ATN International, Inc. — Q2 2015 Form 10-Q
Business and period: Quarterly report for the three and six months ended June 30, 2015; filed August 10, 2015. ATN provides U.S. wholesale and retail wireless, international wireless and wireline services, U.S. wireline and transport services, and distributed solar power. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $90.3m | $83.3m | $175.7m | $158.4m |
| Operating income | $28.7m | $21.6m | $47.9m | $37.9m |
| Operating margin | 31.8% | 25.9% | 27.3% | 23.9% |
| Net income attributable to ATN shareholders | $9.5m | $11.5m | $6.2m | $19.4m |
| Diluted earnings per share | $0.59 | $0.72 | $0.38 | $1.21 |
- Q2 revenue rose 8.5%; U.S. wireless increased 7.1%, wireline 3.8%, and renewable energy contributed $5.3m following the 2014 Ahana acquisition. International wireless declined 9.8%, reflecting the Turks and Caicos sale, subscriber losses, and lower roaming revenue.
- For the first half, revenue rose 10.9% and operating income 26.5%. However, shareholder-attributable net income fell 68.1%, principally reflecting a $19.9m loss on deconsolidation related to the Turks and Caicos disposition and a higher effective tax rate. The 2015 first-half tax rate was 47.0%, versus 34.3% in 2014; management attributed the increase primarily to a loss in a non-tax foreign jurisdiction for which no tax benefit was available.
- Q2 consolidated net income was $15.0m, versus $14.3m. Higher income allocated to non-controlling interests meant ATN shareholder earnings declined despite higher consolidated income. Depreciation and amortization increased 11.9% in Q2 to $14.5m.
- Six-month operating cash flow was $81.1m, versus $12.1m. Management said the increase was substantially affected by accrued-tax cash-flow timing, including tax payments made in 2014 related to the 2013 Alltel sale, and by noncash adjustments including the deconsolidation loss. Investing activities provided $4.9m, including restricted-cash releases and asset-sale proceeds; capital expenditures were $28.0m. Financing activities used $20.4m, including dividends, minority distributions, and $3.0m of debt repayments.
- At June 30, cash and cash equivalents were $391.8m, with $6.2m in restricted cash; total cash and restricted cash was approximately $398.0m. Total debt was $35.9m, including $6.2m current debt. The $225m revolving facility had no borrowings; approximately $10.6m of letters of credit were outstanding. ATN reported compliance with its credit-facility covenants.
- Total assets were $937.2m and total equity $757.9m at June 30. The quarterly dividend was $0.29 per share, compared with $0.27 in Q2 2014.
Changes, outlook, and material matters
- ATN sold certain Turks and Caicos assets and liabilities in March 2015, recording a $19.9m deconsolidation loss. International wireless subscribers were approximately 313,000 at June 30, down from 321,000 a year earlier, substantially due to that sale.
- U.S. wireless base stations increased from 654 to 787 year over year. Management expects continued data-volume growth, but anticipates lower U.S. wholesale revenue after agreeing to significantly reduce rates for a major customer in exchange for a longer-term contract. Network expansion in 2015 is expected to be slower than in 2014.
- Management expects international retail wireless revenue to grow with subscriber additions, while roaming revenue in Bermuda and the Caribbean is expected to decline. Solar revenue from the current portfolio is expected to remain fairly consistent, supported by long-term power purchase agreements. These are management expectations, not guaranteed results.
- 2015 telecommunications capital expenditures were estimated at $65m–$75m; renewable-energy investment was not readily predictable. Management said available cash and credit-facility capacity should meet working-capital and capital needs for the next 12 months.
- Regulatory and legal risks include possible changes to GT&T’s exclusive Guyana licenses, disputed Guyana tax assessments totaling $33.2m, and Bermuda’s requirement that ATN surrender spectrum in March 2015. ATN said the Guyana government would be obligated to reimburse certain tax-assessment payments to preserve GT&T’s stated 15% return, but the outcome is uncertain. In July 2015, the Caribbean Court of Justice upheld a finding concerning personal VoIP use but did not decide the validity or constitutionality of GT&T’s exclusive license.
- Mobility Fund support carries FCC construction and other conditions. Approximately $10.6m of letters of credit secure related obligations; noncompliance could result in a draw and penalties. Other identified risks include competition, roaming arrangements, network investment and technology changes, foreign-exchange movements in Guyana, and access to capital.
- Management reported effective disclosure controls as of June 30, 2015, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the first-half operating cash-flow increase is sustainable versus attributable to tax-payment timing and other adjustments.
- The ongoing revenue, margin, and customer-traffic effects of the reduced-rate, longer-term U.S. wireless contract.
- Final accounting and cash consequences of the Turks and Caicos disposition, including the $19.9m deconsolidation loss.
- Developments affecting Guyana exclusivity, disputed tax assessments, and Bermuda spectrum rights; assess potential exposure and timing.
- Solar portfolio cash generation, non-controlling-interest allocations, debt repayment terms, and planned capital spending against the stated liquidity outlook.