ATN International, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results cover telecom operations in the U.S., Bermuda and the Caribbean, and the remaining interest in the India solar business.
Business context and material changes
- ATN completed its acquisition of Alaska Communications on July 22, 2021, for approximately $339.5 million net of cash acquired. ATN owns about 52% and consolidates the business from the closing date. Alaska contributed $46.8 million of Q3 revenue and $3.8 million of pretax losses, excluding transaction fees.
- The acquisition was funded with cash, debt and $71.5 million of investment from Freedom 3 Investors, recorded as redeemable noncontrolling interests. ATN also sold 67% of its India solar business in January 2021 and accounts for its remaining 33% using the equity method.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $166.8 million | $111.7 million | $415.1 million | $331.7 million |
| Operating income (loss) | $(1.0) million | $9.6 million | $5.3 million | $23.9 million |
| Net income (loss) | $(4.5) million | $6.2 million | $3.1 million | $16.9 million |
| Net income (loss) attributable to ATN | $(2.6) million | $2.7 million | $2.1 million | $6.4 million |
| EPS attributable to ATN | $(0.22) | $0.17 | $0.08 | $0.40 |
- Q3 revenue increased 49.2%, but operating expenses rose 64.2%; operating margin was approximately negative 0.6%, versus positive 8.6% in Q3 2020. Q3 operating expenses included $5.7 million of acquisition-related charges.
- Nine-month operating margin was approximately 1.3%, versus 7.2% a year earlier. The filing does not provide a clearly stated EBITDA figure in the supplied text.
- Revenue growth reflected Alaska Communications, FirstNet construction and other service growth. Q3 U.S. Telecom revenue was $81.5 million, but the segment reported a $9.8 million operating loss; International Telecom generated $13.2 million of operating income.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $47.7 million, down from $71.6 million. Capital expenditures were $70.9 million, compared with $50.7 million; operating cash flow less capital expenditures was approximately negative $23.2 million.
- Investing activities used $391.8 million, principally reflecting the Alaska acquisition. Financing activities provided $341.4 million. Cash, cash equivalents and restricted cash ended at $102.4 million.
- At September 30, cash, cash equivalents, restricted cash and short-term investments totaled approximately $102.8 million; total debt, net of unamortized financing costs, was $374.6 million. Management said available cash and credit were expected to meet working capital and capital expenditure needs for at least 12 months.
- ATN had $65.0 million drawn on its $200 million CoBank revolver and $119.0 million available after letters of credit; it was in compliance with that facility’s financial covenants. The Alaska facilities had $220 million outstanding, and the FirstNet receivables facility had $26.5 million outstanding with $48.5 million available. Viya’s $60 million debt remained outstanding.
- Common dividends were $0.17 per share for the quarter. ATN repurchased $4.8 million of shares under its plan during the first nine months.
Outlook, risks and unusual items
- Management estimated 2021 capital expenditures of $45–$55 million for International Telecom and $55–$65 million for U.S. Telecom, excluding Alaska Communications.
- Under the FirstNet agreement, management expected approximately $80–$85 million of construction revenue through 2022, largely offset by construction costs and with minimal operating-income impact. At quarter-end, 50% of sites were complete; management expected another 15% by year-end and the remainder during 2022. COVID-related delays had affected the build schedule.
- Viya’s annual U.S. Virgin Islands High Cost support fell from $16.4 million to $10.9 million effective July 2021, is scheduled to fall to $5.5 million in July 2022, and is expected to end after June 2023. ATN also reported expected RDOF support of approximately $20.1 million over 10 years, pending completion of the FCC award process.
- Management reported no material COVID-19 impact on the financial statements through September 30, but cited potential future effects from restrictions, supply delays, customer behavior and labor requirements. Other risks include Alaska integration and synergy execution, competition and carrier roaming decisions, Guyana regulatory changes, and access to capital.
- Regulatory and legal matters include Guyana tax disputes totaling $44.1 million, a pending foreign-judgment enforcement matter involving an approximately $2.8 million default judgment, and an unresolved Alaska Communications rural-healthcare funding audit. ATN said outcomes and impacts of certain matters were uncertain and had accrued $14.5 million for these and other potential claims.
- Other notable items include the $8.1 million of Alaska transaction costs incurred to date, the solar-business sale, and acquisition accounting based on a preliminary allocation of fair values. The filing does not provide specific consolidated revenue, profit or EBITDA guidance.
Investor facts to verify
- How Alaska Communications performs after full-period consolidation, including integration costs, debt service and realization of anticipated benefits.
- Whether operating cash flow improves relative to capital spending and working-capital needs, particularly as FirstNet construction progresses.
- The final outcome and potential financial exposure from the Alaska rural-healthcare audit, Guyana tax and licensing matters, and other legal contingencies.
- The effect of declining Viya support, Guyana’s more competitive regulatory regime, and any changes in tourism, roaming demand or COVID-related operating conditions.
- Actual capital spending versus management’s estimates, and the availability and terms of borrowing capacity as debt and interest costs increase.