ATN International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Unless stated otherwise, amounts are in millions of U.S. dollars. ATN provides telecom and digital infrastructure services in the U.S. and international markets, reported in International Telecom and US Telecom segments.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $185.8 | $172.0 |
| Operating income | $0.6 | $0.1 |
| Net loss | $(7.1) | $(2.0) |
| Net loss attributable to ATN shareholders | $(5.9), or $(0.44) per share | $(0.9), or $(0.13) per share |
| Cash from operations | $16.0 | $11.4 |
| Capital expenditures | $52.7 | $34.5 |
- Revenue rose 8.0%, driven primarily by fixed-service growth and the contribution from the Sacred Wind acquisition. Communication services revenue increased 8.9%; construction revenue declined to $0.6 million from $2.0 million.
- Operating margin was approximately 0.3%, versus approximately 0.1%. Operating expenses increased 7.7%, including $2.9 million of restructuring expense.
- Net loss worsened as interest expense increased to $8.8 million from $3.4 million and other income fell to $0.2 million from $4.2 million, partly reflecting investment gains in the prior-year quarter.
- Cash used in investing activities was $52.8 million; cash provided by financing activities was $38.0 million. Cash, cash equivalents and restricted cash totaled $61.0 million at quarter-end, including $56.0 million unrestricted cash. Operating cash flow less capital expenditures was negative $36.7 million.
- Total debt, including the customer-receivables credit facility and net of deferred financing costs, was approximately $512.8 million at March 31, compared with $467.2 million at year-end 2022. Current assets were $231.6 million and current liabilities $205.4 million.
Changes versus prior year and segment performance
- International Telecom revenue increased 4.1% to $90.4 million; operating income rose 16.9% to $13.8 million. Subscriber gains and equipment sales, and increased roaming revenue in some markets, contributed; lower U.S. Virgin Islands high-cost support partly offset growth.
- US Telecom revenue increased 12.0% to $95.4 million, including Alaska growth and Sacred Wind. Its operating loss narrowed to $4.3 million from $4.6 million. FirstNet construction, wholesale roaming and long-distance revenue were lower.
- Fixed revenue increased 12.7% to $117.8 million, while carrier-services revenue decreased 1.6% to $35.8 million. Mobility revenue rose 7.5% to $27.3 million.
- Capital expenditures increased substantially, with investment of $21.5 million in International Telecom and $31.3 million in US Telecom.
Outlook, risks and unusual items
- Management forecast 2023 capital expenditures of approximately $160–$170 million, net of reimbursable amounts, primarily for network expansion and upgrades. FirstNet construction was approximately 75% complete; substantial completion was expected by year-end 2023, with the remainder in early 2024. Total FirstNet construction revenue was expected to approximate $80–$85 million.
- The CoBank revolving facility, with $122.0 million drawn and $54.0 million available at quarter-end, matures April 10, 2024. Management was pursuing refinancing in 2023 and believed obligations could be met for at least 12 months after issuance of the statements; failure to refinance or secure other financing could adversely affect operations. Management cited potential spending reductions or equity issuance as contingency measures.
- Borrowings include substantial floating-rate exposure: $372.6 million of variable-rate debt at quarter-end. A 100-basis-point rate change was estimated to affect annual interest expense by $3.7 million. The company had no interest-rate hedges on the cited facilities.
- Government support is material: recognized support-program revenue was $27.0 million in Q1, versus $16.2 million a year earlier. The FCC extended U.S. Virgin Islands high-cost support at $5.5 million annually through 2025, subject to maintaining the service footprint. Grant and subsidy revenue depends on compliance, funding and project execution.
- ATN had up to approximately $207 million allocated under the FCC Replace and Remove Program for replacing ZTE equipment; $6.7 million of eligible costs had been recorded as a receivable. Timely reimbursement and completion requirements remain relevant.
- ATN accrued $15.3 million for regulatory, tax and other legal matters. Disclosed matters include Guyana tax and licensing disputes and Alaska Communications’ Rural Health Care Program audit and FCC inquiry; outcomes and potential additional exposure are uncertain.
- After quarter-end, on May 10, 2023, subsidiary Commnet entered a seven-year Verizon managed-services agreement, with estimated total payments of approximately $200 million over the initial term for upgrades, construction and recurring services. Verizon has specified termination rights, including for missed milestones or service levels.
- Other factors identified by management include competition, inflation and supply-chain costs, government-program changes, currency exposure, network transition and ZTE replacement execution, and realization of expected acquisition benefits.
Important facts for investors to verify
- Progress, terms, pricing and available capacity of the planned refinancing of the CoBank facility before its April 2024 maturity.
- Cash conversion and capital spending against the $160–$170 million full-year capex outlook, including the timing of grant and program reimbursements.
- Execution, required investment, service-level milestones and revenue recognition under the Verizon agreement and FirstNet build.
- Trends in interest expense, floating-rate debt, leverage and covenant headroom as borrowings and rates change.
- Developments in the legal and regulatory matters, the $15.3 million accrual, and the company’s eligibility and compliance for government support programs.