ATN International(ATNI) - 2019 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents ATN International, Inc.'s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019, along with detailed notes on key accounting areas Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $257,811 | $275,765 | | Net Fixed Assets | $605,501 | $626,852 | | Total Assets | $1,162,800 | $1,107,304 | | Total Current Liabilities | $141,030 | $140,650 | | Total Liabilities | $344,501 | $283,980 | | Total Equity | $818,299 | $823,324 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $115,616 | $121,138 | $326,637 | $343,401 | | Income from Operations | $10,248 | $30,824 | $15,117 | $50,786 | | Net Income (Loss) Attributable to ATN | $1,385 | $17,022 | $(1,052) | $18,682 | | Diluted EPS | $0.09 | $1.06 | $(0.07) | $1.16 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56,847 | $98,014 | | Net cash used in investing activities | $(62,658) | $(105,652) | | Net cash used in financing activities | $(20,719) | $(37,948) | | Net change in cash | $(26,556) | $(45,939) | Note 1. Organization and Business Operations The company operates in three segments: US Telecom, International Telecom, and Renewable Energy, actively evaluating acquisitions and investments for growth - The company's operations are managed across three primary segments: US Telecom, International Telecom, and Renewable Energy[20][21][22] Operating Segments and Services | Segment | Services | Markets | | :--- | :--- | :--- | | US Telecom | Wireless, Wireline | United States (rural markets) | | International Telecom | Wireline, Wireless, Video | Bermuda, Cayman Islands, Guyana, US Virgin Islands | | Renewable Energy | Solar | India | Note 3. Revenue Recognition This note details the company's adoption of ASC 606, highlighting the increase in net contract liabilities and a significant surge in remaining performance obligations, primarily due to new multiyear contracts - In July 2019, the company entered into a Network Build and Maintenance Agreement with AT&T for the First Responder Network Authority (FirstNet), which includes significant construction and service performance obligations[42] - Remaining performance obligations increased significantly to $275 million at September 30, 2019, up from $12 million at December 31, 2018, with the majority expected to be recognized as revenue within 24 months[44] Note 4. Leases The company adopted the new lease accounting standard ASC 842 on January 1, 2019, recognizing a $70.8 million operating lease right-of-use (ROU) asset and corresponding liabilities - Upon adoption of ASC 842 on January 1, 2019, the company recognized an operating lease ROU asset of $70.8 million, a short-term lease liability of $8.2 million, and a long-term lease liability of $61.2 million[48] Maturities of Operating Lease Liabilities (as of Sep 30, 2019, in thousands) | Period | Amount | | :--- | :--- | | 2019 (remainder) | $4,247 | | 2020 | $13,516 | | 2021 | $13,510 | | 2022 | $12,551 | | 2023 | $10,693 | | Thereafter | $28,062 | | Total Lease Payments | $82,579 | Note 6. Impact of Hurricanes Irma and Maria Network restoration in the US Virgin Islands is substantially complete following the 2017 hurricanes, with significantly reduced spending in 2019, though future revenue recovery remains uncertain - Network restoration spending following the hurricanes decreased significantly, from $78.9 million in the first nine months of 2018 to just $0.1 million in the same period of 2019, indicating the rebuild is substantially complete[60] Note 9. Long-Term Debt In April 2019, the company secured a new $200 million revolving credit facility maturing in 2024, with $189.4 million available as of September 30, 2019 - On April 10, 2019, the company replaced its 2014 credit facility with a new $200 million revolving credit facility maturing in 2024. As of September 30, 2019, no amounts were drawn, and $189.4 million was available[80][84] Note 14. Segment Reporting For the nine months ended September 30, 2019, International Telecom was the largest segment by revenue and operating income, while US Telecom's operating income sharply declined Segment Revenue (in thousands) - Nine Months Ended Sep 30 | Segment | 2019 | 2018 | | :--- | :--- | :--- | | US Telecom | $80,799 | $90,591 | | International Telecom | $241,461 | $235,538 | | Renewable Energy | $4,377 | $17,272 | | Total | $326,637 | $343,401 | Segment Operating Income (Loss) (in thousands) - Nine Months Ended Sep 30 | Segment | 2019 | 2018 | | :--- | :--- | :--- | | US Telecom | $5,927 | $35,839 | | International Telecom | $35,802 | $37,449 | | Renewable Energy | $(750) | $3,687 | | Corporate and Other | $(25,862) | $(26,189) | | Total | $15,117 | $50,786 | Note 15. Commitments and Contingencies The company faces significant regulatory uncertainty in Guyana regarding its subsidiary GTT's exclusive license and ongoing tax disputes with the Guyana Revenue Authority - The Government of Guyana passed legislation in 2016 to increase telecommunications competition, which could impact GTT's exclusive license. Discussions with the government are ongoing, but the timing and outcome are uncertain[126][127] - GTT is involved in tax disputes with the Guyana Revenue Authority dating back to 1991, with total disputed assessments of $44.1 million. The company believes an adverse outcome is probable and has accrued $5.0 million for these matters[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue and operating income declines in Q3 2019, while emphasizing strong liquidity and the strategic importance of the new FirstNet agreement Results of Operations This section details the company's Q3 and nine-month operational results, noting a decline in total revenue and operating income, primarily due to asset sales and segment performance shifts Q3 2019 vs Q3 2018 Revenue by Type (in thousands) | Revenue Type | Q3 2019 | Q3 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Wireless | $54,555 | $52,003 | $2,552 | 4.9% | | Wireline | $59,623 | $63,717 | $(4,094) | (6.4)% | | Renewable Energy | $1,438 | $5,418 | $(3,980) | (73.5)% | | Total Revenue | $115,616 | $121,138 | $(5,522) | (4.6)% | - The decrease in Q3 operating income to $10.2 million from $30.8 million in the prior year was primarily driven by a non-recurring gain of $13.5 million on the disposition of long-lived assets in Q3 2018[169][211] - For the nine months ended Sep 30, 2019, the company reported a net loss attributable to stockholders of $1.1 million, a significant reversal from the $18.7 million net income in the same period of 2018[273] Liquidity and Capital Resources This section reviews the company's liquidity and capital resources, noting a decrease in operating cash flow due to tax payments and segment performance, alongside significantly reduced capital expenditures - Cash from operations decreased by $41.2 million year-over-year for the nine-month period, primarily due to a $28.5 million tax payment related to the US Solar Transaction and reduced cash flow from the US Telecom and Renewable Energy segments[287][288] - Capital expenditures for the first nine months of 2019 were $49.5 million, a sharp decrease from $154.3 million in the same period of 2018, which included $78.9 million for hurricane-related network restoration in the US Virgin Islands[280] - The company has a $50.0 million share repurchase plan authorized in 2016, with $37.5 million remaining available as of September 30, 2019[285] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency fluctuations, primarily the Indian Rupee and Guyana Dollar, and interest rate risk from its variable rate debt - The company's primary foreign currency exposures are to the Indian Rupee and the Guyana Dollar. Fluctuations in these currencies are recorded as a foreign currency translation adjustment in other comprehensive income[319] - As of September 30, 2019, the company had $20.3 million of variable rate debt, exposing it to interest rate fluctuations[322] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[323] PART II—OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 15 of the financial statements, detailing ongoing legal and regulatory matters, primarily concerning the company's subsidiary GTT in Guyana - The company directs investors to Note 15 for details on legal proceedings, which primarily involve regulatory and tax issues in Guyana[325] Item 1A. Risk Factors The company highlights key risks including potential termination of the AT&T FirstNet agreement due to unmet milestones and the impact of changes in USF funding in the U.S. Virgin Islands - A significant risk is the failure to meet milestones or quality standards under the Network Build and Maintenance Agreement with AT&T, which could result in the agreement's termination and a material adverse impact on the US Telecom segment[328][330] - Changes in USF funding in the U.S. Virgin Islands, as the FCC establishes the new Connect USVI Fund, pose a risk. The company may not be selected to receive funding or may receive less than historical levels, which could harm its business and financial results in the region[331][332] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a $50.0 million share repurchase plan authorized in 2016, with $37.5 million remaining, and repurchased shares from employees for tax obligations in Q3 2019 - As of September 30, 2019, $37.5 million remained authorized for share repurchases under the 2016 Repurchase Plan[334] - During Q3 2019, the company repurchased shares from employees to cover tax obligations from vested stock awards, which were separate from the formal 2016 Repurchase Plan[335][336] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Network Build and Maintenance Agreement with AT&T and required CEO/CFO certifications - Key exhibits filed include the Network Build and Maintenance Agreement with AT&T Mobility LLC, dated July 31, 2019, and required CEO/CFO certifications[338][339]