ATN International, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are noted separately. ATN provides U.S. wholesale and international retail telecommunications, wireline and video services, and distributed solar power in the U.S. and India. Comparisons with 2016 are affected by the full-year inclusion of businesses acquired during 2016.
Financial performance and position
| Metric | FY 2017 | FY 2016 | Change / context |
|---|---|---|---|
| Revenue | $481.2 million | $457.0 million | Up 5.3% |
| Operating income | $55.5 million | $49.8 million | Up 11.4%; operating margin 11.5%, versus 10.9% |
| Net income | $48.9 million | $24.2 million | Up 101.9% |
| Net income attributable to ATN shareholders | $31.5 million; diluted EPS $1.94 | $12.1 million; diluted EPS $0.75 | Up 160.2%; materially affected by tax benefits |
| Cash from operating activities | $145.7 million | $111.7 million | Up $34.0 million |
| Capital expenditures | $142.4 million | $124.3 million | Operating cash flow less capex was approximately $3.4 million |
| Cash, restricted cash and short-term investments | $227.0 million | $297.6 million | Down $70.6 million on the selected-data basis; company attributes the decline primarily to capex, spectrum purchases, dividends and repurchases |
| Debt | $155.8 million | $156.8 million | $10.9 million current; no borrowings under the $225 million revolving facility |
| Working capital | $181.2 million | $217.3 million | Down $36.0 million |
Quarterly revenue was $107.7 million in Q4 2017, compared with $128.5 million in Q4 2016. Q4 operating income was $41.4 million versus $9.9 million, and net income attributable to ATN shareholders was $43.5 million versus $1.9 million. The filing’s quarterly table reports a $6.2 million income tax benefit in Q4 2017; the quarter’s results should be read in light of the annual tax effects and hurricane-related insurance accounting.
Material changes versus 2016
- International Telecom: Revenue rose 17.9% to $304.6 million, largely reflecting full-year contributions from the 2016 acquisitions. Segment operating income fell 19.5% to $28.5 million, including hurricane impacts and $19.3 million in customer service credits issued after the U.S. Virgin Islands storms.
- U.S. Telecom: Revenue declined 11.9% to $155.7 million, including the March 2017 sale of the New England and New York wireline businesses and lower wholesale roaming rates and contractual revenue caps. Segment operating income nevertheless increased 12.6% to $55.3 million, reflecting lower expenses and Mobility Fund offsets.
- Renewable Energy: Revenue decreased 5.3% to $20.5 million, primarily due to expiring California incentives and weather-related lower production, partly offset by India. Segment operating income improved to $5.2 million from a $0.2 million loss.
- Consolidated wireless revenue decreased 3.0%; wireline revenue increased 20.1%, with acquisition timing an important factor. The 2016 comparison included an $11.4 million impairment charge and a $7.3 million bargain-purchase gain, both absent in 2017.
Outlook, risks and unusual items
- Hurricanes Irma and Maria: The company recorded a $4.0 million net pretax loss, comprising $35.4 million of damaged-asset write-offs, $34.6 million of insurance recoveries, and $3.2 million of incremental expenses. Insurance proceeds were received in February 2018. The $19.3 million of service credits reduced 2017 wireline revenue. Management expected revenue effects to continue into the first half of 2018 and cautioned that a return to pre-storm revenue levels could take significant time.
- Capital spending: Management forecast 2018 telecom capex of $65–$85 million, excluding estimated U.S. Virgin Islands hurricane restoration capex of $35–$45 million. It expected $5–$7 million to complete the initial phase of India solar construction; additional India expansion depends substantially on securing local financing.
- Wireless site sale: A carrier exercised an option in Q1 2018 to purchase approximately 100 U.S. cell sites. Closing was expected during 2018; ATN expected no additional cash proceeds at closing and a gain of at least $15 million. The sites generated approximately $13.9 million of 2017 wholesale revenue.
- Funding and covenant: The $60 million Viya loan’s 2017 leverage-covenant requirement was waived for one year in February 2018 following the storms. The company said it was otherwise in compliance with its disclosed credit covenants at year-end and expected cash, operating cash flow and facility availability to cover at least 12 months of needs.
- Tax reform: The 2017 Tax Act produced a reported $10.6 million net tax benefit for 2017, including an $18.0 million deferred-tax remeasurement benefit and a $7.4 million deemed-repatriation tax provision. The company stated that its estimates were preliminary and that the GILTI tax impact remained under evaluation.
- Key exposures: Guyana’s proposed telecom liberalization could threaten GT&T’s exclusive license and related revenues. Other significant risks include hurricane recovery and insurance sufficiency, U.S. Virgin Islands universal-service funding, concentration of wholesale wireless revenue among major carriers, competition, India project financing and permitting, currency movements, and solar PPA/SREC economics.
- Contingencies: GT&T faces disputed Guyana tax assessments totaling $44.1 million; ATN reported a $5.0 million accrual and believes potential reimbursement provisions may apply. Caribbean Telecommunications Limited filed a new $25 million claim in December 2017, which ATN considers without merit. ATN also disclosed pending litigation over GT&T’s exclusive rights.
Important facts for investors to verify
- Whether hurricane restoration met timelines and budgets, service and customer levels recovered, and insurance proceeds adequately cover total losses.
- How much of Q4’s unusually high operating and shareholder-attributable income reflects insurance accounting and tax items rather than recurring operations.
- Progress and final economics of the 100-site sale, including the expected gain, revenue transition and closing timing.
- Developments in Guyana’s licensing regime, the $44.1 million tax dispute, and the $25 million CTL claim.
- Whether planned capex, India financing, and solar project deployment can be funded without materially weakening liquidity or increasing debt.
- The final tax-reform assessment and any subsequent effect on tax expense, cash taxes or foreign-subsidiary cash availability.