ATN International(ATNI) - 2020 Q4 - Annual Report

Part I Business The company operates communications and technology businesses in underserved markets across three primary segments Overview The company operates through International Telecom, US Telecom, and Renewable Energy segments with key recent strategic moves - ATN operates and invests in communications services and technology companies in underserved markets, providing infrastructure-based solutions[7][8] Operating Segments as of Dec 31, 2020 | Segment | Description | | :--- | :--- | | International Telecom | Offers fixed data, internet, voice, mobility, video, and managed services in Bermuda, Cayman Islands, Guyana, and US Virgin Islands | | US Telecom | Offers wholesale carrier services (roaming, infrastructure leasing), fixed, mobility, and private network services, primarily in the US Southwest | | Renewable Energy | Provided distributed generation solar power in India (until Jan 2021) and previously in the US | - In January 2021, the company sold 67% of its Indian solar business (Vibrant) and will account for its remaining 33% interest using the equity method[16] - Announced a pending acquisition of Alaska Communications in a deal valued at approximately $340 million, where ATN will own about 51%[13][15] Strategy The company's strategy focuses on underserved markets, partnerships, local management, and disciplined capital allocation - Focus on operating in smaller, rural, or underserved markets to become a leading provider of communications infrastructure and services[18] - Seek partnerships with investment funds, offering operational know-how and a track record in managing communications networks[20] - Collaborate with local management teams, leveraging their market knowledge while providing centralized operational, technical, and financial expertise[21] - Apply a disciplined, return-on-investment approach to capital allocation, investing in early-stage businesses for long-term growth and supporting mature businesses to preserve cash flow[22] Communications Services The division comprises the International and US Telecom segments, which provide a range of mobility, fixed, and carrier services Segment Revenue Contribution (FY 2020 & 2019) | Segment | 2020 Revenue % | 2019 Revenue % | | :--- | :--- | :--- | | International Telecom | 72% | 73% | | US Telecom | 27% | 25% | International Telecom Segment This segment provides mobility, fixed, and carrier services in several Caribbean markets and Bermuda International Telecom Subscribers (as of Dec 31, 2020) | Service | Subscribers | | :--- | :--- | | Mobility | ~304,000 | | High-Speed Broadband | ~141,000 | | Fixed Voice Access Lines | ~169,000 | | Video | ~36,000 | - The segment operates 454 wireless base stations and connects to the world via ownership in six undersea fiber-optic cables[26][36] - In October 2020, the Government of Guyana implemented new legislation to introduce competition, impacting the company's previously exclusive agreement for domestic fixed and international voice/data services[39] US Telecom Segment This segment provides wholesale carrier services in rural US markets and is building a network for the First Responder Network - The segment has roaming agreements with all three US national wireless operators (Verizon, AT&T, T-Mobile), with AT&T and Verizon accounting for ~15% of total consolidated revenue in 2020[41] - Under the FirstNet Agreement with AT&T, the company is building a network for the First Responder Network Authority and recorded $10.9 million in construction revenue in 2020[43] - As of December 31, 2020, the segment owned and operated 1,044 domestic base stations on 453 sites[50] - The primary competitive threat is the risk of carrier customers building their own infrastructure ('over-building') in markets where ATN provides wholesale services[51][45] Renewable Energy Services The company divested its primary renewable energy operations in India while retaining a minority stake - On January 27, 2021, the company sold a 67% interest in its Indian solar business (Vibrant) for ~$21 million, retaining a 33% interest[54] - The business operated by securing long-term Power Purchase Agreements (PPAs) with commercial and industrial customers, providing predictable cash flows[55] Human Capital The company employs approximately 1,700 people, with a significant union presence internationally and a focus on diversity - Employed approximately 1,700 people as of year-end 2020, with ~1,000 internationally and ~700 in the US[60] - Approximately half of the Guyana and US Virgin Islands workforce and 20% of the Bermuda workforce are represented by unions[60] - Reports a diverse management team, with ~30% of senior management identifying as persons of color and ~15% as women[62] Regulation Operations are subject to extensive government regulation in the US and internationally, covering licensing, rates, and competition US Federal Regulation US operations are heavily regulated by the FCC, which governs spectrum, network obligations, and Universal Service Fund programs - Awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction to provide fixed broadband and voice services in certain US areas[89] - Faces a significant reduction in Universal Service Fund (USF) support in the US Virgin Islands, with its historical annual support of ~$16.4 million provisionally awarded to a competitor[90][91] - Won Priority Access Licenses (PALs) in 590 U.S. counties in the FCC's 2020 auction of 3.5 GHz CBRS spectrum[67] US Virgin Islands Regulation Operations are regulated by the local Public Service Commission and benefit from significant tax exemptions - The Virgin Islands Public Service Commission (PSC) regulates rates for certain local exchange services provided by the company's subsidiary, Viya[103] - Receives significant tax exemptions through the RTPark program, which totaled approximately $1.9 million in 2020 and $1.8 million in 2019[106] Guyana Regulation The regulatory landscape in Guyana changed significantly in 2020, ending the company's historical service exclusivity - On October 5, 2020, the Government of Guyana implemented legislation that effectively ended GTT's exclusive license to provide domestic fixed and international voice/data services[111] - New licenses were issued to GTT and two competitors, introducing legal competition into the sector for the first time[111] Bermuda Regulation The company faces regulatory remedies in Bermuda after being designated as having significant market power - The Regulatory Authority of Bermuda affirmed that the company has significant market power in certain broadband and mobile services as of September 1, 2020[116] - As a result of the significant market power determination, the company is subject to remedies including price caps, wholesale obligations, and accounting separation, which it is legally challenging[116] Risk Factors The company faces material risks related to operations, regulation, strategy, and economic conditions - Operational Risk: Failure to meet construction milestones or service levels for the AT&T FirstNet project could lead to termination of the agreement, impacting the US Telecom segment[127][130] - Regulatory Risk: The provisional loss of Universal Service Fund (USF) support in the US Virgin Islands to a competitor could negatively affect the company's ability to build, maintain, and operate networks in the territory[170][173] - Political Risk: The 2020 implementation of new telecommunications legislation in Guyana, ending GTT's exclusivity, creates significant uncertainty and competitive risk[174][175][176] - Economic Risk: The COVID-19 pandemic has negatively impacted tourism-dependent Caribbean markets, reducing roaming revenue and potentially affecting customers' ability to pay for services[131][185] - Strategic Risk: The company faces significant competition in its US wholesale business from carriers choosing to 'over-build' their own networks, reducing the need for roaming services[151] Unresolved Staff Comments None - None[193] Properties The company leases its corporate headquarters and utilizes a mix of owned and leased properties for its global operations - Leases corporate headquarters of approximately 21,000 square feet in Beverly, MA[193] - Globally owns 286 towers and leases an additional 373 towers for its communications operations[195] Operational Space by Segment (Approx. sq. ft.) | Type of Space | International Telecom | US Telecom | Renewable Energy | | :--- | :--- | :--- | :--- | | Office | 287,467 | 94,385 | 2,810 | | Retail stores | 24,182 | 17,011 | — | | Technical operations | 1,941,049 | 130,616 | — | Legal Proceedings The company is involved in legal proceedings primarily concerning its Guyana subsidiary's license and tax disputes - GTT's exclusive license in Guyana is being challenged in court by competitor Digicel[200] - GTT has filed lawsuits against Digicel alleging illegal international bypass, seeking injunctive relief and damages[201] - GTT is involved in tax disputes with the Guyana Revenue Authority totaling $44.1 million, for which the company has accrued $5.0 million as of December 31, 2020[202][704] Mine Safety Disclosures Not Applicable - Not Applicable[203] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, with a repurchase plan in place and recent underperformance against key indices - The company's common stock is listed on the Nasdaq Global Select Market under the symbol 'ATNI'[212] - As of December 31, 2020, $30.9 million remained authorized for repurchase under the 2016 Repurchase Plan, with no shares repurchased in Q4 2020[213] 5-Year Stock Performance Comparison (Value of $100 Investment) | Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ATN International | $100.00 | $104.26 | $73.06 | $95.59 | $74.91 | $57.22 | | Russell 2000 | $100.00 | $121.31 | $139.08 | $123.76 | $155.35 | $186.36 | | S&P Smallcap 600 | $100.00 | $126.56 | $143.30 | $131.15 | $161.03 | $179.20 | | Nasdaq Telecom | $100.00 | $112.56 | $135.96 | $125.10 | $158.73 | $192.30 | Selected Financial Data The company reported a net loss of $14.1 million on $455.4 million in revenue for fiscal year 2020 Selected Financial Data (Years Ended Dec 31, In thousands, except per share data) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Income Statement Data | | | | | | | Revenue | $455,444 | $438,722 | $451,207 | $481,193 | $457,003 | | Income from operations | $9,180 | $13,377 | $61,023 | $55,308 | $51,270 | | Net income (loss) attributable to ATN Stockholders | $(14,122) | $(10,806) | $19,815 | $31,488 | $12,101 | | Diluted EPS | $(0.89) | $(0.68) | $1.24 | $1.94 | $0.75 | | Balance Sheet Data (End of Period) | | | | | | | Total assets | $1,083,711 | $1,130,726 | $1,107,304 | $1,205,605 | $1,198,218 | | Long-term debt, net | $69,073 | $82,676 | $86,294 | $144,873 | $144,383 | | Cash Flow Data | | | | | | | Net cash from operating activities | $86,284 | $87,903 | $115,865 | $145,725 | $111,656 | | Capital expenditures | $(75,323) | $(72,725) | $(185,921) | $(142,371) | $(124,282) | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 3.8% in 2020, but operating income fell due to a large disposition loss and COVID-19 impacts Results of Operations: 2020 vs. 2019 Revenue increased 3.8% in 2020, but a $21.6 million disposition loss drove a 31.4% decline in operating income Consolidated Results of Operations (2020 vs. 2019, in thousands) | Line Item | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $455,444 | $438,722 | $16,722 | 3.8% | | Communication services | $433,509 | $428,108 | $5,401 | 1.3% | | Other revenue | $21,935 | $10,614 | $11,321 | 106.7% | | Total operating expenses | $446,264 | $425,345 | $20,919 | 4.9% | | Loss on disposition | $21,572 | $2,841 | $18,731 | 659.3% | | Income from operations | $9,180 | $13,377 | $(4,197) | (31.4)% | | Net Loss Attributable to ATN Stockholders | $(14,122) | $(10,806) | $(3,316) | 30.7% | - International Telecom revenue increased 1.3% to $328.6 million, as growth in broadband services offset declines in Carrier and Mobility services due to COVID-19[261][263] - US Telecom revenue increased 12.6% to $122.3 million, driven by FirstNet construction revenue and growth in Fixed services, including Connect America Fund support[264] - Renewable Energy operating loss increased to $23.7 million from $0.7 million, primarily due to a $21.5 million loss recorded on the Vibrant Transaction[265] Results of Operations: 2019 vs. 2018 Revenue fell 2.8% in 2019, while operating income dropped 78.1% due to prior-year asset sale gains Consolidated Results of Operations (2019 vs. 2018, in thousands) | Line Item | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $438,722 | $451,207 | $(12,485) | (2.8)% | | Income from operations | $13,377 | $61,023 | $(47,646) | (78.1)% | | Net (Loss) Income Attributable to ATN Stockholders | $(10,806) | $19,815 | $(30,621) | (154.5)% | - US Telecom operating income decreased by $28.7 million, largely because 2018 results included a $15.2 million gain on the sale of cell sites[322][324] - Renewable Energy segment results swung from a $13.4 million operating income in 2018 to a $7.2 million operating loss in 2019, impacted by a prior-year asset sale and a current-year goodwill impairment[326][325] - International Telecom operating income increased 4.2% to $46.9 million, as increased broadband revenues offset the absence of $15.5 million in non-recurring USF funding received in 2018[320][321] Liquidity and Capital Resources The company maintains sufficient liquidity with $105.0 million in cash and significant availability under its credit facilities - As of Dec 31, 2020, the company had $105.0 million in cash, cash equivalents, and restricted cash[361] - Net cash provided by operating activities was $86.3 million for the year ended Dec 31, 2020[371] Capital Expenditures by Segment (in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | International Telecom | $38,895 | $42,029 | | US Telecom | $29,883 | $17,490 | | Renewable Energy | $2,932 | $6,448 | | Corporate and Other | $3,613 | $6,758 | | Total | $75,323 | $72,725 | - The company has a $200 million revolving credit facility with $184.0 million of availability as of year-end 2020, and a separate $75 million receivables credit facility for the FirstNet project[372][375][377] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from foreign currency fluctuations and interest rate changes - The company's primary market risks are foreign currency translation (mainly Guyana Dollar) and interest rate sensitivity[400] - As of Dec 31, 2020, the company had $6.1 million of variable rate debt outstanding, with management believing a 10% interest rate change would have an immaterial impact[402] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[404] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[407] Other Information A subsidiary was not in compliance with a loan covenant for 2020 but subsequently received a waiver - The company was not in compliance with the Net Leverage Ratio covenant for its Viya Debt for the year ending December 31, 2020[409] - A waiver for the non-compliance was received from the lender, RTFC, on February 25, 2021[409] Part III Directors, Executive Officers and Corporate Governance This section provides information on the company's leadership team and board, with details incorporated by reference - Information regarding directors, executive compensation, security ownership, and certain relationships is incorporated by reference from the registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[425][426] Executive Officers as of March 1, 2021 | Name | Position | | :--- | :--- | | Michael T. Prior | Chairman, President, Chief Executive Officer, and Director | | Justin D. Benincasa | Chief Financial Officer | | Brad Martin | Executive Vice President, Business Operations | | Mary Mabey | Senior Vice President, General Counsel and Secretary | Executive Compensation Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information required by this Item will be set forth in the 2021 Proxy Statement and is incorporated herein by reference[426] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information required by this Item will be set forth in the 2021 Proxy Statement and is incorporated herein by reference[426] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information required by this Item will be set forth in the 2021 Proxy Statement and is incorporated herein by reference[426] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information required by this Item will be set forth in the 2021 Proxy Statement and is incorporated herein by reference[426] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the report - This section contains the Index to Consolidated Financial Statements and Schedule II (Valuation and Qualifying Accounts)[428] - A detailed list of exhibits is provided, including major agreements such as the Alaska Communications merger agreement (Ex. 2.4), the FirstNet Network Build and Maintenance Agreement (Ex. 10.25), and various credit facilities[429][431][432] Form 10-K Summary None - None[434] Financial Statements Consolidated Balance Sheets Total assets decreased to $1.08 billion in 2020, driven by lower cash and net fixed assets Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $103,925 | $161,287 | | Net fixed assets | $536,462 | $605,581 | | Goodwill | $60,691 | $60,691 | | Total assets | $1,083,711 | $1,130,726 | | Long-term debt (incl. current) | $72,823 | $86,426 | | Total liabilities | $329,375 | $324,643 | | Total ATN stockholders' equity | $645,649 | $676,122 | Consolidated Income Statements The company reported a net loss of $14.1 million in 2020, an increase from the $10.8 million loss in 2019 Consolidated Income Statement Summary (in thousands) | Line Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total revenue | $455,444 | $438,722 | $451,207 | | Income from operations | $9,180 | $13,377 | $61,023 | | Net income (loss) | $(708) | $1,967 | $34,872 | | Net (loss) income attributable to ATN Stockholders | $(14,122) | $(10,806) | $19,815 | | Diluted EPS | $(0.89) | $(0.68) | $1.24 | Consolidated Statements of Cash Flows Cash from operations was $86.3 million in 2020, while total cash decreased by $57.4 million for the year Summary of Cash Flows (in thousands) | Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $86,284 | $87,903 | $115,865 | | Net cash used in investing activities | $(70,198) | $(88,262) | $(87,319) | | Net cash used in financing activities | $(73,367) | $(29,908) | $(55,230) | | Net change in cash | $(57,361) | $(30,549) | $(26,983) | Notes to Consolidated Financial Statements The notes detail key accounting policies, dispositions, goodwill testing, government grants, and legal contingencies Note 6: Dispositions and Platform Investments The company sold a majority stake in its Indian solar business and announced the pending acquisition of Alaska Communications - Agreed to sell 67% of its Indian solar business (Vibrant) in November 2020, reporting a loss of $21.5 million on the transaction for the year ended Dec 31, 2020[591] - Announced the pending acquisition of Alaska Communications for approximately $340 million, where ATN will own 51%[595] Note 8: Goodwill and Intangible Assets The Viya reporting unit's goodwill was close to impairment, while the Renewable Energy segment's goodwill was impaired in 2019 - The 2020 goodwill impairment test for the Viya reporting unit showed its fair value exceeded its carrying value by approximately 9%, with a goodwill balance of $20.6 million[603] - In 2019, the company recorded a goodwill impairment of $3.3 million in the Renewable Energy segment, reducing its goodwill to zero[604] Note 10: Government Grants The company receives significant government funding, including USF, CAF, and CARES Act support for its US operations Government Funding Recognized as Revenue (in millions) | Program | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | High Cost Support (Viya) | $16.4 | $16.4 | $16.5 | | Connect America Fund II | $7.6 | $5.3 | - | | E-Rate, Lifeline, etc. | $10.0 | $6.1 | $8.2 | - Received $16.3 million in CARES Act funding in Q4 2020, which was used for network construction and recorded as a reduction to property, plant and equipment[633] - Was a winning bidder in the CBRS auction for PALs licenses costing approximately $20.4 million[636] Note 14: Commitments and Contingencies The company faces significant contingencies related to its Guyana subsidiary's license and tax disputes - The Government of Guyana formally implemented legislation on October 5, 2020, that introduces competition and impacts GTT's former exclusive license[697] - GTT is involved in tax disputes with the Guyana Revenue Authority totaling $44.1 million and has accrued $5.0 million for these matters as of Dec 31, 2020[704] - The company has future minimum payment commitments under non-cancellable contracts totaling $63.7 million[706][707]