ATN International, Inc. — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 2, 2020. This is an annual report, not a standalone fourth-quarter filing. Amounts are U.S. dollars.
Business context
ATN operates International Telecom businesses in the Caribbean and Bermuda, U.S. Telecom businesses concentrated in rural markets, and a distributed solar business in India. It sold its U.S. solar operations in November 2018. International Telecom generated about 74% of 2019 revenue, U.S. Telecom 25%, and Renewable Energy the remainder.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $438.7 million | $451.2 million |
| Operating income | $13.4 million | $61.0 million |
| Operating margin | 3.0% | 13.5% |
| Net income | $2.0 million | $34.9 million |
| Net income (loss) attributable to ATN shareholders | $(10.8) million; $(0.68) per diluted share | $19.8 million; $1.24 per diluted share |
| Cash provided by operating activities | $87.9 million | $115.9 million |
| Capital expenditures | $72.7 million | $185.9 million |
| Cash, restricted cash and short-term investments | $162.8 million | $193.3 million |
| Long-term debt, including current portion | $86.4 million | $91.0 million |
| Working capital | $109.1 million | $135.1 million |
Revenue declined 2.8%. Wireless revenue fell 2.7% to $193.5 million, wireline revenue rose 4.1% to $239.7 million, and renewable energy revenue declined 75.0% to $5.5 million. Operating cash flow less capital expenditures was approximately $15.2 million in 2019.
The $47.6 million decrease in operating income chiefly reflects the absence of $26.4 million in 2018 asset-sale gains, lower renewable-energy revenue after the U.S. solar sale, and weaker U.S. Telecom results. 2019 also included a $3.3 million goodwill impairment in Renewable Energy and a $4.7 million write-down of previously acquired non-controlling equity investments. The effective tax rate was 67.6%, versus 35.1% in 2018, affected by tax reserves, nondeductible expenses, jurisdictional income mix and losses that could not be used for tax benefits. ATN’s share of earnings was further reduced by $12.8 million attributable to non-controlling interests.
Material changes and segment performance
- International Telecom: Revenue rose 3.5% to $324.5 million and operating income increased 4.2% to $46.9 million, mainly on broadband growth. 2018 included $15.5 million of nonrecurring hurricane-related USF revenue.
- U.S. Telecom: Revenue fell 6.0% to $108.6 million and operating income fell 78.0% to $8.1 million. Factors included lower wholesale traffic, the 2018 sale of about 100 cell sites and the absence of a $15.2 million gain on that sale; the $5.3 million Connect America Fund Phase II revenue partly offset the decline.
- Renewable Energy: Revenue declined to $5.5 million following the U.S. solar divestiture; the segment recorded a $7.2 million operating loss, compared with $13.4 million operating income in 2018.
Outlook, risks and unusual items
- Management expected 2020 capital expenditures of $45–$55 million in International Telecom, $35–$40 million in U.S. Telecom (including about $20 million for FirstNet towers and backhaul), and $2–$4 million in Renewable Energy. It expects India solar revenue to grow moderately as projects enter service; no consolidated revenue or earnings forecast is provided.
- The FirstNet agreement with AT&T is expected to generate $80–$85 million of construction revenue over two years, largely offset by construction costs and with minimal operating-income impact. Ongoing maintenance, leasing and transport services are expected to contribute relatively steadily from 2020; AT&T may terminate for missed construction milestones or service requirements.
- Viya did not meet the financial covenant on its $60 million debt for year-end 2019; RTFC granted a waiver on February 26, 2020. ATN reported compliance with its corporate revolving facility, with no borrowings and $192 million of availability at year-end.
- Legacy USVI annual high-cost support of approximately $16.4 million may be replaced by a competitive Connect USVI process. ATN could receive less support, materially affecting the business. Hurricane network restoration was complete, but revenue recovery to pre-storm levels was uncertain.
- GTT’s Guyana exclusivity rights remain exposed to regulatory change and litigation. Disputed Guyana tax assessments totaled $44.1 million; ATN accrued $5.0 million for the matters. Other key risks include wholesale wireless customer concentration, competition, network and cyber risks, foreign exchange, and access to financing for Indian solar expansion.
- ATN declared $10.9 million of dividends in 2019, equivalent to $0.68 per share. Management said current liquidity and credit availability should cover needs for at least 12 months. Auditors issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether the USVI Connect USVI funding awards replace or reduce Viya’s historical support, and the resulting effect on operating cash flow.
- Progress, construction costs, payment terms and milestone compliance under the FirstNet agreement, including AT&T’s extended-payment option.
- Viya’s covenant waiver terms and future compliance, alongside debt-service and liquidity needs.
- Resolution and potential financial exposure from Guyana exclusivity litigation and the disputed tax assessments.
- Whether India solar projects can secure third-party financing and meet development, land-title, grid-access and PPA requirements.