ATN International, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated results; amounts below are in U.S. dollars. ATN operates International Telecom, US Telecom, and Renewable Energy businesses.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $111.7 million | $115.6 million | $331.7 million | $326.6 million |
| Operating income | $9.6 million | $10.2 million | $23.9 million | $15.1 million |
| Operating margin | 8.6% | 8.9% | 7.2% | 4.6% |
| Net income | $6.2 million | $4.8 million | $16.9 million | $7.6 million |
| Net income attributable to ATN shareholders | $2.7 million | $1.4 million | $6.4 million | Loss of $1.1 million |
| Diluted earnings per share | $0.17 | $0.09 | $0.40 | Loss of $0.07 |
- Q3 revenue fell 3.4%, as lower carrier-services revenue more than offset growth in fixed services. Nine-month revenue rose 1.6%.
- For the first nine months, operating income increased 58.0%; lower operating expenses, particularly in International Telecom, contributed to the improvement. Net income also benefited from a $1.1 million income tax benefit, versus $2.8 million of tax expense in 2019.
- Net income attributable to ATN differs from consolidated net income because a portion is allocated to non-controlling interests. EBITDA is not presented as a clear value in the supplied filing text.
Cash flow, balance sheet, and capital allocation
- Nine-month operating cash flow was $71.6 million, compared with $56.8 million in 2019. Capital expenditures were $50.7 million, compared with $49.5 million.
- Cash, cash equivalents, and restricted cash totaled $136.2 million at September 30, down from $162.4 million at year-end 2019. The company also reported $0.4 million of short-term investments.
- Total debt, net of unamortized financing costs, was $83.7 million. ATN had no borrowings on its $200 million revolving credit facility and reported $184 million of availability after outstanding letters of credit. It was compliant with the revolver’s financial covenants.
- Current assets were $225.6 million and current liabilities $132.9 million. Lease liabilities totaled $64.4 million, including current and long-term amounts.
- ATN paid $8.2 million in common dividends and $6.6 million to repurchase shares during the first nine months. The quarterly dividend remained $0.17 per share.
Material changes and operating trends
- International Telecom: Q3 revenue increased 1.5% to $82.5 million and operating income rose to $16.0 million from $10.9 million. Fixed broadband growth and cost savings outweighed reduced roaming revenue.
- US Telecom: Q3 revenue declined 14.6% to $28.1 million and operating income fell to $2.2 million from $7.9 million. Carrier-services revenue was affected by restructured carrier contracts; FirstNet-related costs also increased.
- Renewable Energy: Q3 revenue declined 14.3% to $1.2 million, while the segment operating loss narrowed to $0.1 million. Nine-month revenue declined 22.7% to $3.4 million.
- Across the first nine months, fixed communications revenue increased 6.1% to $187.6 million; mobility revenue declined 4.4% to $67.8 million and carrier-services revenue declined 5.2% to $66.2 million.
Outlook, risks, and unusual items
- Management expects 2020 capital expenditures below the level originally forecast: $35–$40 million in International Telecom and approximately $30 million in US Telecom. These are segment estimates, not total-company guidance.
- FirstNet construction revenue is expected to total approximately $80–$85 million through 2021, largely offset by construction costs and expected to have minimal operating-income impact. COVID-related delays have affected the build schedule.
- Management said its Q3 COVID-19 assessment did not indicate a material impact on the quarter’s consolidated financial statements, but warned that future effects could be material. Risks include reduced roaming and tourism-related demand, customer non-payment, and uncertainty about continued cost savings. Remote-work demand supported fixed broadband.
- Guyana implemented telecommunications legislation and new regulations in October 2020, after quarter-end, introducing a more competitive market. ATN said it could not assess the full effect because competitor license terms were not public; loss of exclusivity could adversely affect revenue and profit.
- GTT has disputed Guyana tax assessments totaling $44.1 million; ATN had accrued $5.0 million and said it believes some adverse outcome is probable. Related litigation and regulatory matters remain unresolved.
- ATN spent approximately $20.4 million on CBRS spectrum licenses in Q3 and faces build-out obligations. Its $7.4 million tribal bidding credit also carries deployment and coverage requirements, with potential clawback if requirements are not met.
- In October 2020, after quarter-end, ATN increased its ownership of One Communications to approximately 70%. The filing also notes a prior Viya debt covenant noncompliance for 2019, for which the lender granted a waiver in February 2020.
Most important facts for investors to verify
- How the new Guyana licensing regime and competitor license terms affect GTT’s exclusivity, carrier revenue, and outstanding tax and legal exposures.
- Whether COVID-related reductions in roaming, tourism-linked activity, and customer payment capacity persist, and whether expense savings can be sustained.
- FirstNet construction timing, costs, AT&T payment terms, and the expected transition from roaming revenue to maintenance, lease, and transport revenue.
- Compliance with CBRS and tribal spectrum deployment obligations and the capital required to meet them.
- The financial and ownership effects of the October increase in One Communications ownership, alongside ongoing dividends, repurchases, and capital expenditure needs.