ATN International, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Unless noted, financial amounts below are in millions of U.S. dollars. ATN provides wireless and wireline telecommunications and renewable-energy services in the U.S., Caribbean, Bermuda, Guyana and India.
Financial results and liquidity
- Revenue: $104.5 million, down 18.5% from $128.1 million. Wireless revenue was $50.5 million, down 14.2%; wireline was $48.1 million, down 25.0%; renewable energy was $5.8 million, up 15.9%.
- Profitability: Operating income was $4.2 million versus $17.8 million; operating margin was approximately 4.0% versus 13.9%. Net loss was $2.3 million, compared with net income of $11.6 million. Loss attributable to ATN stockholders was $5.6 million, or $0.35 per diluted share, versus income of $6.9 million, or $0.42 per share.
- Taxes: The $3.9 million income-tax provision exceeded $1.6 million of pretax income; the reported effective tax rate was 242.3%, principally reflecting discrete tax items, jurisdictional income mix and losses in jurisdictions where ATN could not recognize tax benefits.
- Cash flow: Operating cash flow was $22.5 million, down from $32.1 million. Investing activities used $7.1 million, including $51.9 million of capital expenditures, partly offset by $34.6 million of hurricane insurance proceeds, $5.4 million of government grants and investment-sale proceeds. Financing activities used $18.1 million. Cash, cash equivalents and restricted cash ended at $217.2 million, down $2.7 million from year-end.
- Debt and liquidity: Total debt was $154.9 million, versus $155.8 million at December 31, 2017. ATN had no borrowings under its $225 million revolving credit facility and reported compliance with applicable debt covenants. Management said available cash and credit capacity were expected to cover working-capital needs and capital expenditures for at least 12 months.
- Other: Quarterly dividends were $0.17 per share, versus $0.34 in Q1 2017. Capital expenditures increased from $45.7 million; $30.9 million related to U.S. Virgin Islands hurricane restoration.
Material changes and operating drivers
- Hurricanes Irma and Maria continued to impair U.S. Virgin Islands operations. ATN said most wireline services remained unavailable because of network damage and inconsistent commercial power. U.S. Virgin Islands revenue fell $12.2 million year over year; management expected the negative wireline impact to continue into the second half of 2018, with recovery potentially taking significant time.
- U.S. Telecom revenue fell 34.9% to $28.5 million, mainly due to lower wholesale roaming rates and contractual revenue caps, plus the prior-year Sovernet business sale. Management expected U.S. wholesale wireless revenue and margins to remain under pressure.
- International Telecom revenue fell 11.6% to $70.1 million, chiefly because of hurricane effects and the British Virgin Islands cable-business sale; revenue in other international markets partly offset the decline. Renewable Energy revenue rose with production from newly completed India solar plants.
- ATN adopted ASC 606 on January 1, 2018. The adoption reduced reported Q1 revenue by $0.1 million and increased the reported net loss attributable to ATN stockholders by $0.2 million versus prior guidance; it had no impact on operating cash flows.
Outlook, risks and unusual items
- Capital spending outlook: 2018 telecom capital expenditures were forecast at $65–$80 million, excluding estimated U.S. Virgin Islands hurricane restoration costs of $60–$65 million. ATN estimated another $5–$7 million to complete the initial India renewable-energy construction phase.
- Subsequent transaction: On May 4, 2018, ATN agreed to sell approximately 100 U.S. cell sites to an existing carrier customer, subject to regulatory approval and expected to close in mid-2018. ATN expected no additional cash proceeds at closing and an approximately $15 million gain.
- Grants: ATN received a $7.4 million FCC Tribal Bidding Credit award, subject to deployment and coverage requirements by January 2021 and potential clawback if requirements are not met. It also had approximately $15.4 million of awarded E-Rate grants, not yet received, tied to construction obligations in 2019–2020.
- Regulatory and legal exposure: Guyana’s telecommunications reforms could weaken GT&T’s exclusivity rights; discussions with the government were ongoing. A Guyana tax dispute involves $44.1 million of assessments, against which ATN had accrued $5.0 million. A separate CTL claim seeks $25 million; ATN said it considered the claim without merit and intended to defend it.
- Other risks and unusual items: Hurricane restoration costs, uncertain timing of government support, competition and lower roaming rates, foreign-currency exposure, tax estimates, and potential changes to Guyana licensing remain relevant. The filing reports $0.8 million of Q1 “other income (expense)” as a foreign-currency gain in one MD&A passage, but describes foreign-currency losses elsewhere; the source text does not clearly reconcile this discrepancy.
Important facts for investors to verify
- Progress, cost and timing of U.S. Virgin Islands network restoration, service recovery and any related government support.
- Trends in U.S. wholesale roaming rates, revenue caps and margins, including the effect of the planned cell-site sale.
- Actual 2018 capital spending, funding sources and compliance with grant conditions and construction deadlines.
- Outcome and potential financial impact of Guyana licensing and tax matters, the CTL claim, and the final tax effects of U.S. tax reform.
- Reconciliation of the filing’s inconsistent description of foreign-currency gains or losses in Q1.