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ATN Reports Third Quarter 2019 Results

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ATN Reports Third Quarter 2019 Results

Third Quarter Results

  • Revenue was $115.6 million compared to prior year of $121.1 million

  • Excluding one-time items and a sale transaction, revenue increased year-on-year

  • International Telecom operations continue strong cash flow trends

  • US Telecom operations benefitted from new long-term contracts

BEVERLY, Mass., Oct. 23, 2019 (GLOBE NEWSWIRE) -- ATN International, Inc. (ATNI) today reported results for the third quarter ended September 30, 2019.

Business Review and Outlook

“Our third quarter performance reflects both continued organic growth in our International Telecom businesses and the improved performance of our US Telecom segment,” said Michael Prior, Chairman, and Chief Executive Officer. “While reported revenues and operating income declined year-on-year, adjusting for non-recurring items included in the year-ago quarter, consolidated recurring revenue¹ increased at a mid-single digit rate, driving even higher year-on-year growth in Adjusted EBITDA.

“We continued to achieve positive operating results in our International Telecom segment, where we are benefitting from leadership positions in key markets and the network investments made in the past several years to expand fiber coverage and data capacity. Additionally, the steady recovery of our U.S. Virgin Islands business is evident as more hotels and residential housing units come back online in the market, and we take back market share. Adjusting for non-recurring items that were included in the year-ago quarter, our International Telecom segment revenue increased 6%, and we anticipate continued year-on-year revenue growth for the segment in the fourth quarter. More important, quarterly results for this segment again showed a significant improvement in free cash flow compared to 2018 levels.

“US Telecom segment revenues also increased at a mid-single digit rate in the third quarter, and we were pleased to see a positive year-over-year comparison for the quarter. The positive revenue performance this quarter benefitted from a full quarter of Connect America Fund Phase ll (CAF II) federal support revenue and the new contract signed in August as part of a comprehensive agreement to support AT&T’s partnership with the First Responder Network Authority, known as FirstNet. The infrastructure services and support deliverables of this agreement will provide ATN with stable, long-term recurring revenue and consistent cash flows. We expect year-on-year US Telecom segment comparisons to continue to be favorable in this year’s fourth quarter.

“With respect to our Renewable Energy segment, we are building part of our shovel ready pipeline and adding additional capacity, while at the same time holding preliminary discussions with potential strategic partners interested in investing through the Vibrant Energy platform.”

Third Quarter 2019 Financial Results

Third quarter 2019 revenues of $115.6 million were down 5% compared to last year’s reported revenues of $121.1 million. Compared with third quarter 2018 recurring revenues1 of $109.7 million, third quarter 2019 recurring revenues1 increased by 5%. Last year’s reported revenues included $4.2 million from the Company’s U.S. solar portfolio sold in late 2018 and non-recurring revenue of $7.2 million for additional hurricane related USF high cost support funding from the FCC for our U.S. Virgin Islands business. Operating income for the third quarter of 2019 was $10.2 million compared with the prior year’s $30.8 million, and Adjusted EBITDA2 was $33.0 million, compared to $38.9 million in the prior year period. In addition to the $11.4 million of 2018 non-recurring revenue items noted above, the operating income comparison was also negatively affected by the prior year’s gain of $13.5 million from the sale of certain US Telecom assets. Other income (expense) also includes a $2.1 million mark-to-market write-down of a non-controlling equity investment. Net income attributable to ATN’s stockholders for the third quarter was $1.4 million, or $0.09 per diluted share, compared with the prior year period’s net income of $17.0 million, or $1.06 per diluted share.

______________________________________________________________________
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.


Third Quarter 2019 Operating Highlights

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

Segment Results (in Thousands)

Three Months Ended September 30, 2019

US Telecom

International
Telecom

Renewable
Energy

Corporate and
Other

Total

Revenue

$

32,893

$

81,285

$

1,438

$

-

$

115,616

Operating Income (Loss)

$

7,912

$

10,867

$

(714

)

$

(7,817

)

$

10,248

Adjusted EBITDA2

$

13,779

$

24,956

$

337

$

(6,068

)

$

33,004

Nine Months Ended September 30, 2019

Capital Expenditures

$

8,533

$

33,159

$

2,183

$

5,611

$

49,486

Three Months Ended September 30, 2018

US Telecom

International
Telecom

Renewable
Energy

Corporate and
Other

Total

Revenue

$

31,808

$

83,912

$

5,418

$

-

$

121,138

Operating Income (Loss)

$

22,773

$

16,239

$

(177

)

$

(8,011

)

$

30,824

Adjusted EBITDA2

$

13,529

$

28,645

$

3,090

$

(6,374

)

$

38,890

Nine Months Ended September 30, 2018

Capital Expenditures

$

9,460

$

136,791

$

1,641

$

6,386

$

154,278

The following is the reconciliation of Revenue to Recurring Revenue for the three months ended September 30, 2019 and September 30, 2018:

Reconciliation of Revenue to Recurring Revenue1 (in Thousands)

Three Months Ended September 30, 2019

US Telecom

International
Telecom

Renewable
Energy

Corporate and
Other

Total

Revenue

$

32,893

$

81,285

$

1,438

$

-

$

115,616

Adjustments

$

-

$

-

$

-

$

-

$

-

Recurring Revenue1

$

32,893

$

81,285

$

1,438

$

-

$

115,616

Three Months Ended September 30, 2018

US Telecom

International
Telecom

Renewable
Energy

Corporate and
Other

Total

Revenue

$

31,808

$

83,912

$

5,418

$

-

$

121,138

USF Incremental high cost support funding

$

-

$

(7,219

)

$

-

$

-

$

(7,219

)

US Solar portfolio revenues

$

-

$

-

$

(4,182

)

$

-

$

(4,182

)

Recurring Revenue1

$

31,808

$

76,693

$

1,236

$

-

$

109,737

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 3% year-on-year mainly due to the non-recurring $7.2 million of USF high cost support funding from the FCC received in the third quarter of 2018. Offsetting the loss of those non-recurring revenues has been a strong increase in broadband revenues in most of our markets, including the U.S. Virgin Islands, where the market and our operations continue to recover from the 2017 hurricanes. We expect continued year-on-year revenue improvement in this segment in the fourth quarter of 2019. International Telecom operating income decreased 33% to $10.9 million from the prior year’s quarter and Adjusted EBITDA2 decreased 13% to $25.0 million from the prior year’s quarter, both as a result of the $7.2 million non-recurring revenue received in the third quarter of 2018. This was partially offset by higher broadband revenues in multiple markets and the post-storm recovery in the U.S. Virgin Islands.

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. US Telecom segment revenues increased by 3% primarily due to the CAF II federal support revenues, which began earlier in 2019. US Telecom revenues increased 25% sequentially over the prior quarter, reflecting higher seasonal traffic volumes and the commencement of the FirstNet agreement. We expect construction revenues under the network build portion of the FirstNet agreement to begin in the fourth quarter and continue through mid-2021. As revenues from the build will be largely offset by construction costs, it should not have a material impact on Adjusted EBITDA2 or operating income. Adjusted EBITDA2 for this segment increased by 2% to $13.8 million year-on-year due to the impact of the CAF II revenues offset partially by Mobility Fund expense offsets discontinued from the prior year and additional operating costs related to early stage business investments. The decrease in this segment’s operating income from the prior year’s $22.8 million to $7.9 million was mostly due to the $13.5 million gain on sale of certain wholesale wireless cell sites in the third quarter of 2018.

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, third quarter 2019 revenues were $1.4 million, compared to $5.4 million in the prior year quarter, operating loss was $0.7 million compared to an operating loss of $0.2 million in the prior year quarter and Adjusted EBITDA2 amounted to $0.3 million, compared to $3.1 million in the third quarter of 2018. Year-on-year revenue, operating income and Adjusted EBITDA2 comparisons for this segment will also be negative for the fourth quarter as a result of the sale transaction.

Balance Sheet and Cash Flow Highlights

Total cash, cash equivalents and restricted cash at September 30, 2019 was $166.4 million. Additionally, the Company ended the third quarter with $3.3 million in short-term investments. Net cash provided by operating activities was $56.8 million for the first nine months of 2019, compared with $98.0 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 income tax payments of $28.5 million primarily related to the gain on the 2018 sale of the U.S. Solar asset portfolio, and other working capital activity in the current year. For the first nine months of 2019, the Company used net cash of $83.4 million for investing and financing activities compared to $143.6 million for the first nine months of 2018. This included $49.5 million in capital expenditures, $10.3 million for minority investments and $8.2 million of dividends on common stock. Management expects full year 2019 capital expenditures in International Telecom to be approximately $50 million which would be approximately $110 million below 2018 levels. In the US Telecom segment, we expect capital expenditures to be approximately $10 - $15 million, including some required capital spending related to towers and backhaul in conjunction with the FirstNet contract. In the Renewable Energy segment, we expect $6 - $7 million of project costs in 2019 related to building additional capacity.

Conference Call Information

ATN will host a conference call on Thursday, October 24, 2019 at 9:30 a.m. Eastern Time (ET) to discuss its third 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 4758768. A replay of the call will be available at ir.atni.com beginning at 1:00 p.m. (ET) on October 24, 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 and capital expenditures for 2019; the competitive environment in our key markets, demand for our services and industry trends; our growth opportunities; the estimated 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 and obtain funding for 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 in support of the Company’s restoration of its network following the 2017 hurricanes in the U.S. Virgin Islands, revenues from our U.S. solar asset portfolio that was sold in Q4 2018, and revenues from the sale of certain US Telecom 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.

Table 1

ATN International, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in Thousands)

September 30,

December 31,

2019

2018

Assets:

Cash and cash equivalents

$

165,280

$

191,836

Restricted cash

1,071

1,071

Short-term investments

3,250

393

Other current assets

88,210

82,465

Total current assets

257,811

275,765

Property, plant and equipment, net

605,501

626,852

Operating lease right-of-use assets

71,111

-

Goodwill and other intangible assets, net

165,521

166,979

Other assets

62,856

37,708

Total assets

$

1,162,800

$

1,107,304

Liabilities and Stockholders’ Equity:

Current portion of long-term debt

$

4,688

$

4,688

Taxes payable

9,999

31,795

Current portion of operating lease liabilities

9,912

-

Other current liabilities

116,431

104,167

Total current liabilities

141,030

140,650

Long-term debt, net of current portion

$

83,577

$

86,294

Deferred income taxes

3,989

10,276

Operating lease liabilities

59,663

-

Other long-term liabilities

56,242

46,760

Total liabilities

344,501

283,980

Total ATN International, Inc.’s stockholders’ equity

688,083

695,387

Non-controlling interests

130,216

127,937

Total equity

818,299

823,324

Total liabilities and stockholders’ equity

$

1,162,800

$

1,107,304



Table 2

ATN International, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in Thousands, Except per Share Data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Revenues:

Wireless

$

54,555

$

52,003

$

143,705

$

153,046

Wireline

59,623

63,717

178,555

173,083

Renewable energy

1,438

5,418

4,377

17,272

Total revenue

115,616

121,138

326,637

343,401

Operating expenses:

Termination and access fees

27,622

29,866

83,440

84,037

Engineering and operations

20,095

18,177

58,234

54,738

Sales, marketing and customer service

9,785

8,995

29,048

25,969

General and administrative

25,110

25,210

75,518

77,470

Transaction-related charges

21

178

89

642

Depreciation and amortization

22,603

21,384

64,870

64,602

(Gain) loss on disposition of assets

132

(13,496

)

321

(15,509

)

Loss on damaged assets and other hurricane related charges

-

-

-

666

Total operating expenses

105,368

90,314

311,520

292,615

Operating income

10,248

30,824

15,117

50,786

Other income (expense):

Interest expense, net

(884

)

(1,661

)

(1,983

)

(5,339

)

Other income (expense)

(2,686

)

(1,244

)

(2,755

)

(3,042

)

Other income (expense), net

(3,570

)

(2,905

)

(4,738

)

(8,381

)

Income before income taxes

6,678

27,919

10,379

42,405

Income tax expense

1,834

7,010

2,774

13,018

Net Income

4,844

20,909

7,605

29,387

Net income attributable to non-controlling interests, net

(3,459

)

(3,887

)

(8,657

)

(10,705

)

Net income (loss) attributable to ATN International, Inc. stockholders

$

1,385

$

17,022

$

(1,052

)

$

18,682

Net income (loss) per weighted average share attributable to ATN International, Inc. stockholders:

Basic Net Income (Loss)

$

0.09

$

1.07

$

(0.07

)

$

1.17

Diluted Net Income (Loss)

$

0.09

$

1.06

$

(0.07

)

$

1.16

Weighted average common shares outstanding:

Basic

16,000

15,958

15,984

15,987

Diluted

16,007

16,021

15,984

16,042



Table 3

ATN International, Inc.

Unaudited Condensed Consolidated Cash Flow Statement

(in Thousands)

Nine Months Ended September 30,

2019

2018

Net income

$

7,605

$

29,387

Depreciation and amortization

64,870

64,602

Provision for doubtful accounts

3,796

4,199

(Gain) Loss on disposition of assets

321

(15,509

)

Stock-based compensation

4,881

5,071

Deferred income taxes

(6,287

)

(3,062

)

Investment loss

2,313

-

Change in prepaid and accrued income taxes

(13,889

)

10,557

Change in other operating assets and liabilities

(7,444

)

(19

)

Other non-cash activity

681

2,788

Net cash provided by operating activities

56,847

98,014

Capital expenditures

(49,363

)

(75,375

)

Hurricane rebuild capital expenditures

(123

)

(78,903

)

Hurricane insurance proceeds

-

34,606

Purchases of strategic investments

(10,285

)

(3,000

)

Proceeds from sale of short-term investments

5,141

6,564

Purchase of short-term investments

(8,028

)

-

Proceeds from sale of assets

-

4,130

Divestiture of business

-

926

Government grants

-

5,400

Net cash used in investing activities

(62,658

)

(105,652

)

Dividends paid on common stock

(8,160

)

(8,153

)

Distributions to non-controlling interests

(5,760

)

(15,271

)

Principal repayments of term loan

(2,825

)

(5,723

)

Payment of debt issuance costs

(1,340

)

-

Stock-based compensation share repurchases

(1,607

)

(2,101

)

Purchases of common stock - share buyback

(162

)

(1,576

)

Repurchases of non-controlling interests

(1,353

)

(5,196

)

Investments made by minority shareholders

488

-

Other

-

72

Net cash used in financing activities

(20,719

)

(37,948

)

Effect of foreign currency exchange rates on total cash, cash equivalents and restricted cash

(26

)

(353

)

Net change in total cash, cash equivalents and restricted cash

(26,556

)

(45,939

)

Total cash, cash equivalents and restricted cash, beginning of period

192,907

219,890

Total cash, cash equivalents and restricted cash, end of period

$

166,351

$

173,951



Table 4

ATN International, Inc.

Selected Segment Financial Information

(In Thousands)

For the three months ended September 30, 2019 is as follows:

US
Telecom

International
Telecom

Renewable
Energy

Corporate
and Other *

Total

Statement of Operations Data:

Revenue

Wireless

$

32,168

$

22,387

$

-

$

-

$

54,555

Wireline

725

58,898

-

-

59,623

Renewable Energy

-

-

1,438

-

1,438

Total Revenue

$

32,893

$

81,285

$

1,438

$

-

$

115,616

Operating Income (Loss)

$

7,912

$

10,867

$

(714

)

$

(7,817

)

$

10,248

Stock-based compensation

$

-

$

285

$

-

$

1,263

$

1,548

Non-controlling interest ( net income or (loss) )

$

(1,342

)

$

(2,154

)

$

37

$

-

$

(3,459

)

Non GAAP measure:

Adjusted EBITDA (1)

$

13,779

$

24,956

$

337

$

(6,068

)

$

33,004

Balance Sheet Data (at September 30, 2019):

Cash, cash equivalents and investments

$

36,738

$

51,178

$

21,030

$

59,585

$

168,530

Total current assets

60,782

101,113

38,696

57,220

257,811

Fixed assets, net

69,642

470,338

43,497

22,024

605,501

Total assets

230,585

660,367

86,224

185,624

1,162,800

Total current liabilities

30,870

75,348

1,354

33,458

141,030

Total debt

-

88,265

-

-

88,265

* Corporate and Other refer to corporate overhead expenses and consolidating adjustments

ATN International, Inc.

Selected Segment Financial Information

(In Thousands)

For the three months ended September 30, 2018 is as follows:

US
Telecom

International
Telecom

Renewable
Energy

Corporate
and Other *

Total

Statement of Operations Data:

Revenue

Wireless

$

29,784

$

22,219

$

-

$

-

$

52,003

Wireline

2,024

61,693

-

-

63,717

Renewable Energy

-

-

5,418

-

5,418

Total Revenue

$

31,808

$

83,912

$

5,418

$

-

$

121,138

Operating Income (Loss)

$

22,773

$

16,239

$