ATN International, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Unaudited consolidated results; comparisons are with Q1 2015 unless noted. ATN provides wireless and wireline telecommunications and renewable-energy services in the United States, Bermuda, Guyana and other Caribbean markets. The filing reports three segments: U.S. Telecom, International Telecom and Renewable Energy.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $89.7 | $85.3 | +$4.3; +5.1% |
| Operating income | $15.9 | $19.2 | −$3.3; −17.0% |
| Operating margin | 17.7% | 22.4% | −4.7 percentage points |
| Net income (loss) | $10.8 | $(0.5) | Improved |
| Net income (loss) attributable to ATN shareholders | $6.1 | $(3.3) | Improved |
| Diluted EPS | $0.38 | $(0.21) | Improved |
| Cash provided by operating activities | $28.3 | $35.5 | −$7.1 |
| Capital expenditures | $16.4 | $13.8 | +$2.6 |
| Cash and cash equivalents at period end | $391.1 | $392.0 at Dec. 31, 2015 | −$0.9 |
Revenue rose in each reported category: wireless $58.9 million (+3.3%), wireline $22.4 million (+9.0%), equipment and other $2.8 million (+13.3%), and renewable energy $5.6 million (+5.7%). Higher engineering and operations, general and administrative, and transaction-related costs more than offset revenue growth. Transaction-related charges were $3.7 million versus $0.2 million, mainly for the Vibrant Energy, KeyTech and Innovative transactions.
Q1 2015 included a $19.9 million loss on deconsolidation related to the Turks and Caicos business sale; its absence in Q1 2016 materially explains the year-over-year improvement in net income. ATN reported $31.3 million of debt, including current maturities, and no borrowings under its $225 million revolving facility; approximately $10.6 million of letters of credit were outstanding. It was in compliance with facility covenants. Cash, cash equivalents and restricted cash totaled approximately $396.8 million, including $112.4 million held by foreign subsidiaries and described as permanently invested outside the United States. The filing does not provide a single consolidated liquidity ratio.
Material changes and management commentary
- U.S. Telecom revenue increased to $46.2 million from $42.4 million; segment operating income was essentially flat at $16.7 million. Wholesale wireless revenue benefited from higher data traffic, network upgrades and more base stations, partly offset by rate declines.
- International Telecom revenue was $37.9 million versus $37.7 million, while segment operating income rose to $7.7 million from $6.2 million. Higher broadband data revenue in Guyana was a key contributor.
- Renewable Energy revenue increased to $5.6 million from $5.3 million, but segment operating income fell to $0.1 million from $2.7 million. The filing does not clearly isolate the full cause of this segment-profit decline.
- Operating cash flow declined to $28.3 million from $35.5 million; management attributed the change mainly to working-capital movements after adjusting for the prior-year deconsolidation loss. Investing activities used $17.8 million in Q1 2016. Cash and cash equivalents declined by $0.9 million overall.
- Quarterly dividends were $0.32 per share, up from $0.29; $5.1 million of dividends were paid during the quarter. Cash used for financing activities was $11.5 million, including dividends, minority distributions and debt repayments.
Outlook, transactions and risks
- Capital spending: Management expected 2016 telecom capital expenditures of $65–75 million and Renewable Energy capital expenditures of $40–50 million, primarily funded from cash and operating cash flow. These are spending expectations, not earnings guidance.
- Acquisitions after quarter-end: ATN completed the approximately $11 million cash Vibrant Energy solar-portfolio acquisition on April 7, 2016, and the KeyTech transaction on May 3, 2016. For KeyTech, ATN contributed its approximately 43% CellOne interest and approximately $42 million cash for a 51% interest in KeyTech. Both acquisitions were excluded from Q1 results.
- Pending acquisition: ATN expected to complete the approximately $145 million Innovative acquisition, subject to regulatory approvals and customary conditions, in mid-2016. It expected to fund approximately $85 million in cash and could finance up to $60 million through an affiliate of the seller.
- Renewables in India: Management expected 20–25 MWp to be operating and generating revenue by early Q4 2016, 45 MWp by January 2017, and targeted at least 250 MWp of projects through 2018. Risks include permits, land title, construction and grid delays, project financing, foreign-exchange movements, and political and regulatory uncertainty.
- Telecom outlook and regulatory risks: Management expected U.S. wholesale wireless data volumes to grow, but anticipated revenue declines and margin contraction as lower rates were exchanged for longer-term contracts. Loss or modification of GTT’s exclusive Guyana rights could adversely affect wireline revenue; competition and roaming-rate declines also remain risks.
- Contingencies: ATN had accrued $5.0 million for disputed Guyana tax matters involving $32.4 million of assessments; management stated it believed the government would be obligated to reimburse qualifying amounts, but recovery is uncertain. A roughly $4 million Aruba spectrum-fee assessment was being contested. Mobility Fund compliance obligations were secured by $10.6 million in letters of credit, which could be drawn, with penalties, if conditions are not met. CTL’s Guyana action was dismissed on April 7, 2016; other Guyana disputes remained pending.
- Management said liquidity and available credit were expected to meet working-capital and capital-expenditure needs for at least the next 12 months. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether revenue growth can translate into improved operating margins, particularly given higher operating and deal-related expenses and the Renewable Energy segment’s lower reported operating income.
- Progress, financing, regulatory approvals and integration costs for the India solar projects, KeyTech and the pending Innovative acquisition; confirm actual project commissioning and revenue against stated milestones.
- Cash deployment and funding needs after acquisitions and planned capital expenditures, including the amount of foreign-held cash available for U.S. uses and any additional borrowing.
- Developments affecting Guyana exclusivity and tax disputes, the Aruba spectrum-fee dispute, and compliance with Mobility Fund requirements.
- Actual results compared with management’s 2016 capital-expenditure expectations and its stated outlook for wireless rates, margins and revenue.