ATN International, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results. ATN operates U.S. and international telecommunications businesses and an India-based renewable energy business.
Financial performance
Amounts below are in millions, except per-share data and margins.
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Revenue | $107.7 | $117.8 | $211.0 | $222.3 |
| Operating income | $2.8 | $15.8 | $4.9 | $20.0 |
| Operating margin | 2.6% | 13.4% | 2.3% | 9.0% |
| Net income | $2.0 | $10.8 | $2.8 | $8.5 |
| Net income (loss) attributable to ATN shareholders | $(0.9) | $7.2 | $(2.4) | $1.7 |
| ATN diluted EPS | $(0.05) | $0.45 | $(0.15) | $0.10 |
| Operating cash flow | Not separately stated | Not separately stated | $18.5 | $46.0 |
| Capital expenditures | Not separately stated | Not separately stated | $35.4 | $107.2 |
Q2 revenue fell 8.5%; H1 revenue fell 5.1%. In Q2, wireless revenue declined 6.9%, wireline declined 3.3%, and renewable energy declined 75.9%. H1 wireless revenue declined 12.3%, while wireline grew 9.2%; renewable energy fell 75.2%. The renewable-energy comparison reflects the November 2018 sale of U.S. solar operations.
Operating cash flow less reported capital expenditures was negative $16.9 million in H1 2019, versus positive $5.4 million in H1 2018. This simple measure excludes other investing and financing flows.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $145.6 million, restricted cash $1.1 million, and short-term investments $5.3 million. Combined cash, cash equivalents and restricted cash were $146.7 million, down $46.2 million from year-end 2018.
- Current assets were $250.2 million and current liabilities $130.3 million. Total assets were $1.147 billion; total liabilities were $328.4 million.
- Reported debt, including current maturities and net of financing costs, was approximately $89.2 million, compared with $91.0 million at year-end. Debt included $60 million of Viya borrowings and $30 million of One Communications borrowings. Operating lease liabilities added $68.8 million; the filing recognized $68.6 million of lease right-of-use assets.
- The new $200 million revolving credit facility matures April 2024. ATN had no revolver borrowings, $8 million of outstanding letters of credit and $192 million of availability; it reported compliance with its covenants. The separate Viya debt covenant had been breached for 2018, with a lender waiver received in February 2019.
Material changes and management outlook
- Q2 operating income dropped to $2.8 million from $15.8 million. Management attributed pressure to lower wholesale wireless traffic and the prior sale of about 100 cell sites, higher operating costs as U.S. Virgin Islands operations normalized, and the prior-year quarter’s $8.2 million of non-recurring hurricane-related USF funding and $2.3 million gain on license sales.
- International Telecom revenue rose 5.7% in H1, led by broadband growth, and segment operating income increased to $24.9 million from $21.2 million. U.S. Telecom recorded a $2.0 million H1 operating loss, compared with $13.1 million income a year earlier, reflecting lower wholesale wireless revenue and the expiration of Mobility Fund expense offsets.
- ATN expects 2019 International Telecom capital expenditures of approximately $50–55 million. It expects U.S. Telecom capital expenditures to be broadly consistent with 2018, excluding new initiatives and early-stage business spending. Management said cash, short-term investments and credit availability should cover working capital and capital expenditures for at least 12 months. No consolidated revenue or earnings guidance is provided in the filing text.
- A July 2019 FirstNet agreement, entered after quarter-end, calls for ATN to build network sites for AT&T. ATN expects $75–80 million of construction revenue over two years, largely offset by construction costs and with minimal operating-income impact. Management expects an operating-income contribution in H2 2019 and a relatively steady impact from 2020 onward; maintenance, leasing and transport revenue is expected to offset some roaming revenue.
- Management said U.S. Virgin Islands network restoration is substantially complete, but revenue may take significant time to recover to pre-hurricane levels, or may not return, due to population shifts, economic effects and customer preferences. India renewable-energy growth depends partly on local financing and project timing.
Risks, contingencies and unusual items
- Guyana’s telecom legislation could introduce competition affecting GTT’s exclusive rights. Related government discussions and litigation remain unresolved. A separate disputed Guyana tax matter involves $44.1 million of assessments; ATN accrued $5.0 million and considers some adverse outcome probable.
- USF and other grant programs carry operating, reporting, construction and coverage requirements; some funding may be clawed back if requirements are not met. ATN said it believes it is in compliance. It had approximately $15.4 million of E-Rate construction awards not yet received, with completion obligations running from June 2019 to June 2020.
- Results remain exposed to roaming demand and customer decisions to build or acquire networks, competition, regulation, weather and natural disasters, cybersecurity and network investment needs, foreign-currency movements, and access to capital. Management cited losses in the U.S. Virgin Islands and India that could not be used for tax benefits, as well as discrete tax benefits, as factors affecting the effective tax rate.
- Adoption of lease accounting on January 1, 2019 added lease assets and liabilities to the balance sheet. The filing reports no impact on equity from adoption.
Important facts for investors to verify
- Whether wholesale wireless traffic and U.S. Virgin Islands subscriber and revenue trends stabilize, and how FirstNet construction and subsequent service revenue develop.
- Whether operating cash flow can recover from the H1 decline while ATN funds its stated capital expenditure plans, dividends and strategic investments.
- Progress on Guyana exclusivity, litigation and the $44.1 million disputed tax assessments against the $5.0 million accrual.
- Execution and compliance with E-Rate, Connect America Fund and other grant obligations, including potential clawback exposure.
- The filing’s statements give inconsistent six-month diluted EPS in the MD&A narrative and the financial statements; the statements report $(0.15), consistent with the reported $2.4 million attributable loss and weighted-average shares. Verify against the filed financial statements.