ATN International, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited consolidated results; dollars in millions except per-share data. ATN provides wireless and wireline telecommunications services and renewable energy, with operations in the United States, Bermuda, Guyana, the U.S. Virgin Islands, the Cayman Islands, and India.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $121.1 | $122.1 | $343.4 | $373.5 |
| Operating income (loss) | $30.8 | ($19.6) | $50.8 | $14.0 |
| Net income (loss) | $20.9 | ($21.0) | $29.4 | $1.5 |
| Net income (loss) attributable to ATN | $17.0 | ($24.8) | $18.7 | ($12.0) |
| Diluted EPS | $1.06 | ($1.53) | $1.16 | ($0.74) |
| Operating margin | 25.4% | (16.0%) | 14.8% | 3.7% |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $98.0 | $122.0 |
| Capital expenditures | Not provided by quarter | Not provided by quarter | $154.3 | $108.3 |
- Revenue mix: Q3 wireless revenue fell 13.8% to $52.0 million, while wireline rose 12.1% to $63.7 million and renewable energy rose 8.1% to $5.4 million. For the nine months, revenue declined 8.1%; wireless was down 12.9% and wireline down 5.3%, partly offset by 15.6% growth in renewable energy.
- Profitability and comparability: Q3 and year-to-date operating income included a $15.2 million gain from the sale of approximately 100 U.S. wireless cell sites. The prior-year comparison includes $36.6 million of hurricane-related charges in Q3 2017. Thus, the substantial reported profit improvement does not solely reflect ongoing operating trends.
- Cash and liquidity: September 30 cash and cash equivalents were $161.1 million; including restricted cash and short-term investments, liquidity was approximately $174.0 million. Cash declined $45.9 million from year-end 2017. Management said available cash, operating funds, and the undrawn credit facility were expected to cover working capital and capital expenditures for at least 12 months.
- Cash generation and investment: Nine-month operating cash flow was $98.0 million, down from $122.0 million. Investing activities used $105.7 million, including $154.3 million of capital expenditures, of which $78.9 million funded U.S. Virgin Islands restoration. Financing activities used $37.9 million.
- Debt: Reported debt excluding the solar debt classified as held for sale was approximately $91.9 million; the company had no borrowings under its $225 million revolving credit facility. The U.S. solar debt was classified as held for sale, so reported balance-sheet debt does not include it. ATN reported compliance with applicable debt covenants.
Material changes and management commentary
- U.S. Telecom revenue fell 20.7% in Q3, principally due to lower wholesale wireless revenue, the cell-site sale, reduced roaming rates, and contractual revenue caps. Management expects wholesale wireless revenue and margins to continue declining; it also expects lower capital spending in that segment.
- International Telecom Q3 revenue rose 9.0%, aided by $7.2 million of additional FCC support following the hurricanes, broadband growth, and the managed-services business. Management cautioned that the additional hurricane-related support will not continue in future quarters.
- Hurricanes Irma and Maria severely damaged U.S. Virgin Islands networks and operations in 2017. ATN said restoration was substantially complete and most households and businesses had been reconnected, but recovery of pre-hurricane revenue could take significant time due to population shifts, economic effects, and customer demand.
- ATN completed the sale of its U.S. solar business on November 6, 2018, after quarter-end. The transaction value was approximately $122.6 million, including $65.4 million cash and assumption of about $57.2 million of debt; $6.5 million was to be held in escrow. Management expected to record a $10–$15 million gain in Q4 2018. The sale was not classified as a discontinued operation.
- ATN was awarded $79.9 million over 10 years through the FCC Connect America Fund Phase II Auction, with funding expected to begin in 2019, subject to service and compliance requirements. It also had approximately $15.4 million of E-Rate grants awarded, with construction obligations extending through 2020.
- Capital expenditure outlook for 2018 was approximately $90–$95 million for domestic and international telecom, excluding U.S. Virgin Islands hurricane restoration. The filing does not provide consolidated revenue or earnings guidance.
- Q3 dividend was $0.17 per share. The nine-month cash dividend payment was $8.2 million.
Risks, contingencies, and unusual items
- Guyana regulatory changes could introduce competition and affect GTT’s exclusive license rights; related government discussions were ongoing. A separate challenge to the exclusivity rights and other consolidated litigation were pending, with trial anticipated in Q2 2019.
- GTT disputed Guyana tax assessments totaling $44.1 million; ATN had accrued $5.0 million and said some adverse outcome was probable. The filing notes that the outcome and final liability remain uncertain.
- FCC support and grants carry operating, construction, and reporting conditions, and some funds may be subject to clawback if requirements are not met.
- Tax accounting remained subject to estimates and interpretation of the Tax Act. ATN recorded an additional $2.5 million provision related to deemed repatriation in Q3 and expected to complete its accounting by year-end 2018.
- Foreign currency losses were $3.0 million for the nine months. ATN identified currency movements, competition, regulation, natural disasters, and access to capital as risks.
Important facts for investors to verify
- Underlying earnings and cash generation excluding the $15.2 million cell-site gain, hurricane-related comparison effects, and temporary FCC recovery funding.
- U.S. wholesale wireless revenue trends, including roaming-rate reductions, contractual caps, and the effect of the cell-site disposition.
- Progress in U.S. Virgin Islands customer and revenue recovery after restoration spending, and the impact of the expiration of additional FCC support.
- Net cash proceeds and final gain from the U.S. solar sale, including escrow and post-closing adjustments, and the resulting effect on debt and future segment results.
- Developments in Guyana exclusivity, the $44.1 million disputed tax assessments, and compliance with FCC funding and grant obligations.