ATN International, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY 2021 unless noted. This is an annual filing, not a standalone fourth-quarter report. ATN provides fixed, mobile, carrier and managed communications services in the United States, Bermuda, the Cayman Islands, Guyana and the U.S. Virgin Islands.
Financial highlights
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $725.7 million | $602.7 million |
| Operating income (loss) | $7.9 million | $(15.0) million |
| Operating margin | 1.1% | (2.5)% |
| Net loss | $(7.6) million | $(20.8) million |
| Net loss attributable to ATN stockholders | $(5.6) million, or $(0.67) per diluted share | $(22.1) million, or $(1.52) per diluted share |
| Cash provided by operating activities | $102.9 million | $80.5 million |
| Capital expenditures | Approximately $168.0 million | Approximately $106.1 million |
| Cash, cash equivalents and restricted cash at year-end | $59.7 million | $80.7 million |
| Debt, net of deferred financing costs | $421.9 million | Not stated on the same basis in the supplied filing text |
Operating cash flow less reported capital expenditures was approximately negative $65.1 million in FY 2022. The filing does not provide a clear consolidated EBITDA value in the supplied text. The balance sheet separately reports $45.3 million of customer-receivable credit-facility obligations, so investors should distinguish this from the $421.9 million debt figure.
Business and segment performance
- International Telecom: Revenue was $355.6 million, up 3.7%; operating income rose to $52.0 million from $33.9 million. Growth in subscribers, equipment sales, transport and roaming was partly offset by a $4.1 million reduction in U.S. Virgin Islands high-cost support.
- U.S. Telecom: Revenue was $370.2 million, up 42.7%, substantially reflecting a full year of Alaska Communications results, acquired in July 2021. The segment reported a $5.7 million operating loss, improved from a $14.0 million loss. Acquisition-related scale and fixed-service growth were partly offset by higher expenses and lower FirstNet construction and roaming revenue.
- Communications-services revenue increased 25.9% to $692.2 million. Fixed revenue rose 33.4% to $438.4 million, carrier-services revenue rose 20.9% to $142.3 million and mobility revenue rose 7.5% to $110.0 million. FirstNet construction revenue declined 56.1% to $15.8 million.
Material changes and unusual items
- ATN acquired Sacred Wind Enterprises, a rural New Mexico telecom provider, in November 2022 for $44.4 million of consideration. It paid $18.0 million in cash net of acquired cash, issued $14.8 million of redeemable noncontrolling interests, recorded $3.7 million of contingent consideration and assumed approximately $31.6 million of RUS debt.
- Alaska Communications contributed a full year of results in 2022, compared with only part of the year in 2021. The 2021 comparison also included $20.6 million of goodwill impairment in International Telecom; no goodwill impairment was recorded in 2022.
- Interest expense more than doubled to $20.4 million, reflecting higher borrowings, a full year of Alaska debt and increased interest rates. Depreciation and amortization rose 31.5% to $135.1 million.
- The company recorded a $4.4 million loss on dispositions of long-lived assets. Other income included $5.7 million in gains from noncontrolling investments.
Liquidity, debt and capital allocation
Year-end cash, cash equivalents and restricted cash totaled $59.7 million, including $19.4 million held by foreign subsidiaries and described as indefinitely invested outside the United States. ATN reported $421.9 million of debt net of deferred financing costs and stated that available cash, operating cash flow and credit-facility availability should cover working capital and capital needs for at least the next 12 months. Available amounts included $75.0 million under the CoBank facility, $22.3 million under the FirstNet receivables facility and $75.0 million under Alaska’s revolving facility. ATN reported compliance with its CoBank financial covenants at year-end.
Variable-rate debt was $329.0 million; management estimated that a 100-basis-point rate change would change annual interest expense by approximately $3.3 million. The CoBank facility matures in April 2024. Scheduled debt principal repayments are $12.4 million in 2023 and $121.9 million in 2024, as presented in the filing. The board declared $11.3 million of common dividends for 2022; the annual dividend per share was $0.72. ATN repurchased $0.9 million of stock during the year.
Outlook, risks and contingencies
- Management expects 2023 capital expenditures of approximately $160–$170 million, net of reimbursable amounts. The FirstNet build is expected to be substantially complete by the end of 2023; approximately 75% of sites were complete at year-end 2022. ATN expected about $22 million of FirstNet construction costs in 2023.
- ATN was allocated up to approximately $207 million under the FCC’s Replace and Remove program, but program-wide reimbursement requests substantially exceeded appropriated funding; the FCC’s pro-rata allocation factor was approximately 40%. Reimbursement timing, eligible costs and the required completion schedule remain risks.
- U.S. Virgin Islands high-cost support had declined to $5.5 million annually and, under the program then in effect, was scheduled to end in June 2023. An FCC proposal to extend support through 2025 remained unresolved. ATN also sought substantial deregulation of Viya by the territory’s public service commission.
- An unresolved USAC audit and FCC inquiry concern Alaska Communications’ historical Rural Health Care program participation. ATN accrued $14.7 million for these and other ordinary-course legal, regulatory and tax matters; possible additional exposure could not be estimated. Guyana tax disputes include assessments alleged by the tax authority of $32 million net of interest, which ATN contests. A separate long-running Guyana licensing dispute also remains pending.
- Management cited inflation, supply-chain delays, higher labor and transport costs, rising interest rates, severe-weather exposure, competition, reliance on government support, and the transition of U.S. carrier services away from traditional wholesale roaming as business risks. The FirstNet schedule, funding-program obligations and integration of acquisitions are also execution risks.
- ATN reported effective disclosure controls and effective internal control over financial reporting; Sacred Wind was excluded from the year-end internal-control assessment because it had been acquired during 2022. The auditor issued an unqualified opinion and identified the U.S. Telecom goodwill impairment assessment as a critical audit matter.
Important facts for investors to verify
- Whether core service growth and cost control can improve operating profitability and cash generation, particularly in U.S. Telecom.
- Actual spending, progress, reimbursement and any funding shortfall for the Replace and Remove program and FirstNet construction.
- The outcome of the U.S. Virgin Islands support extension and deregulation proceedings, and the effect of lower support on Viya.
- Developments in the USAC/FCC Rural Health Care review and Guyana tax and licensing disputes, including potential cash exposure beyond recorded accruals.
- Debt maturities, covenant headroom, refinancing needs and sensitivity to interest rates, alongside planned capital expenditures and dividends.
- Integration and operating performance of Alaska Communications and Sacred Wind, including the terms and potential future value of redeemable minority interests.