ATN International, Inc. — Q1 2012 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2012, compared with Q1 2011. ATN provides wireless and wireline telecommunications services in the U.S., Guyana, Bermuda and other Caribbean markets. U.S. Wireless generated approximately 77% of consolidated revenue.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $182.9 million | $188.2 million |
| Operating income | $18.2 million | $10.4 million |
| Operating margin | 9.9% | 5.5% |
| Net income attributable to ATN shareholders | $9.3 million; $0.60 diluted EPS | $4.5 million; $0.29 diluted EPS |
| Operating cash flow | $21.0 million | $21.0 million |
| Capital expenditures | $19.1 million | $16.3 million |
Revenue declined 2.8%, while operating income rose 74.8% and shareholder net income more than doubled. Total operating expenses fell 7.3%, chiefly reflecting lower termination and access fees and reduced costs after completion of the Alltel systems transition. Operating cash flow was essentially flat as higher earnings were offset by working-capital movements. Investing cash outflow was $19.1 million, primarily capital expenditures; financing cash inflow was $3.0 million.
Revenue mix: U.S. retail wireless revenue fell 13% to $86.8 million; wholesale wireless rose 6% to $47.4 million. International Wireless increased 34.8% to $19.0 million, largely reflecting the 2011 CellOne merger and U.S. Virgin Islands growth. Wireline revenue rose 4.2% to $21.5 million.
Balance sheet and liquidity
- Cash and cash equivalents were $53.7 million at March 31, up from $48.7 million at year-end 2011.
- Total debt was $292.6 million, versus $286.0 million at December 31, 2011; net debt was approximately $238.9 million. Debt included $246.3 million of term loans and $41.0 million drawn on the revolver.
- The credit facility included a $100 million revolver; approximately $59 million was undrawn, before any other restrictions. Debt maturities for the term and revolving facilities fall in September 2014.
- ATN reported compliance with all amended financial covenants and stated that cash, operating funds and credit availability should cover working capital and capital needs for the next 12 months.
- Quarterly dividends were $0.23 per share, compared with $0.22 in Q1 2011.
Outlook, risks and notable items
- Management expected 2012 capital expenditures of $90–$110 million, including $50–$65 million for U.S. Wireless, funded mainly from operating cash and borrowings.
- U.S. retail wireless customers declined to approximately 579,000 from 674,000 a year earlier; churn improved to 3.22% from 4.29%, and gross additions increased. Management anticipated continued focus on subscriber additions and retention.
- In May 2012, a roaming partner exercised an option to buy spectrum and related cell sites for approximately $15.6 million. The sites generated about $15.1 million of 2011 wholesale revenue and $3.9 million in Q1 2012. Closing was expected in late 2012 or early 2013, subject to definitive documentation and regulatory consent; the sale was not completed as of the filing.
- Management warned that roaming revenue may decline if carriers build or acquire competing infrastructure, reduce roaming use, or negotiate lower rates. Strong competition and prepaid subscriber turnover also pose risks. Possible Guyana licensing changes could pressure international long-distance revenue.
- The company had accrued $5.0 million for certain regulatory, litigation or related matters; management said it could not predict the final outcome of matters referenced in its 2011 Form 10-K. The filing states other pending proceedings were not expected to materially affect financial position or results, subject to that uncertainty.
- Interest-rate swaps hedged $143 million of variable-rate debt. Management estimated $3.9 million would be reclassified as additional interest expense through March 31, 2013; $144.3 million of debt remained exposed to rate changes.
Most important facts for investors to verify
- Whether retail subscriber trends and churn improvements persist, and whether wholesale roaming demand and rates hold up.
- Whether the $15.6 million network sale closes on the anticipated timetable and how the loss of associated wholesale revenue affects results.
- Actual 2012 capital spending versus the $90–$110 million range, and resulting cash flow and debt levels.
- Developments in Guyana regulation and the outcome or potential cost of accrued legal and regulatory matters.
- Continued compliance with credit covenants and access to liquidity as 2014 debt maturities approach.