ATN International, Inc. — Q1 2022 Form 10-Q
Business context and reporting period: Unaudited results for the three months ended March 31, 2022, compared with the three months ended March 31, 2021. ATN provides communications and IT services in the United States, Bermuda, and the Caribbean. Results include Alaska Communications, acquired in July 2021, for the full 2022 quarter but not the 2021 comparison, limiting year-over-year comparability.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $172.0 million | $124.5 million |
| Operating income | $0.1 million | $3.3 million |
| Net income (loss) | $(2.0) million | $4.3 million |
| Net income (loss) attributable to ATN shareholders | $(0.9) million | $2.7 million |
| Diluted EPS | $(0.13) | $0.17 |
| Cash from operating activities | $11.4 million | $5.3 million |
| Capital expenditures | $34.5 million | $25.7 million |
Revenue increased 38.2%, while operating margin fell to approximately 0.1% from 2.7%. Operating cash flow less reported capital expenditures was approximately negative $23.1 million. The quarter’s tax provision was $3.0 million on $1.0 million of pretax income, producing a 296.7% effective tax rate; management cited a $2.1 million valuation allowance charge, a $0.5 million increase in unrecognized tax positions, and jurisdictional income mix.
At March 31, cash, cash equivalents, restricted cash, and short-term investments totaled approximately $77.1 million. Current assets were $220.8 million and current liabilities $184.7 million. Reported debt, net of unamortized financing costs, was approximately $394.0 million, versus $366.5 million at year-end 2021. ATN reported $110.5 million available under its CoBank facility and $29.7 million available under the FirstNet receivables facility; it was in compliance with CoBank financial covenants.
Material changes and drivers
- Communication services revenue rose 50.5% to $166.5 million, largely reflecting Alaska Communications and higher fixed and carrier-services revenue. Construction revenue fell 83.9% to $2.0 million as fewer FirstNet sites were completed.
- US Telecom revenue more than doubled to $85.2 million, primarily due to Alaska Communications, but the segment’s operating loss widened to $4.6 million from $0.5 million. Alaska Communications contributed $58.3 million of revenue and $2.8 million of pretax losses in the quarter.
- International Telecom revenue increased 3.6% to $86.8 million, but segment operating income decreased 9.9% to $11.8 million. Growth in subscribers and tourism-related carrier revenue was partly offset by lower U.S. Virgin Islands support revenue and higher expenses.
- Operating costs rose 41.9% to $171.9 million. Depreciation and amortization increased to $33.3 million, interest expense to $3.4 million, and losses on disposition of long-lived assets to $3.4 million.
Outlook, risks, and unusual items
- Management expects 2022 capital expenditures of approximately $150 million to $160 million, net of reimbursements, funded primarily through cash, operating cash flow, and credit facilities. It believes current liquidity and facility availability are sufficient for at least the next 12 months.
- For FirstNet, 60% of cell sites were complete at quarter-end; ATN expected another 30% completed during 2022 and the remainder in early 2023. It expected $31 million to $36 million of additional 2022 construction revenue, with approximately offsetting construction costs and limited operating-income effect.
- Viya’s annual High Cost support fell from $16.4 million to $10.9 million in July 2021 and was scheduled to fall to $5.5 million in July 2022 through June 2023, with no support thereafter. Management also cited inflation, supply-chain constraints, geopolitical uncertainty, competition, and potential pandemic disruption as risks.
- Regulatory and litigation matters include Guyana licensing and spectrum-fee disputes, disputed Guyana tax assessments totaling $44.1 million, and Alaska Communications’ Rural Health Care program audit and FCC inquiry. ATN had accrued $13.3 million for these and other potential liabilities; it said some adverse outcome was probable, but certain outcomes and exposures remained uncertain.
- After quarter-end, on May 5, 2022, RTFC amended Viya’s maximum leverage covenant from 3.5-to-1 to 7.0-to-1 through the July 2026 maturity. The One Communications debt had $3.8 million outstanding and was scheduled to mature May 22, 2022; the filing does not state its subsequent resolution.
Important facts for investors to verify
- How much reported growth and future profitability are attributable to Alaska Communications, and whether integration benefits or cost synergies materialize.
- Progress, remaining costs, payment timing, and expected ongoing economics of the FirstNet build.
- Cash generation relative to the planned $150 million to $160 million of annual capital expenditures, dividends, and debt service.
- Debt maturities, borrowing availability, interest-rate exposure, covenant compliance, and the status of the One Communications maturity.
- Changes in government support, including the scheduled Viya reductions, and outcomes of the cited legal, tax, and regulatory matters.