ATN International, Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed March 1, 2017. This is an annual filing, not a standalone Q4 report. ATN operates U.S. rural wholesale wireless, international telecom, and U.S. and India distributed-solar businesses.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $457.0 million | $355.4 million |
| Operating income | $49.8 million | $78.6 million |
| Operating margin | 10.9% | 22.1% |
| Net income attributable to ATN stockholders | $12.1 million; $0.75 diluted EPS | $16.9 million; $1.05 diluted EPS |
| Operating cash flow | $111.7 million | $139.2 million |
| Capital expenditures | $124.3 million | $64.8 million |
| Cash, restricted cash and short-term investments | $297.6 million | $398.3 million |
| Debt, including current portion | $156.8 million | $32.9 million |
| Working capital | $217.3 million | $384.1 million |
At year-end, current assets were $367.4 million and current liabilities were $150.1 million. The company reported $225 million of revolving credit capacity, no revolver borrowings, and $10.6 million in outstanding letters of credit; it said it was in compliance with credit-facility covenants. The filing’s liquidity discussion separately cites approximately $299.3 million of cash, restricted cash and short-term investments, which does not reconcile to the balance-sheet total of $297.6 million.
Material changes versus FY 2015
- Revenue rose 28.6%, largely because ATN consolidated One Communications from May 2016 and Innovative from July 2016. International Telecom revenue increased 70.7% to $258.3 million; the acquisitions contributed $108.5 million in 2016 revenue.
- U.S. Telecom revenue fell 3.4% to $176.7 million. Lower wholesale roaming rates reduced U.S. wholesale wireless revenue by $11.9 million, more than offsetting higher data traffic and retail growth. Segment operating income fell 34.1% to $49.1 million.
- Renewable Energy revenue increased 2.7% to $21.6 million, while the segment moved from $6.7 million operating income to a $0.2 million operating loss, primarily reflecting Vibrant India acquisition-related costs.
- Consolidated operating income declined 36.6%; operating expenses increased 47.1%, including higher acquisition, integration, depreciation and network costs. FY 2016 included $11.4 million of impairment charges and a $7.3 million bargain-purchase gain.
- Cash from operations declined $27.6 million, while investing cash outflow reached $308.7 million, reflecting acquisitions and higher capital spending. Cash and short-term liquidity fell as a result; debt increased to finance acquisitions and refinance solar debt.
Acquisitions, outlook and notable items
- ATN acquired a controlling 51% interest in One Communications, contributing its existing Bermuda wireless interest and approximately $42 million cash. It acquired Innovative for a contractual price of $145 million, with $60 million financed by seller-affiliated debt; it also funded $22.5 million for acquired pension obligations. Vibrant Energy added a solar development portfolio in India.
- Management expected 2017 telecom capital expenditures of $95–$115 million and renewable-energy capital expenditures of $40–$60 million. It expected telecom capital spending in existing markets to decline significantly in 2018 after current network expansions and upgrades.
- India solar plans targeted 100 MWp operational by end-2017 and 250–300 MWp by end-2018, subject to financing, land, power-sale agreements, permits and construction. ATN had begun banking grid-delivered power but had not recognized India solar revenue by year-end 2016.
- ATN expected its Northeast U.S. Wireline sale to close in Q1 2017, subject to customary conditions. The business generated $21.2 million revenue in 2016; ATN planned to retain its wholesale long-distance business.
- Material risks include dependence on a few U.S. wireless carriers (AT&T and Verizon represented 14% and 12% of total revenue), possible loss of roaming traffic or lower rates, and uncertainty over GTT’s Guyana exclusivity following 2016 telecommunications legislation. USVI operations received approximately $16 million of annual USF support in 2016, subject to regulatory requirements.
- Guyana tax disputes total $44.1 million; ATN accrued $5.0 million and says it believes the government would be obligated to protect GTT’s contractual return if assessments were imposed. Other pending Guyana matters include a challenge to GTT’s exclusive license and litigation involving interconnection and alleged international call bypass.
- Management said liquidity should cover working capital and capital expenditures for at least 12 months. The board declared $1.32 per share in FY 2016 dividends and authorized a $50 million repurchase plan; dividends and repurchases remain subject to board discretion, financing restrictions and capital needs.
Most important facts for investors to verify
- Reconcile the filing’s differing liquidity figures and distinguish unrestricted cash from restricted cash and cash held abroad.
- Assess underlying earnings and margins excluding acquisition effects, the $7.3 million bargain-purchase gain, $11.4 million impairment, and transaction and restructuring costs.
- Track U.S. wholesale roaming rates, traffic, customer concentration and carrier buildout decisions, including the purchase option on approximately 100 sites exercisable beginning in 2018.
- Monitor integration of One Communications and Innovative, the pending Northeast wireline sale, and the terms and proceeds ultimately realized.
- Test whether India projects obtain financing, land rights, approvals and bankable PPAs on schedule, and whether target capacity and returns remain achievable.
- Follow developments in Guyana exclusivity, tax assessments and litigation; USF funding and compliance; and the company’s debt, covenant headroom and dividend capacity.
- Note that management and the auditor concluded financial reporting controls were effective, but KeyTech and Innovative—together representing approximately 23% of 2016 revenue—were excluded from the internal-control assessment because they were acquired during 2016.