ATN International(ATNI) - 2019 Q4 - Annual Report

Part I This section provides an overview of the company's business operations, including its telecommunications and renewable energy segments, along with associated risks and legal matters Business ATN International operates in International Telecom, US Telecom, and Renewable Energy, targeting underserved markets with disciplined capital allocation Segment Overview (as of Dec 31, 2019) | Segment | Services | Markets | Tradenames | | :--- | :--- | :--- | :--- | | International Telecom | Wireline, Wireless, Video | Bermuda, Cayman Islands, Guyana, US Virgin Islands | Fireminds, GTT+, One, Logic, Viya | | US Telecom | Wireless, Wireline | United States (rural markets) | Choice, Choice NTUA Wireless, Commnet, WestNet, Geoverse | | Renewable Energy | Solar | India | Vibrant Energy | Segment Revenue Contribution | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | International Telecom | 74% | 70% | 63% | | US Telecom | 25% | 26% | 33% | - The company's core strategy focuses on: - Targeting under-served or rural markets where it can be a leading provider - Collaborating with strong local management teams, supplemented by ATN's operational and financial expertise - Maintaining a disciplined, return-on-investment approach to capital allocation, including investments in early-stage, strategically relevant businesses[12][13][14] Telecommunication Services This section details the company's International and US Telecom services, including subscriber data, network infrastructure, and the FirstNet project - The International Telecom segment provides wireless and wireline services in Guyana, Bermuda, the US Virgin Islands, and the Cayman Islands. As of December 31, 2019, it had approximately 284,000 wireless subscribers, 167,000 wireline access lines, 130,000 internet customers, and 38,000 video customers[22][28][30][31] - The US Telecom segment primarily offers wholesale wireless voice and data roaming services in rural markets to major national carriers. AT&T and Verizon collectively accounted for approximately 13% of the company's total consolidated revenue in 2019. As of year-end 2019, the domestic network comprised 1,043 base stations on 453 sites[41][43][46] - In July 2019, the company entered into a major Network Build and Maintenance Agreement with AT&T for the First Responder Network Authority (FirstNet). This is expected to generate $80 million to $85 million in construction revenue over the next two years, followed by long-term maintenance, leasing, and transport service revenue[50][51][52] - Operations in the US Virgin Islands were severely impacted by Hurricanes Irma and Maria in 2017. The company spent approximately $89 million on network restoration and resiliency enhancements through 2019. While restoration is complete, revenue recovery to pre-hurricane levels remains uncertain due to economic and population impacts[38][40] Renewable Energy Services This section outlines the company's India solar portfolio, including capacity, development pipeline, and challenges in financing and land acquisition - The company sold its US solar operations on November 6, 2018, for a total value of approximately $122.6 million, including $65.3 million in cash and the assumption of $57.3 million in debt[19][55] - The company's renewable energy focus is now on its solar power development portfolio in India. As of December 31, 2019, it has five projects with a total of 52 MWp capacity and a development pipeline of up to an additional 180 MWp[59] - Key challenges for the India solar business include securing third-party debt for capital-intensive projects, acquiring land, and competing with local businesses. The business model relies on selling electricity to commercial and industrial customers under long-term Power Purchase Agreements (PPAs)[59][61] Regulation This section addresses regulatory environments in Guyana, the US, and India, highlighting risks to exclusive licenses and Universal Service Fund support - In Guyana, the company's subsidiary GTT holds an exclusive license for domestic fixed and international voice/data services, renewed until 2030. However, new legislation passed in 2016, though not yet implemented, aims to introduce competition, creating significant regulatory risk for this exclusive license[37][108][110] - The company receives significant funding from the FCC's Universal Service Fund (USF). In August 2018, it was awarded $79.9 million over 10 years from the Connect America Fund Phase II Auction to provide fixed broadband and voice services in certain US areas[94] - The company's US Virgin Islands (Viya) operations receive USF support, but the FCC is transitioning this to a new competitive Connect USVI Fund. This creates uncertainty, as Viya may experience a significant reduction in support if it is not selected as a recipient or if funding levels are lower than historical amounts[95][133][134] - Operations in India are governed by The Electricity Act, 2003, which regulates the generation, transmission, and sale of electricity. The business model relies on "open access" rules allowing sales directly to consumers, subject to various charges determined by state electricity regulatory commissions[113][115] Risk Factors The company faces significant risks across its segments, including potential adverse changes to USF support, regulatory threats to its exclusive license in Guyana, and execution risks associated with the FirstNet buildout - International Telecom Risks: A potential reduction in USF support for the US Virgin Islands through the new Connect USVI Fund could materially harm business in that market. The exclusive license in Guyana, which accounts for a significant portion of revenue, is at risk from new legislation intended to increase competition[133][134][140] - US Telecom Risks: The company faces execution risk on the FirstNet project for AT&T; failure to meet milestones could lead to termination and financial loss. A substantial portion of US wholesale revenue comes from four national carriers, and the loss of this business or a decision by them to build their own networks in ATN's service areas would be detrimental[146][148][151] - Renewable Energy Risks: The India solar business is exposed to rapid governmental and regulatory changes, difficulties in procuring land with clear title, and reliance on India's grid infrastructure. Growth is highly dependent on securing additional project financing[160][163][173] - General Business Risks: Operations, particularly in the Caribbean, are vulnerable to severe weather like hurricanes, which can cause major network damage and revenue loss. The company is also exposed to cybersecurity threats, rapid technological changes requiring significant capital expenditure, and reliance on a limited number of key equipment suppliers[177][182][190] Properties The company leases its corporate headquarters in Beverly, MA, and globally utilizes extensive office, retail, and technical space, including owned and leased telecommunications towers and solar projects Approximate Square Footage of Operational Space | Type of space | International Telecom | US Telecom | Renewable Energy | | :--- | :--- | :--- | :--- | | Office | 291,072 | 71,215 | 5,720 | | Retail stores | 27,290 | 23,257 | — | | Technical operations | 1,930,181 | 115,631 | — | - The company's global telecommunications infrastructure includes 282 owned towers, 371 leased towers, and five switch locations. The renewable energy operations in India own 52MW of commercial solar projects at five sites[223] Legal Proceedings The company is involved in significant legal and regulatory proceedings, primarily concerning its subsidiary in Guyana, GTT, including challenges to its exclusive license, lawsuits against a competitor, and tax disputes - GTT's exclusive license in Guyana is being challenged by competitor Digicel in a lawsuit filed in 2009. Concurrently, GTT has sued Digicel for alleged international bypass in violation of its exclusive rights. These cases have been consolidated and are scheduled for trial in 2020[226][227] - GTT is in a dispute with the Guyana Revenue Authority over tax assessments dating back to 1991, with the total disputed amount being $44.1 million. The company believes any liability would be partially offset by contractual provisions ensuring a minimum 15% return on investment. It has accrued $5.0 million for this matter as of December 31, 2019[228][771] Part II This section covers market information for the company's common equity, selected financial data, management's discussion and analysis, and the consolidated financial statements Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ATN International's common stock is traded on the Nasdaq Global Select Market under the symbol "ATNI", with a stock repurchase plan authorized in 2016, and $37.5 million remaining for repurchases as of December 31, 2019 - The company's Board of Directors authorized a $50.0 million stock repurchase plan in 2016. As of December 31, 2019, $37.5 million remains authorized for repurchases[239] 5-Year Cumulative Total Return Comparison | Index | 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ATN International | $100.00 | $117.70 | $122.71 | $85.99 | $112.51 | $88.17 | | Russell 2000 | $100.00 | $95.59 | $115.95 | $132.94 | $118.30 | $148.49 | | S&P Smallcap 600 | $100.00 | $98.03 | $124.06 | $140.48 | $128.56 | $157.85 | | Nasdaq Telecommunication | $100.00 | $97.52 | $102.36 | $127.62 | $127.16 | $142.60 | Selected Financial Data The company's financial performance shows a decline in revenue and a significant drop in net income from 2018 to 2019, primarily driven by lower operating income and non-recurring gains from asset sales in 2018 Selected Financial Data (in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenue | $438,722 | $451,207 | $481,193 | | Income from operations | $13,377 | $61,023 | $55,308 | | Net income attributable to ATN | $(10,806) | $19,815 | $31,488 | | Diluted EPS | $(0.68) | $1.24 | $1.94 | | Dividends per share | $0.68 | $0.68 | $1.02 | | Total assets | $1,130,726 | $1,107,304 | $1,205,605 | | Long-term debt, net | $82,676 | $86,294 | $144,873 | | Capital expenditures | $(72,725) | $(185,921) | $(142,371) | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, consolidated revenue decreased by 2.8% to $438.7 million, while operating income fell sharply by 78.1% to $13.4 million, driven by the sale of the US Solar business, reduced wholesale wireless traffic, and non-recurring gains from 2018 Results of Operations: 2019 vs 2018 This section analyzes the consolidated financial performance for 2019 compared to 2018, detailing revenue and operating income changes across segments Consolidated Results Comparison (in thousands) | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $438,722 | $451,207 | $(12,485) | (2.8)% | | Income from Operations | $13,377 | $61,023 | $(47,646) | (78.1)% | | Net Income (Loss) Attributable to ATN | $(10,806) | $19,815 | $(30,621) | (154.5)% | - International Telecom: Revenue increased 3.5% to $324.5 million, driven by broadband growth. This growth overcame the non-recurrence of $15.5 million in USF hurricane recovery funds received in 2018[280] - US Telecom: Revenue decreased 6.0% to $108.6 million. This was due to the July 2018 sale of 100 cell sites and reduced wholesale traffic, partially offset by $5.3 million in new revenue from the Connect America Fund II award[282][283] - Renewable Energy: Revenue decreased 75.2% to $5.5 million, primarily due to the sale of the US Solar Operations in November 2018[286] - Operating expenses increased by 9.0%, largely due to a $29.3 million swing in '(Gain) loss on disposition of long-lived assets'. 2018 included significant gains from the sale of cell sites ($15.2 million) and the US Solar business ($12.4 million), which did not recur in 2019[291][335] Results of Operations: 2018 vs 2017 This section analyzes the consolidated financial performance for 2018 compared to 2017, detailing revenue and operating income changes across segments Consolidated Results Comparison (in thousands) | Metric | 2018 | 2017 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $451,207 | $481,193 | $(29,986) | (6.2)% | | Income from Operations | $61,023 | $55,308 | $5,715 | 10.3% | | Net Income Attributable to ATN | $19,815 | $31,488 | $(11,673) | (37.1)% | - US Telecom: Revenue decreased by $40.2 million (25.8%), primarily due to a $34.1 million decline in wholesale wireless revenue from reduced roaming rates, lower traffic, and the sale of 100 cell sites[358][359] - International Telecom: Revenue increased by $9.0 million (3.0%), mainly due to receiving $15.5 million in additional USF funding to support recovery from the 2017 hurricanes in the US Virgin Islands[354][355] - Operating income increased by 10.3% to $61.0 million, largely due to a $26.4 million gain on the disposition of long-lived assets in 2018, including the sale of cell sites and the US Solar business[367][395] - Net income decreased significantly due to a large income tax expense of $18.9 million in 2018 compared to a tax benefit of $1.3 million in 2017. The 2017 benefit was primarily due to the re-measurement of deferred tax liabilities following the Tax Cuts and Jobs Act[367][402][403] Liquidity and Capital Resources This section details the company's total liquidity, capital expenditures, revolving credit facility, and contractual obligations as of December 31, 2019 - As of December 31, 2019, the company had total liquidity of approximately $162.8 million in cash, cash equivalents, restricted cash, and short-term investments[201][416] Capital Expenditures by Segment (in thousands) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | International Telecom | $42,029 | $160,013 | | US Telecom | $17,490 | $13,389 | | Renewable Energy | $6,448 | $4,515 | | Corporate and Other | $6,758 | $8,004 | | Total | $72,725 | $185,921 | - The significant decrease in 2019 capital expenditures was due to the completion of major network restoration in the US Virgin Islands, which accounted for $80.2 million of the 2018 total[418] - The company has a $200 million revolving credit facility maturing in April 2024. As of December 31, 2019, there were no outstanding borrowings, and $192.0 million was available[433][437] Contractual Obligations as of Dec 31, 2019 (in thousands) | Obligation | Total | Less Than 1 Year | 1 – 3 Years | 4 – 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt | $86,426 | $3,750 | $23,275 | $— | $59,401 | | Pension obligations | $49,667 | $5,066 | $9,926 | $9,506 | $25,169 | | Operating lease obligations | $79,766 | $14,526 | $26,501 | $20,384 | $18,355 | Financial Statements and Supplementary Data The consolidated financial statements detail the company's financial position and performance, reporting total assets of $1.13 billion, total liabilities of $324.6 million, total equity of $806.1 million, and a net loss of $10.8 million on revenues of $438.7 million for 2019 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $161,287 | $191,836 | | Net fixed assets | $605,581 | $626,852 | | Goodwill | $60,691 | $63,970 | | Total Assets | $1,130,726 | $1,107,304 | | Liabilities & Equity | | | | Total current liabilities | $119,669 | $140,650 | | Long-term debt | $82,676 | $86,294 | | Total Liabilities | $324,643 | $283,980 | | Total Equity | $806,083 | $823,324 | Consolidated Income Statement Summary (in thousands) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenue | $438,722 | $451,207 | $481,193 | | Income from Operations | $13,377 | $61,023 | $55,308 | | Net Income (Loss) Attributable to ATN | $(10,806) | $19,815 | $31,488 | Consolidated Cash Flow Summary (in thousands) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $87,903 | $115,865 | $145,725 | | Net cash used in investing activities | $(88,262) | $(87,319) | $(172,318) | | Net cash used in financing activities | $(29,908) | $(55,230) | $(42,101) | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2019, with no material changes during the fourth quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[476] - Management's report on internal control over financial reporting concluded that such controls were effective as of December 31, 2019, based on the COSO framework. This assessment was audited by PricewaterhouseCoopers LLP[477][478][479] Part III This section details the company's directors, executive officers, and corporate governance practices Directors, Executive Officers and Corporate Governance This section, largely incorporated by reference from the 2020 Proxy Statement, lists the company's directors and executive officers as of March 2, 2020, with Michael T. Prior leading the executive team as Chairman, President, and CEO - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the registrant's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[496] Executive Officers (as of March 2, 2020) | Name | Age | Position | | :--- | :--- | :--- | | Michael T. Prior | 55 | Chairman, President, Chief Executive Officer, and Director | | Justin D. Benincasa | 57 | Chief Financial Officer | | Brad Martin | 44 | Executive Vice President, Business Operations | | William F. Kreisher | 57 | Senior Vice President, Corporate Development | | Mary Mabey | 38 | Senior Vice President, General Counsel and Secretary | Part IV This section lists the exhibits and financial statement schedules included in the report Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including the Consolidated Financial Statements, Schedule II for Valuation and Qualifying Accounts, and an index of all exhibits - The documents filed as part of the report include the Consolidated Financial Statements, Schedule II (Valuation and Qualifying Accounts), and a list of 30+ exhibits[499][500][501]