ATN International, Inc. (formerly Atlantic Tele-Network, Inc.) — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report; it also presents unaudited fourth-quarter results. Unless stated otherwise, amounts below are in U.S. dollars and millions.
Business context and reporting period
ATN operates wireless and wireline telecommunications businesses in the United States, Guyana, Bermuda and other Caribbean markets, and owns U.S. distributed solar generation assets. The U.S. wholesale wireless business remained the largest revenue source. In December 2014, ATN acquired solar assets from Green Lake Capital (Ahana), adding a Renewable Energy segment. The sale of the U.S. retail wireless business (Alltel) to AT&T was completed in September 2013 and is presented as discontinued operations.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue from continuing operations | $336.3 | $292.8 |
| Operating income | $85.6 | $64.1 |
| Operating margin | 25.4% | 21.9% |
| Income from continuing operations | $58.0 | $36.9 |
| Net income attributable to ATN stockholders | $48.2 | $311.7 |
| Diluted EPS, continuing operations | $2.94 | $1.83 |
| Cash provided by continuing operating activities | $82.7 | $(131.4) |
| Continuing-operations capital expenditures | $58.3 | $69.3 |
Reported net income and EPS fell sharply from 2013 because 2013 included a $307.1 million after-tax gain on the Alltel sale; 2014 included a further $1.1 million gain adjustment. Thus, reported net income is not a like-for-like measure of operating performance. 2014 continuing-operations income attributable to ATN stockholders is not separately stated in the summary table.
At year-end, cash and cash equivalents were $326.2 million, with restricted cash of $39.7 million current and $5.5 million noncurrent; total cash and restricted cash was approximately $371.4 million. Working capital was $344.8 million. Debt was $38.9 million, assumed with the solar acquisition; $6.1 million was current and $32.8 million long-term. ATN had no borrowings under its $225 million revolving credit facility and reported covenant compliance. The filing states that available cash and facility capacity should cover working capital and capital needs for at least 12 months.
Other metrics: total assets were $925.0 million and stockholders’ equity was $677.2 million. Dividends declared were $1.12 per share for 2014, versus $1.04 in 2013.
Material changes versus the prior comparable period
- Revenue increased 14.9% year over year, led by U.S. wireless, up 41.8% to $153.0 million. Management attributed growth to greater data demand, network expansion and capacity upgrades.
- International wireless revenue declined 3.0% to $88.7 million, mainly due to lower Guyana subscriber share and reduced Caribbean/Bermuda roaming, partly offset by Island Wireless subscriber growth.
- Wireline revenue was nearly flat, up 0.8% to $85.3 million. U.S. fiber and wholesale transport growth was partly offset by lower Guyana landline and international call revenue.
- Operating expenses rose 9.6% to $250.8 million, less than revenue growth; operating income increased 33.5%. Termination/access fees, sales and marketing, and general and administrative costs were among the increases.
- Interest expense fell to $0.4 million from $11.9 million following the 2013 repayment of term loans. In 2014, cash from continuing operations was positive, compared with a large use in 2013; management cited tax-payment and working-capital movements as major drivers of the swing.
- Ahana contributed only $0.4 million of 2014 revenue because it was acquired on December 24. The acquisition involved $78.8 million cash consideration and $38.9 million assumed debt; a further $16.0 million purchase-price amount was accrued and expected to be paid in the first half of 2015.
Fourth quarter: Revenue was $88.5 million, operating income $19.6 million and net income attributable to ATN stockholders $12.6 million, or $0.79 diluted EPS. In Q4 2013, revenue was $77.0 million, operating income $16.1 million and attributable net income $17.9 million, including a larger Alltel sale gain. The filing provides no Q4 cash-flow figure.
Outlook, commentary, risks and unusual items
- Management forecast 2015 capital expenditures of $65–$70 million. It expected slower U.S. wireless network expansion than in 2014, while data volumes continued to grow.
- Management anticipated lower U.S. wireless revenue after agreeing in early 2015 to materially reduce rates for a major customer in exchange for a longer-term contract. AT&T and Verizon represented 26% and 16% of 2014 consolidated revenue, respectively; AT&T represented 47% of year-end receivables.
- On February 12, 2015, ATN agreed to sell substantially all Turks and Caicos retail wireless assets. It expected completion in Q1 2015 and an approximately $19 million loss.
- Guyana presents significant regulatory and legal uncertainty: the government has proposed opening fixed and international services to competition, and litigation challenges GT&T’s exclusive license. GT&T accounts for approximately 32% of consolidated revenue. Disputed Guyana tax assessments total $33.2 million; ATN says it believes the government would be required to protect GT&T’s contractual return if liability is imposed.
- Other regulatory matters include a Bermuda spectrum-reallocation decision under appeal and ATN’s dispute over an approximately $4 million Aruba license-renewal fee while continuing to operate. The filing identifies approximately $39.9 million of estimated contingencies, of which $5.0 million was accrued; management says most are not accrued because an adverse outcome is not considered probable.
- Solar risks include the limited operating history of the acquired facilities, PPA payment or termination risk, dependence on a key operations-and-maintenance provider and suppliers, and exposure to policy and incentive changes. The acquired facilities had 45.7 MW of capacity and PPAs with a weighted-average remaining life of 14.4 years.
- ATN reported effective disclosure controls and internal control over financial reporting at year-end; material weaknesses identified in 2013 at GT&T were reported as remediated. The financial statements received an unqualified audit opinion.
Most important facts for investors to verify
- Whether the lower-rate U.S. wireless agreement reduces revenue and earnings, and whether longer contract duration and traffic levels offset the pricing concession.
- Exposure to AT&T and Verizon, including customer concentration and the increase in AT&T receivables.
- Developments in Guyana exclusivity, court proceedings and tax assessments, and the effect of any competition or settlement on GT&T cash flows.
- Completion and realized loss on the Turks and Caicos asset sale, and settlement of the accrued Ahana purchase-price amount.
- Solar project generation, collections under PPAs, refinancing/debt service (including the PSE&G loan at 11.3%), and whether acquired-asset assumptions support expected returns.
- Use of substantial cash balances for acquisitions, capital spending, dividends and other investments; confirm restricted-cash release timing and compliance with credit-facility covenants.
- Whether Mobility Fund grant construction and operating obligations are met, and the status of Bermuda spectrum and Aruba licensing matters.