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ATN Reports Second Quarter 2019 Results

ATN Reports Second Quarter 2019 Results

Second Quarter Results

  • Revenue excluding sale transactions and one-time items shows year-on-year organic growth
  • International telecom results reflect operational improvements in all markets
  • Sequential improvement in US Telecom operations resulting from seasonal factors and receipt of Connect America Fund Phase II funds

BEVERLY, Mass., July 24, 2019 (GLOBE NEWSWIRE) -- ATN International, Inc. (ATNI) today reported results for the second quarter ended June 30, 2019.

Business Review and Outlook

“Second quarter consolidated results reflected several positive elements that are expected to continue as we move ahead through 2019”, noted Michael Prior, Chief Executive Officer.  “While reported revenues declined $10.1 million and operating income declined $13.0 million on a year-on-year basis, adjusting for sale transactions and the Federal Communications Commissions ('FCC') hurricane support we received in last year’s second quarter, consolidated recurring revenue1 increased 4%, driving even higher year-on-year Adjusted EBITDA2 performance.  This improvement in underlying operations was led by our International Telecom operations.  While revenue for the segment was down 2%, recurring revenue was up 9%, excluding the $8.2 million in hurricane relief funds received from the FCC in the second quarter of 2018.   The steady post-hurricane recovery of our U.S. Virgin Island business and continued broadband growth and margin expansion in other key international markets were the major contributing factors.

“The improvement in International Telecom operations more than offset US Telecom segment results, which were considerably below last year’s levels, but up sequentially, reflecting seasonally higher volumes and the beginning of revenue benefits from our Connect America Fund Phase II ('CAF II') award.  As we have previously noted, there are several initiatives underway in our US Telecom business that, if successful, would improve results and provide a more stable revenue base.  These include providing additional services to our carrier customers beyond traditional wholesale roaming, and investments in new business offerings that have the potential to be longer term growth drivers for ATN.

“Looking ahead, we expect our International Telecom business to continue to perform well this year and generate healthy cash flows.  This operating segment is benefitting from the significant network investments we have made in the past few years, the continued steady recovery of our U.S. Virgin Islands business and improved market penetration and operating efficiencies across our portfolio. Also, we are optimistic that some of our initiatives will lead to an improved outlook for our US Telecom segment.  

“Based on our current portfolio of businesses, we reaffirm our expectation that 2019 will be a year of major improvement in cash flows for ATN, and we continue to seek out opportunities that have the potential to be value-creating for ATN and our shareholders.”

Second Quarter 2019 Financial Results

Second quarter 2019 revenues were $107.7 million compared to last year’s second quarter recurring revenue1 of $103.3 million. Last year’s reported revenues of $117.8 million included $4.5 million from the Company’s US solar assets portfolio that was sold in late 2018,  non-recurring revenue of $8.2 million for additional USF high cost support funding from the FCC for our U.S. Virgin Islands business and $1.8 million from  wholesale wireless cell sites that were sold last year.  Operating income for the second quarter of 2019 was $2.8 million compared with the prior year’s $15.8 million, and Adjusted EBITDA2 was $24.2 million, compared to $36.0 million in the prior year period.  In addition to the $14.5 million of 2018 revenue items noted above, the operating income comparison was also negatively affected by the prior year’s gain of $2.3 million from the sale of certain US Telecom assets.  Net loss attributable to ATN’s stockholders for the second quarter was $0.9 million, or $0.05 loss per share, compared with the prior year period’s net income of $7.2 million, or $0.45 income per diluted share.   

Second Quarter 2019 Operating Highlights

The Company has three reportable segments: (i) US Telecom; (ii) International Telecom; and (iii) Renewable Energy. 

Segment Results
  Three Months Ended June 30, 2019 (in Thousands)
  US Telecom International
Telecom
Renewable
Energy
Corporate and
Other
Total
Revenue $ 26,413   $ 79,859   $ 1,449   $ -   $ 107,721  
Adjusted EBITDA1 $ 6,968   $ 24,656   $ 805   $ (8,209 ) $ 24,220  
Operating Income $ 1,521   $ 11,057   $ 167   $ (9,991 ) $ 2,754  
  Six Months Ended June 30, 2019 (in Thousands)
Capital Expenditures $ 6,368   $ 23,692   $ 817   $ 4,519   $ 35,396  
  Three Months Ended June 30, 2018 (in Thousands)
  US Telecom International
Telecom
Renewable
Energy
Corporate and
Other
Total
Revenue $ 30,284   $ 81,481   $ 6,023   $ -   $ 117,788  
Adjusted EBITDA1 $ 12,685   $ 27,617   $ 3,826   $ (8,173 ) $ 35,955  
Operating Income $ 7,841   $ 15,571   $ 1,927   $ (9,586 ) $ 15,753  
  Six Months Ended June 30, 2018 (in Thousands)
Capital Expenditures $ 7,266   $ 95,520   $ 1,388   $ 3,074   $ 107,248  

US Telecom

US Telecom revenues consist mainly of wireless revenues from our voice and data wholesale wireless operations and our smaller retail operations in the Southwestern United States, as well as enterprise and wholesale wireline revenues.  Lower US Telecom segment revenues and operating income reflected a 10% year-over-year decline in wireless revenues, primarily due to  lower wholesale traffic, and the sale of approximately 100 wholesale wireless cell sites early in the third quarter of 2018. US Telecom revenues increased 23% sequentially over the prior quarter, reflecting higher seasonal traffic volumes and the additional revenue from the 10 year CAF II award that began this quarter. Adjusted EBITDA2 for this segment declined by 45% to $7.0 million year-on-year due to the impact of the reduction in wireless revenues over that period and the additional operating costs related to early stage business investments first made in mid-2018.    

International Telecom

International Telecom consists of a broad range of information and communications services including wireline and wireless data, internet, voice and video service revenues from our operations in Bermuda and the Caribbean.  International Telecom revenues decreased 2% year-on-year mainly due to the $8.2 million of USF high cost support funding from the FCC received in the second quarter of 2018 that was mostly offset by increased broadband revenues in several of our markets, including the U.S. Virgin Islands, where  our operations continue to recover from the 2017 hurricanes.  We expect continued year-on-year revenue improvement throughout the remainder of 2019, exclusive of the additional non-recurring revenue of $7.2 million from FCC support received in the third quarter of 2018.  International Telecom operating income decreased 29% to $11.1 million from the prior year’s quarter and Adjusted EBITDA2 decreased 11% to $24.7 million from the prior year’s quarter, both as a result of the $8.2 million impact on operating income and Adjusted EBITDA2 from the non-recurring FCC support received in the second quarter of 2018.  This was partially offset by higher data revenues and increased revenues from the post-storm recovery.

Renewable Energy

Renewable Energy segment revenues are principally the result of the generation and sale of energy from our commercial solar projects in India.  In the fourth quarter of 2018, ATN completed the sale of its portfolio of solar projects in the United States. As a result, second quarter 2019 revenues were $1.4 million, compared to $6.0 million in the prior year quarter, operating income was $0.2 million compared to $1.9 million in the prior year quarter and Adjusted EBITDA1 amounted to $0.8 million, compared to $3.8 million in the second quarter of 2018.  Year-on-year revenue, operating income and Adjusted EBITDA2 comparisons for this segment will be negative for the remainder of 2019 as a result of this transaction.

Balance Sheet and Cash Flow Highlights

Total cash, cash equivalents and restricted cash at June 30, 2019 was $146.7 million.  Additionally, the Company ended the second quarter with $5.3 million in short-term investments.  Net cash provided by operating activities was $18.5 million for the first six months of 2019, compared with $46.0 million for the prior year period.  The decrease in operating cash flow compared with the prior year is mostly the result of lower net income, the current year tax payments of $27.0 million primarily related to the gain on the 2018 sale of the US Solar asset portfolio, and other working capital activity in the current year.  For the first six months of 2019, the Company used net cash of $64.8 million for investing and financing activities.  This included $35.4 million in capital expenditures, $10.0 million for other minority investments, $5.0 million for the purchase of short-term cash investments and $5.4 million of dividends on common stock.  Management expects International Telecom capital expenditures to be approximately $50.0 million for the full year 2019, approximately $110.0 million below 2018 levels.  In the US Telecom segment, we expect capital expenditures to be similar to 2018 levels, excluding new initiatives and early stage business spending.  In the Renewable Energy segment, we expect $6.0 - $7.0 million of construction costs for the balance of 2019 related to building additional capacity.

Conference Call Information

ATN will host a conference call on Thursday, July 25, 2019 at 9:30 a.m. Eastern Time (ET) to discuss its second quarter 2019 results. The call will be hosted by Michael Prior, Chairman and Chief Executive Officer, and Justin Benincasa, Chief Financial Officer. The dial-in numbers are US/Canada: (877) 734-4582 and International: (678) 905-9376, conference ID 9697219. A replay of the call will be available at ir.atni.com beginning at 1:00 p.m. (ET) on July 25, 2019.

About ATN

ATN International, Inc. (ATNI), headquartered in Beverly, Massachusetts, invests in and operates communications, energy and technology businesses in the United States and internationally, including the Caribbean region and Asia-Pacific, with a particular focus on markets with a need for significant infrastructure investments and improvements. Our operating subsidiaries today primarily provide: (i) advanced wireless and wireline connectivity to residential and business customers, including a range of mobile wireless solutions, high speed internet services, video services and local exchange services, (ii) distributed solar electric power to corporate and government customers and (iii) wholesale communications infrastructure services such as terrestrial and submarine fiber optic transport, communications tower facilities, managed mobile networks, and in-building systems. For more information, please visit www.atni.com.

Cautionary Language Concerning Forward Looking Statements

This press release contains forward-looking statements relating to, among other matters, our future financial performance and results of operations including revenue and adjusted EBITDA expectations for 2019 and capital expenditures; the competitive environment in our key markets, demand for our services and industry trends; our growth opportunities; the estimated timeline for an increase in revenues from our customers in the U.S. Virgin Islands following the hurricanes; and management’s plans and strategy for the future. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results.  Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others,  (1) the general performance of our operations, including operating margins, revenues, capital expenditures, and the future growth and retention of our major customers and subscriber base and consumer demand for solar power;  (2) our ability to maintain favorable roaming arrangements, receive roaming traffic and satisfy the needs and demands of our major wireless customers; (3) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address  rapid and significant technological changes in the telecommunications industry; (4) government regulation of our businesses, which may impact our FCC and other telecommunications licenses or our renewables businesses; (5) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (6) economic, political and other risks facing our operations; (7) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (8) our ability to expand our renewable energy business; (9) our ability to find investment or acquisition or disposition opportunities that fit the strategic goals of the Company; (10) the occurrence of weather events and natural catastrophes; (11) increased competition;  (12) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (13) our continued access to capital and credit markets; and (14) the risk of currency fluctuation for those markets in which we operate.  These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019 and the other reports we file from time to time with the SEC.  The Company undertakes no obligation and has no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release also contains non-GAAP financial measures. Specifically, ATN has included Recurring Revenue and Adjusted EBITDA in this release and in the tables included herein. 

Recurring Revenue is defined as total revenue adjusted to exclude the receipt of incremental USF support funds, revenues from the US Solar asset portfolio which was sold in Q4 2018, and revenues from the US Telecom sale of 100 wholesale wireless cell sites in Q2 2018. 

Adjusted EBITDA is defined as net income attributable to ATN stockholders before (gain) loss on disposition of long-lived assets, restructuring charges, interest, taxes, depreciation and amortization, transaction-related charges, other income or expense, loss on damaged assets and other hurricane charges, net of insurance recovery and net income attributable to non-controlling interests. 

The Company believes that the inclusion of these non-GAAP financial measures helps investors gain a meaningful understanding of the Company's core operating results and enhances the usefulness of comparing such performance with prior periods. ATN’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measure is set forth in the text of, and the accompanying tables to, this press release.  While our non-GAAP financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

_____________________________________________________________________
1 See Table 6 for reconciliation of Revenue to Recurring Revenue, which is a non-GAAP measure
2 See Table 5 for reconciliation of Net Income to Adjusted EBITDA.


   
  Table 1
  ATN International, Inc.
  Unaudited Condensed Consolidated Balance Sheets
  (in Thousands)
         
    June 30,   December 31,
   2019  2018
  Assets:      
    Cash and cash equivalents $   145,611   $   191,836
    Restricted cash     1,071       1,071
    Short-term investments     5,281       393
    Other current assets     98,266       82,465
         
    Total current assets     250,229       275,765
         
    Property, plant and equipment, net     613,703       626,852
    Operating lease right-of-use assets     68,587       - 
    Goodwill and other intangible assets, net     165,933       166,979
    Other assets     48,524       37,708
         
  Total assets $   1,146,976   $   1,107,304
         
  Liabilities and Stockholders’ Equity:      
    Current portion of long-term debt $   4,688   $   4,688
    Taxes payable     8,342       31,795
    Current portion of operating lease liabilities     10,021       - 
    Other current liabilities     107,250       104,167
         
    Total current liabilities     130,301       140,650
         
    Long-term debt, net of current portion $   84,478   $   86,294
    Deferred income taxes     5,702       10,276
    Operating lease liabilities     58,748       - 
    Other long-term liabilities     49,206       46,760
         
    Total long-term liabilities     198,134       143,330
         
  Total liabilities     328,435       283,980
         
    Total ATN International, Inc.’s stockholders’ equity     689,683       695,387
    Non-controlling interests     128,858       127,937
         
  Total equity     818,541       823,324
         
    Total liabilities and stockholders’ equity $   1,146,976   $   1,107,304
         

 

                 
                Table 2
  ATN International, Inc.
  Unaudited Condensed Consolidated Statements of Operations
  (in Thousands, Except per Share Data)
                 
    Three Months Ended   Six Months Ended
  June 30,   June 30,
      2019       2018       2019       2018  
  Revenues:              
    Wireless $   46,996     $   50,496     $   88,608     $   101,043  
    Wireline     59,276         61,269         119,473         109,365  
    Renewable energy     1,449         6,023         2,939         11,855  
    Total revenue     107,721         117,788         211,020         222,263  
                 
  Operating expenses:              
    Termination and access fees     27,930         28,257         55,818         54,171  
    Engineering and operations     19,107         18,409         38,139         36,561  
    Sales, marketing and customer service     9,874         8,413         19,264         16,974  
    General and administrative     26,590         26,754         50,405         52,296  
    Transaction-related charges     28         438         68         465  
    Depreciation and amortization     21,549         21,913         42,267         43,217  
    (Gain) loss on disposition of assets     (111 )       (2,333 )       191         (2,049 )
    Loss on damaged assets and other hurricane related              
      charges, net of insurance recovery     -          184         -          666  
  Total operating expenses     104,967         102,035         206,152         202,301  
                 
  Operating income     2,754         15,753         4,868         19,962  
                 
  Other income (expense):              
    Interest expense, net     (746 )       (1,840 )       (1,099 )       (3,679 )
    Other income (expense)      (255 )       (1,045 )       (68 )       (1,798 )
    Other income (expense), net     (1,001 )       (2,885 )       (1,167 )       (5,477 )
                 
  Income before income taxes     1,753         12,868         3,701         14,485  
    Income tax expense (benefit)     (274 )       2,088         939         6,008  
                 
  Net Income      2,027         10,780         2,762         8,477  
                 
  Net income attributable to non-controlling interests, net     (2,883 )       (3,564 )       (5,198 )       (6,816 )
                 
  Net income (loss) attributable to ATN International, Inc. stockholders $   (856 )   $   7,216     $   (2,436 )   $   1,661  
                 
  Net income (loss) per weighted average share attributable to ATN International, Inc. stockholders:              
                 
    Basic Net Income (Loss) $   (0.05 )   $   0.45     $   (0.15 )   $   0.10  
                 
                 
    Diluted Net Income (Loss) $   (0.05 )   $   0.45     $   (0.15 )   $   0.10  
                 
  Weighted average common shares outstanding:              
  Basic     15,997         15,962         15,986         15,996  
  Diluted      15,997         16,010         15,986         16,046  
                 

 

   
  Table 3
  ATN International, Inc.
  Unaudited Condensed Consolidated Cash Flow Statement
  (in Thousands)
     
    Six Months Ended June 30,
      2019       2018  
         
    Net income  $   2,762     $   8,477  
    Depreciation and amortization     42,267         43,217  
    Provision for doubtful accounts     2,736         2,249  
    Loss on disposition of assets     412         (2,049 )
    Stock-based compensation     3,334         3,679  
    Deferred income taxes     (4,574 )       (1,279 )
    Change in prepaid and accrued income taxes     (16,853 )       1,249  
    Change in other operating assets and liabilities     (11,703 )       (11,142 )
    Other non-cash activity     141         1,636  
         
    Net cash provided by operating activities     18,522         46,037  
         
    Capital expenditures     (35,273 )       (40,594 )
    Hurricane rebuild capital expenditures     (123 )       (66,654 )
    Hurricane insurance proceeds     -          34,606  
    Purchases of other investments     (10,000 )       (2,000 )
    Proceeds from sale of investments     141         5,348  
    Purchase of short-term investments     (5,028 )       -   
    Proceeds from sale of assets     -          4,130  
    Divestiture of business, net of transferred cash of $0 and $0.3 million, respectively     -          926  
    Government grants     -          5,400  
         
         
    Net cash used in investing activities     (50,283 )       (58,838 )
         
    Dividends paid on common stock     (5,439 )       (5,441 )
    Distributions to non-controlling interests     (3,878 )       (12,836 )
    Principal repayments of term loan     (1,887 )       (4,786 )
    Payment of debt issuance costs     (1,340 )       -   
    Stock-based compensation share repurchases     (1,578 )       (3,660 )
    Repurchases of non-controlling interests     (861 )       (61 )
    Investments made by minority shareholders     488         -   
         
    Net cash used in financing activities     (14,495 )       (26,784 )
         
  Effect of foreign currency exchange rates on total cash, cash equivalents and restricted cash     31         (178 )
         
  Net change in total cash, cash equivalents and restricted cash     (46,225 )       (39,763 )
         
  Total cash, cash equivalents and restricted cash, beginning of period     192,907         219,890  
         
  Total cash, cash equivalents and restricted cash, end of period $   146,682     $   180,127  
         

 

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            Table 4
  ATN International, Inc.
  Selected Segment Financial Information
  (In Thousands)
             
  For the three months ended June 30, 2019 is as follows:
             
    US
  Telecom 
International
Telecom
 
Renewable
Energy
 
Corporate and
Other
  *
Total
             
  Statement of Operations Data:          
  Revenue          
    Wireless $   25,656   $   21,340   $   -    $   -    $   46,996  
    Wireline     757       58,519       -        -        59,276  
    Renewable Energy     -        -        1,449       -        1,449  
    Total Revenue $   26,413   $   79,859   $   1,449   $   -    $   107,721  
             
  Operating Income (Loss) $   1,521   $   11,057   $   167   $   (9,991 ) $   2,754  
  Stock-based compensation $   -        11   $   -        2,017   $   2,028  
  Non-controlling interest ( net income or (loss) ) $   (603 ) $   (2,260 ) $   (20 ) $   -    $   (2,883 )
             
  Non GAAP measure:          
  Adjusted EBITDA (1) $   6,968   $   24,656   $   805   $   (8,209 ) $   24,220  
             
  Balance Sheet Data (at June 30, 2019):          
  Cash, cash equivalents and investments $   22,925   $   38,403   $   22,522   $   67,042   $   150,892  
  Total current assets     52,278       95,437       40,129       62,385       250,229  
  Fixed assets, net     72,501       474,185       44,309       22,708       613,703  
  Total assets     222,110       657,062       88,683       179,121       1,146,976  
  Total current liabilities     34,464       73,671       1,465       20,702       130,301  
  Total debt     -        89,167       -        -        89,167  
             
   
  ATN International, Inc.
  Selected Segment Financial Information
  (In Thousands)
             
  For the three months ended June 30, 2018 is as follows:
             
    US
  Telecom 
International
Telecom
 
Renewable
Energy
 
Corporate and
Other
  *
Total
             
  Statement of Operations Data:          
  Revenue          
    Wireless $   28,582   $   21,914   $   -    $   -    $   50,496  
    Wireline     1,702       59,567       -        -        61,269  
    Renewable Energy     -        -        6,023       -        6,023  
    Total Revenue $   30,284   $   81,481   $   6,023   $   -    $   117,788  
             
  Operating Income (Loss) $   7,841   $   15,571   $   1,927   $   (9,586 ) $   15,753  
  Stock-based compensation     -        20       29       2,054       2,103  
  Non-controlling interest ( net income or (loss) ) $   (786 ) $   (2,567 ) $   (211 ) $   -    $   (3,564 )
             
  Non GAAP measure:          
  Adjusted EBITDA (1) $   12,685   $   27,617   $   3,826   $   (8,173 ) $   35,955  
             
             
             
  ATN International, Inc.
  Selected Segment Financial Information
  (In Thousands)
             
  For the six months ended June 30, 2019 is as follows:
             
    US
  Telecom 
International
Telecom
 
Renewable
Energy
 
Corporate and
Other
  *
Total
             
  Statement of Operations Data:          
  Revenue          
    Wireless $   46,093   $   42,515   $