom restructuring, SG&A growth, and the impact of government support changes.