ATN International, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Unaudited results; dollar amounts below are in millions unless stated otherwise. ATN provides wireless and wireline telecommunications services and operates U.S. distributed solar assets.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $96.8 | $89.4 | $272.5 | $247.8 |
| Operating income | $22.5 | $28.2 | $70.4 | $66.0 |
| Net income | $11.6 | $18.9 | $26.2 | $43.6 |
| Net income attributable to ATN shareholders | $6.6 | $16.2 | $12.8 | $35.5 |
| Diluted EPS attributable to ATN shareholders | $0.41 | $1.01 | $0.79 | $2.22 |
| Operating margin | 23.3% | 31.5% | 25.8% | 26.6% |
- Q3 revenue grew 8.3%; U.S. wireless revenue rose 6.2%, while international wireless fell 5.4%. Wireline increased 1.3%; renewable energy contributed $5.1 million, following the 2014 Ahana acquisition.
- Nine-month revenue increased 9.9%, including $15.6 million from renewable energy. U.S. wireless grew 11.7%; international wireless declined 8.0%.
- Q3 operating income declined 20.0%, as operating expenses rose 21.3%. Nine-month operating income increased 6.7%, including a $2.8 million gain on asset dispositions.
- Nine-month net income included a $19.9 million loss on deconsolidation of the Turks and Caicos subsidiary. The loss had no tax benefit and contributed to the effective tax rate rising to 46.8% from 34.0%.
- Operating cash flow was $113.1 million for the nine months, compared with $51.0 million in 2014; continuing-operations cash flow was $112.5 million. Capital expenditures were $46.0 million, versus $41.7 million.
- At September 30, cash and cash equivalents were $397.8 million, restricted cash totaled $5.8 million, and total debt was $34.4 million, down from $38.9 million at year-end 2014. ATN had no borrowings under its $225 million revolver and was covenant-compliant; approximately $10.6 million of letters of credit were outstanding.
- Total assets were $946.5 million and total equity was $763.3 million at September 30, 2015. Dividends declared for the nine months were $0.90 per share.
Changes, outlook and material items
- Management expected 2015 telecommunications capital expenditures of $60–$70 million; renewable-energy capital spending was not quantified. ATN said current cash and revolver availability should cover working capital and capital expenditures for the next 12 months.
- Management anticipated a significant U.S. wireless revenue decline in Q4 2015 from annual volume-tier pricing, followed by an increase in Q1 2016 after pricing tiers reset. Network expansion was expected to proceed more slowly than in prior periods.
- Management expected international roaming revenue to continue declining due to rate pressure, while retail subscriber growth could support international wireless revenue. Solar revenue from the existing portfolio was expected to remain fairly consistent, supported by long-term power purchase agreements.
- Q3 expenses included $2.5 million of transaction-related charges, primarily associated with pending acquisitions. Higher engineering, operations, general and administrative, and depreciation costs also weighed on quarterly operating results.
- Subsequent to quarter-end, ATN agreed to acquire a 51% interest in Bermuda-based KeyTech, contributing its approximately 43% CellOne stake and $42 million cash; completion was expected in Q1 2016, subject to approvals. ATN also agreed to buy Innovative for approximately $145 million, including $85 million cash and an option to finance the remaining $60 million; completion was expected in mid-2016, subject to approvals.
- Key risks include Guyana’s proposed telecommunications liberalization and disputes over GT&T’s exclusive rights and taxes; Bermuda spectrum restrictions; uncertainty over Aruba license fees; regulatory conditions or delays affecting pending acquisitions; roaming-rate and traffic trends; competition, technology upgrades, and access to capital. Mobility Fund obligations are secured by $10.6 million of letters of credit; noncompliance could trigger draws and penalties.
Important facts for investors to verify
- Whether Q4 U.S. wireless revenue declined as management anticipated and whether Q1 2016 pricing resets produced a rebound.
- Acquisition approvals, closing dates, final consideration, financing, and any imposed regulatory conditions for KeyTech and Innovative.
- The sustainability of operating cash flow, including the impact of tax-payment timing, and the funding needed for planned capital expenditures and acquisitions.
- Exposure to Guyana exclusivity, tax and litigation matters; Bermuda spectrum decisions; and the status and potential cost of Aruba licensing.
- How the $19.9 million deconsolidation loss, transaction costs, non-controlling interests, and elevated effective tax rate affect comparisons of underlying earnings.