UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022March 31, 2023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-12593
ATN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 47-0728886 |
500 Cummings Center, Suite 2450 | 01915 |
(978) 619-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.01 per share | ATNI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ◻ | | Accelerated filer ⌧ |
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Non-accelerated filer ◻ | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ⌧
As of August 8, 2022,May 10, 2023, the registrant had outstanding 15,763,34115,738,576 shares of its common stock ($.01 par value).
ATN INTERNATIONAL, INC.
FORM 10-Q
Quarter Ended June 30, 2022March 31, 2023
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CERTIFICATIONS | |
2
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations, including our expectations regarding the benefits of our acquisition of Alaska Communications; the impact of federal support program revenues; expectations regarding future revenue, operating income, EBITDA and capital expenditures; expectations regarding our ability to refinance our existing debt and/or obtain additional financing on or before the maturity of our 2019 CoBank Credit Facility; the competitive environment in our key markets, demand for our services and industry trends; our expectations regarding construction progress under our agreement as part of the FirstNet Transaction and the effect such progress will have on our financial results; expectations regarding litigation; our liquidity; 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) our ability to successfully transition our U.S. Telecom business away from wholesale wireless to other carrier and consumer-based services; (2) our ability to replace and remove all ZTE equipment in our U.S. network, as required by the FCC in a timely and cost-effective manner; (3) the general performance of our operations, including operating margins, revenues, capital expenditures, and the retention of and future growth of our subscriber base and average revenue per user; (4) our ability to realize cost synergies and expansion plans for our newly acquired Alaska Communications business; (5) our ability to satisfy the needs and demands of our major carrier customers; (6) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes in the telecommunications industry; (7) government funding and subsidy program availability and regulation of our businesses, which may impact our revenue, expansion plans and operating costs; (8) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (9) economic, political and other risks and opportunities facing our operations, including those resulting from the pandemic, geopolitical tensions, including the invasion of Ukraine, and from inflation, including increased costs and supply chain disruptions; (10) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (11) our ability to find investment or acquisition or disposition opportunities that fit our strategic goals; (12) the occurrence of weather events and natural catastrophes and our ability to secure the appropriate level of insurance coverage for theseour assets; (13) increased competition; (14) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (15) our continued access to capital and credit markets; and (16)markets, including our ability to successfully completeextend or refinance our pending acquisition of Sacred Wind Enterprises andcurrent credit facility; 16) our ability to successfully recognize the expected benefits of such acquisition.our acquisition of Sacred Wind Enterprises. 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” in each of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 16, 2022,15, 2023, and the other reports we file from time to time with the SEC. We undertakeThe Company undertakes no obligation and have 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.
In this Report, the words “the Company,” “we,” “our,” “ours,” “us” and “ATN” refer to ATN International, Inc. and its subsidiaries. This Report contains trademarks, service marks and trade names that are the property of, or licensed by, ATN and its subsidiaries.
References to dollars ($) refer to US dollars unless otherwise specifically indicated.
3
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
| | | | | | | | | | | ||
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
ASSETS | | | | | | | | | | | ||
Current Assets: | | | | | | | | | | | ||
Cash and cash equivalents | | $ | 71,061 | | $ | 79,601 | | $ | 56,016 | | $ | 54,660 |
Restricted cash | |
| 1,099 | |
| 1,096 | |
| 4,961 | |
| 5,068 |
Short-term investments | |
| 300 | |
| 300 | |
| 300 | |
| 300 |
Accounts receivable, net of allowances for credit losses of $15.7 million and $13.9 million, respectively | |
| 70,627 | |
| 73,701 | ||||||
Accounts receivable, net of allowances for credit losses of $16.0 million and $15.2 million, respectively | |
| 84,483 | |
| 86,816 | ||||||
Customer receivable | | | 6,239 | | | 4,145 | | | 6,083 | | | 5,803 |
Inventory, materials and supplies | |
| 9,238 | |
| 10,177 | |
| 18,485 | |
| 17,902 |
Prepayments and other current assets | |
| 65,716 | |
| 63,597 | |
| 61,224 | |
| 59,139 |
Total current assets | |
| 224,280 | |
| 232,617 | |
| 231,552 | |
| 229,688 |
Fixed Assets: | | | | | | | | | | | ||
Property, plant and equipment | |
| 1,801,867 | |
| 1,748,092 | |
| 2,001,455 | |
| 1,977,978 |
Less accumulated depreciation | |
| (861,594) | |
| (804,883) | |
| (945,092) | |
| (922,024) |
Net fixed assets | |
| 940,273 | |
| 943,209 | |
| 1,056,363 | |
| 1,055,954 |
Telecommunication licenses, net | |
| 113,766 | |
| 113,766 | |
| 113,698 | |
| 113,698 |
Goodwill | |
| 40,104 | |
| 40,104 | |
| 40,104 | |
| 40,104 |
Intangible assets, net | |
| 37,847 | |
| 44,294 | |
| 28,823 | |
| 31,992 |
Operating lease right-of-use assets | |
| 115,103 | |
| 118,843 | |
| 101,953 | |
| 108,702 |
Customer receivable - long term | | | 39,855 | | | 39,652 | | | 45,681 | | | 46,706 |
Other assets | |
| 84,526 | |
| 76,119 | |
| 81,841 | |
| 81,025 |
Total assets | | $ | 1,595,754 | | $ | 1,608,604 | | $ | 1,700,015 | | $ | 1,707,869 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | | | | | | | | | ||
Current Liabilities: | | | | | | | | | | | ||
Current portion of long-term debt | | $ | 3,759 | | $ | 4,665 | | $ | 11,537 | | $ | 6,173 |
Current portion of customer receivable credit facility | | 5,326 | | 4,620 | | | 6,574 | | | 6,073 | ||
Accounts payable and accrued liabilities | |
| 129,140 | |
| 151,463 | |
| 118,240 | |
| 155,224 |
Dividends payable | |
| 2,680 | |
| 2,672 | |
| 3,323 | |
| 3,310 |
Accrued taxes | |
| 9,261 | |
| 5,681 | |
| 13,611 | |
| 7,335 |
Current portion of lease liabilities | | | 16,779 | | | 16,201 | | | 13,785 | | | 15,457 |
Advance payments and deposits | |
| 36,839 | |
| 35,642 | |
| 38,314 | |
| 39,608 |
Total current liabilities | |
| 203,784 | |
| 220,944 | |
| 205,384 | |
| 233,180 |
Deferred income taxes | |
| 18,400 | |
| 21,460 | |
| 26,697 | |
| 28,650 |
Lease liabilities, excluding current portion | | | 88,828 | | | 91,719 | | | 78,360 | | | 83,319 |
Other liabilities | |
| 135,103 | |
| 142,033 | |
| 137,148 | |
| 138,420 |
Customer receivable credit facility, net of current portion | | | 35,243 | | | 30,148 | | | 41,533 | | | 39,275 |
Long-term debt, excluding current portion | |
| 352,319 | |
| 327,111 | |
| 453,144 | |
| 415,727 |
Total liabilities | |
| 833,677 | |
| 833,415 | |
| 942,266 | |
| 938,571 |
Commitments and contingencies (Note 14) | | | | | ||||||||
Redeemable noncontrolling interests: | | | | | | | | | | | ||
Preferred redeemable noncontrolling interests | | 52,566 | | 50,296 | | | 56,197 | | | 55,152 | ||
Common redeemable noncontrolling interests | | | 22,640 | | | 22,640 | | | 37,026 | | | 37,317 |
Total redeemable noncontrolling interests | | | 75,206 | | | 72,936 | | | 93,223 | | | 92,469 |
ATN International, Inc. Stockholders’ Equity: | | | | | | | | | | | ||
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, NaN issued and outstanding | |
| — | |
| — | ||||||
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,584,058 and 17,476,542 shares issued, respectively, 15,763,341 and 15,712,941 shares outstanding, respectively | |
| 172 | |
| 172 | ||||||
Treasury stock, at cost; 1,820,716 and 1,763,601 shares, respectively | |
| (73,828) | |
| (71,714) | ||||||
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding | |
| — | |
| — | ||||||
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,679,616 and 17,584,057 shares issued, respectively, 15,787,337 and 15,763,341 shares outstanding, respectively | |
| 173 | |
| 173 | ||||||
Treasury stock, at cost; 1,892,279 and 1,820,716 shares, respectively | |
| (76,665) | |
| (73,825) | ||||||
Additional paid-in capital | |
| 195,432 | |
| 192,132 | |
| 200,015 | |
| 198,449 |
Retained earnings | |
| 465,112 | |
| 475,887 | |
| 437,030 | |
| 449,806 |
Accumulated other comprehensive income | |
| 4,231 | |
| 4,773 | |
| 6,690 | |
| 6,210 |
Total ATN International, Inc. stockholders’ equity | |
| 591,119 | |
| 601,250 | |
| 567,243 | |
| 580,813 |
Noncontrolling interests | |
| 95,752 | |
| 101,003 | |
| 97,283 | |
| 96,016 |
Total equity | |
| 686,871 | |
| 702,253 | |
| 664,526 | |
| 676,829 |
Total liabilities, redeemable noncontrolling interests and equity | | $ | 1,595,754 | | $ | 1,608,604 | | $ | 1,700,015 | | $ | 1,707,869 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
4
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022MARCH 31, 2023 AND 20212022
(Unaudited)
(In Thousands, Except Per Share Data)
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| | Three months ended June 30, | | Six months ended June 30, | | | Three months ended March 31, | ||||||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
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| 2023 |
| 2022 | ||||||
REVENUE: | | | | | | | | | | | | | | | | | | | |
Communication services | | $ | 171,795 | | $ | 112,964 | | $ | 338,338 | | $ | 223,599 | | | $ | 181,308 | | $ | 166,543 |
Construction | | | 3,297 | | | 9,325 | | | 5,283 | | | 21,632 | | | | 590 | | | 1,987 |
Other | |
| 4,405 | |
| 1,576 | |
| 7,896 | |
| 3,144 | | |
| 3,876 | |
| 3,489 |
Total revenue | |
| 179,497 | |
| 123,865 | |
| 351,517 | |
| 248,375 | | |
| 185,774 | |
| 172,019 |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | | | | | | | | |
Cost of communication services and other | |
| 77,860 | |
| 48,479 | |
| 150,871 | |
| 97,986 | | |
| 79,040 | |
| 73,011 |
Cost of construction revenue | | | 3,286 | | | 9,535 | | | 5,319 | | | 22,142 | | | | 588 | | | 2,033 |
Selling, general and administrative | |
| 59,178 | |
| 40,652 | |
| 115,519 | |
| 78,344 | | |
| 61,348 | |
| 54,882 |
Stock-based compensation | | | 1,778 | | | 1,461 | |||||||||||||
Transaction-related charges | |
| 412 | |
| 1,396 | |
| 966 | |
| 2,126 | | |
| 13 | |
| 554 |
Restructuring expenses | | | 2,887 | | | — | |||||||||||||
Depreciation and amortization | |
| 33,817 | |
| 19,739 | |
| 67,109 | |
| 39,849 | | |
| 36,404 | |
| 33,292 |
Amortization of intangibles from acquisitions | | | 3,250 | | | 416 | | | 6,508 | | | 813 | | | | 3,247 | | | 3,258 |
(Gain) Loss on disposition of long-lived assets | | | (28) | | | 743 | | | 3,392 | | | 861 | | | | (167) | | | 3,420 |
Total operating expenses | |
| 177,775 | |
| 120,960 | |
| 349,684 | |
| 242,121 | | |
| 185,138 | |
| 171,911 |
Income from operations | |
| 1,722 | |
| 2,905 | |
| 1,833 | |
| 6,254 | | |
| 636 | |
| 108 |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | |
Interest income | | | — | | | 46 | | | 3 | | | 40 | | | | 182 | | | 51 |
Interest expense | |
| (4,278) | |
| (1,137) | |
| (7,593) | | | (2,285) | | |
| (8,807) | |
| (3,363) |
Other income | |
| (2,724) | |
| (66) | |
| 1,474 | | | 2,309 | | |
| 194 | |
| 4,199 |
Other income (expense), net | |
| (7,002) | |
| (1,157) | |
| (6,116) | |
| 64 | | ||||||
INCOME BEFORE INCOME TAXES | |
| (5,280) | |
| 1,748 | |
| (4,283) | |
| 6,318 | | ||||||
Income tax provision | |
| (3,971) | |
| (1,542) | |
| (1,018) | |
| (1,247) | | ||||||
NET INCOME (LOSS) | |
| (1,309) | |
| 3,290 | |
| (3,265) | |
| 7,565 | | ||||||
Net income (loss) attributable to noncontrolling interests, net of tax expense (benefit) of $0 million, $0.3 million, $(0.5) million, and $0.4 million, respectively. | |
| 784 | |
| (1,271) | |
| 1,794 | |
| (2,842) | | ||||||
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (525) | | $ | 2,019 | | $ | (1,471) | | $ | 4,723 | | ||||||
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | | | | | ||||||
Other income (expense) | |
| (8,431) | |
| 887 | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | |
| (7,795) | |
| 995 | |||||||||||||
Income tax (benefit) expense | |
| (740) | |
| 2,952 | |||||||||||||
NET LOSS | |
| (7,055) | |
| (1,957) | |||||||||||||
Net loss attributable to noncontrolling interests, net of tax benefit of $(0.6) million and $(0.5) million respectively | |
| 1,170 | |
| 1,009 | |||||||||||||
NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (5,885) | | $ | (948) | |||||||||||||
NET LOSS PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | |||||||||||||
Basic | | $ | (0.11) | | $ | 0.13 | | $ | (0.24) | | $ | 0.30 | | | $ | (0.44) | | $ | (0.13) |
Diluted | | $ | (0.11) | | $ | 0.13 | | $ | (0.24) | | $ | 0.30 | | | $ | (0.44) | | $ | (0.13) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | | | | | | | | |
Basic | |
| 15,749 | |
| 15,912 | |
| 15,736 | |
| 15,907 | | |
| 15,768 | |
| 15,708 |
Diluted | |
| 15,749 | |
| 15,921 | |
| 15,736 | |
| 15,930 | | |
| 15,768 | |
| 15,708 |
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK | | $ | 0.17 | | $ | 0.17 | | $ | 0.34 | | $ | 0.34 | | | $ | 0.21 | | $ | 0.17 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
5
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2023 AND 2022 AND 2021
(Unaudited)
(In Thousands)
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three months ended | | Six months ended | ||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net income (loss) | $ | (1,309) | | $ | 3,290 | | $ | (3,265) | | $ | 7,565 |
Other comprehensive income (loss): | | | | | | | | | | | |
Foreign currency translation adjustment |
| (1,680) | |
| (370) | |
| (1,423) | |
| (410) |
Reclassification of loss on pension settlement, net of $(0.8) million of tax | | 915 | | | — | | | 915 | | | — |
Unrealized gain (loss) on derivatives | | (199) | | | 29 | | | (34) | | | 60 |
Other comprehensive income (loss), net of tax |
| (964) | |
| (341) | |
| (542) | |
| (350) |
Comprehensive income (loss) |
| (2,273) | |
| 2,949 | |
| (3,807) | |
| 7,215 |
Less: Comprehensive income (loss) attributable to noncontrolling interests |
| 784 | |
| (1,271) | |
| 1,794 | |
| (2,842) |
Comprehensive income (loss) attributable to ATN International, Inc. | $ | (1,489) | | $ | 1,678 | | $ | (2,013) | | $ | 4,373 |
| | | | | |
| Three months ended | ||||
| 2023 |
| 2022 | ||
Net loss | $ | (7,055) | | $ | (1,957) |
Other comprehensive income: | | | | | |
Foreign currency translation adjustment |
| 111 | |
| 256 |
Reclassification of loss on pension settlement | | 369 | | | — |
Unrealized gain on derivatives | | — | | | 166 |
Other comprehensive income, net of tax |
| 480 | |
| 422 |
Comprehensive loss |
| (6,575) | |
| (1,535) |
Less: Comprehensive loss attributable to noncontrolling interests |
| 1,170 | |
| 1,009 |
Comprehensive loss attributable to ATN International, Inc. | $ | (5,405) | | $ | (526) |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
6
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE MONTHS ENDED JUNE 30,MARCH 31 2023 AND 2022 AND 2021
(Unaudited)
(In Thousands, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Redeemable Noncontrolling Interests | Total Equity | Total Equity | |||||||||||||||||||||||||||||||||||||
| | Redeemable | | Redeemable | | Total | | | | Treasury | | Additional | | | | Redeemable | | Other | | ATNI | | Non- | | | | | | Treasury | | Additional | | | | Other | | ATNI | | Non- | | |
| | Preferred | | Common | | Redeemable | | Common | | Stock, | | Paid In | | Retained | | Common | | Comprehensive | | Stockholders’ | | Controlling | | Total | | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total |
| | Units | | Units | | Noncontrolling Interests | | Stock | | at cost | | Capital | | Earnings | | Units | | Income/(Loss) | | Equity | | Interests | | Equity | | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity |
Balance, March 31, 2022 | $ | 51,412 | $ | 22,640 | $ | 74,052 | $ | 172 | $ | (73,795) | $ | 193,164 | $ | 470,056 | $ | — | $ | 5,195 | $ | 594,792 | $ | 98,768 | $ | 693,560 | ||||||||||||||||
Purchase of 831 shares of common stock | | — | | — | | — |
| — | | (33) | | — | | — | | — | | — | | (33) | | — | | (33) | ||||||||||||||||
Balance, December 31, 2022 | $ | 173 | $ | (73,825) | $ | 198,449 | $ | 449,806 | $ | 6,210 | $ | 580,813 | $ | 96,016 | $ | 676,829 | ||||||||||||||||||||||||
Purchase of 71,563 shares of common stock |
| — | | (2,840) | | — | | — | | — | | (2,840) | | — | | (2,840) | ||||||||||||||||||||||||
Stock-based compensation |
| — | | — | | 1,634 | | — | | — | | 1,634 | | 144 | | 1,778 | ||||||||||||||||||||||||
Dividends declared on common stock ($0.21 per common share) | | — | | — | | — | | (3,315) | | — | | (3,315) | | — | | (3,315) | ||||||||||||||||||||||||
Repurchase of noncontrolling interests |
| — | | — | | (68) | | — | | — | | (68) | | (527) | | (595) | ||||||||||||||||||||||||
Deemed dividend - redeemable preferred units | | — | | — | | — | | (1,045) | | — | | (1,045) | | — | | (1,045) | ||||||||||||||||||||||||
Deemed dividend - redeemable common units | | — | | — | | — | | (2,531) | | — | | (2,531) | | 2,820 | | 289 | ||||||||||||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Net loss |
| — | | — | | — | | (5,885) | | — | | (5,885) | | (1,170) | | (7,055) | ||||||||||||||||||||||||
Other comprehensive income |
| — | | — | | — | | — | | 480 | | 480 | | — | | 480 | ||||||||||||||||||||||||
Total comprehensive income (loss) | | — | | — | | — | | (5,885) | | 480 |
| (5,405) |
| (1,170) |
| (6,575) | ||||||||||||||||||||||||
Balance, March 31, 2023 | $ | 173 | $ | (76,665) | $ | 200,015 | $ | 437,030 | $ | 6,690 | $ | 567,243 | $ | 97,283 | $ | 664,526 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Balance, December 31, 2021 | $ | 172 | $ | (71,714) | $ | 192,132 | $ | 475,887 | $ | 4,773 | $ | 601,250 | $ | 101,003 | $ | 702,253 | ||||||||||||||||||||||||
Purchase of 56,284 shares of common stock |
| — | | (2,081) | | — | | — | | — | | (2,081) | | — | | (2,081) | ||||||||||||||||||||||||
Stock-based compensation | | — | | — | | — |
| — | | — | | 2,435 | | — | | — | | — | | 2,435 | | 133 | | 2,568 | | — | | — | | 1,310 | | — | | — | | 1,310 | | 150 | | 1,460 |
Dividends declared on common stock ($0.17 per common share) | | — | | — | | — | | — | | — | | — | | (2,678) | | — | | — | | (2,678) | | (1,113) | | (3,791) | | — | | — | | — | | (2,675) | | — | | (2,675) | | (263) | | (2,938) |
Investments made by minority shareholders in consolidated affiliates | | — | | — | | — |
| — | | — | | — | | — | | — | | — | | — | | 11 | | 11 | ||||||||||||||||
Repurchase of noncontrolling interests | | — | | — | | — |
| — | | — | | (167) | | — | | — | | — | | (167) | | (1,850) | | (2,017) | | — | | — | | (278) | | — | | — | | (278) | | (2,205) | | (2,483) |
Accrued dividend - redeemable preferred units | | 1,154 | | — | | 1,154 | | — | | — | | — | | (1,154) | | — | | — | | (1,154) | | — | | (1,154) | | — | | — | | — | | (1,116) | | — | | (1,116) | | — | | (1,116) |
Deemed dividend - redeemable common units | | — | | 587 | | 587 | | — | | — | | — | | (587) | | 587 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | — | | (587) | | (587) |
| — | | — | | — | | (525) | | (587) | | — | | (1,112) | | (197) | | (1,309) |
| — | | — | | — | | (2,040) | | — | | (2,040) | | 83 | | (1,957) |
Other comprehensive income | | — | | — | | — |
| — | | — | | — | | — | | — | | (964) | | (964) | | — | | (964) | ||||||||||||||||
Total comprehensive income (loss) | | — | | (587) | | (587) | | — | | — | | — | | (525) | | (587) | | (964) |
| (2,076) |
| (197) |
| (2,273) | ||||||||||||||||
Balance, June 30, 2022 | $ | 52,566 | $ | 22,640 | $ | 75,206 | $ | 172 | $ | (73,828) | $ | 195,432 | $ | 465,112 | $ | — | $ | 4,231 | $ | 591,119 | $ | 95,752 | $ | 686,871 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Balance, March 31, 2021 | $ | — | $ | — | $ | — | $ | 172 | $ | (61,677) | $ | 186,930 | $ | 516,897 | $ | — | $ | 269 | $ | 642,591 | $ | 99,678 | $ | 742,269 | ||||||||||||||||
Purchase of 37,428 shares of common stock | | — | | — | | — |
| — | | (1,711) | | — | | — | | — | | — | | (1,711) | | — | | (1,711) | ||||||||||||||||
Stock-based compensation | | — | | — | | — |
| — | | — | | 2,150 | | — | | — | | — | | 2,150 | | 25 | | 2,175 | ||||||||||||||||
Dividends declared on common stock ($0.17 per common share) | | — | | — | | — |
| — | | — | | — | | (2,708) | | — | | — | | (2,708) | | (958) | | (3,666) | ||||||||||||||||
Investments made by minority shareholders in consolidated affiliates | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 329 | | 329 | ||||||||||||||||
Repurchase of noncontrolling interests | | — | | — | | — | | — | | — | | (74) | | — | | — | | — | | (74) | | (1,085) | | (1,159) | ||||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Net income | | — | | — | | — |
| — | | — | | — | | 2,019 | | — | | — | | 2,019 | | 1,271 | | 3,290 | ||||||||||||||||
Other comprehensive income (loss) | | — | | — | | — |
| — | | — | | — | | — | | — | | (341) | | (341) | | — | | (341) |
| — | | — | | — | | — | | 422 | | 422 | | — | | 422 |
Total comprehensive income (loss) | | — | | — | | — | | — | | — | | — | | 2,019 | | — | | (341) |
| 1,678 |
| 1,271 |
| 2,949 | | — | | — | | — | | (2,040) | | 422 |
| (1,618) |
| 83 |
| (1,535) |
Balance, June 30, 2021 | $ | — | $ | — | $ | — | $ | 172 | $ | (63,388) | $ | 189,006 | $ | 516,208 | $ | — | $ | (72) | $ | 641,926 | $ | 99,260 | $ | 741,186 | ||||||||||||||||
Balance, March 31, 2022 | $ | 172 | $ | (73,795) | $ | 193,164 | $ | 470,056 | $ | 5,195 | $ | 594,792 | $ | 98,768 | $ | 693,560 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Redeemable Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| | Redeemable | | Redeemable | | Total | | | | Treasury | | Additional | | | | Redeemable | | Other | | ATNI | | Non- | | |
| | Preferred | | Common | | Redeemable | | Common | | Stock, | | Paid In | | Retained | | Common | | Comprehensive | | Stockholders’ | | Controlling | | Total |
| | Units | | Units | | Noncontrolling Interests | | Stock | | at cost | | Capital | | Earnings | | Units | | Income/(Loss) | | Equity | | Interests | | Equity |
Balance, December 31, 2021 | $ | 50,296 | $ | 22,640 | $ | 72,936 | $ | 172 | $ | (71,714) | $ | 192,132 | $ | 475,887 | $ | — | $ | 4,773 | $ | 601,250 | $ | 101,003 | $ | 702,253 |
Purchase of 57,115 shares of common stock | | — | | — | | — |
| — | | (2,114) | | — | | — | | — | | — | | (2,114) | | — | | (2,114) |
Stock-based compensation | | — | | — | | — |
| — | | — | | 3,743 | | — | | — | | — | | 3,743 | | 285 | | 4,028 |
Dividends declared on common stock ($0.34 per common share) | | — | | — | | — |
| — | | — | | — | | (5,356) | | — | | — | | (5,356) | | (1,374) | | (6,730) |
Investments made by minority shareholders in consolidated affiliates | | — | | — | | — |
| — | | — | | — | | — | | — | | — | | — | | 11 | | 11 |
Repurchase of noncontrolling interests | | — | | — | | — | | — | | — | | (443) | | — | | — | | — | | (443) | | (4,057) | | (4,500) |
Accrued dividend - redeemable preferred units | | 2,270 | | — | | 2,270 | | — | | — | | — | | (2,270) | | — | | — | | (2,270) | | — | | (2,270) |
Deemed dividend - redeemable common units | | | | 1,678 | | 1,678 | | — | | — | | — | | (1,678) | | 1,678 | | — | | — | | — | | — |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | — | | (1,678) | | (1,678) |
| — | | — | | — | | (1,471) | | (1,678) | | — | | (3,149) | | (116) | | (3,265) |
Other comprehensive income (loss) | | — | | — | | — |
| — | | — | | — | | — | | — | | (542) | | (542) | | — | | (542) |
Total comprehensive income | | — | | (1,678) | | (1,678) | | — | | — | | — | | (1,471) | | (1,678) | | (542) |
| (3,691) |
| (116) |
| (3,807) |
Balance, June 30, 2022 | $ | 52,566 | $ | 22,640 | $ | 75,206 | $ | 172 | $ | (73,828) | $ | 195,432 | $ | 465,112 | $ | — | $ | 4,231 | $ | 591,119 | $ | 95,752 | $ | 686,871 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 | $ | — | $ | — | $ | — | $ | 172 | $ | (59,456) | $ | 187,754 | $ | 516,901 | $ | — | $ | 278 | $ | 645,649 | $ | 108,687 | $ | 754,336 |
Purchase of 81,406 shares of common stock | | — | | — | | — |
| — | | (3,932) | | — | | — | | — | | — | | (3,932) | | — | | (3,932) |
Stock-based compensation | | — | | — | | — |
| — | | — | | 3,413 | | — | | — | | — | | 3,413 | | 98 | | 3,511 |
Investments made by minority shareholders | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 329 | | 329 |
Dividends declared on common stock ($0.34 per common share) | | — | | — | | — |
| — | | — | | — | | (5,416) | | — | | — | | (5,416) | | (2,488) | | (7,904) |
Repurchase of noncontrolling interests | | — | | — | | — | | — | | — | | (2,161) | | — | | — | | — | | (2,161) | | (10,208) | | (12,369) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | — | | — | | — |
| — | | — | | — | | 4,723 | | — | | — | | 4,723 | | 2,842 | | 7,565 |
Other comprehensive income | | — | | — | | — |
| — | | — | | — | | — | | — | | (350) | | (350) | | — | | (350) |
Total comprehensive income | | — | | — | | — | | — | | — | | — | | 4,723 | | — | | (350) |
| 4,373 |
| 2,842 |
| 7,215 |
Balance, June 30, 2021 | $ | — | $ | — | $ | — | $ | 172 | $ | (63,388) | $ | 189,006 | $ | 516,208 | $ | — | $ | (72) | $ | 641,926 | $ | 99,260 | $ | 741,186 |
| | | | | | | | | | | | | | | | | | | | | | | | |
8
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2023 AND 2022 AND 2021
(In Thousands)
| | | | | | | | | | |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||
| 2022 |
| 2021 | 2023 |
| 2022 | ||||
Cash flows from operating activities: | | | | | | | | | | |
Net income | $ | (3,265) | | $ | 7,565 | |||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | | | | | | |||||
Depreciation | | 67,109 | |
| 39,849 | |||||
Amortization of acquisition intangibles | | 6,508 | | | 813 | |||||
Net loss | $ | (7,055) | | $ | (1,957) | |||||
Adjustments to reconcile net loss to net cash flows provided by operating activities: | | | | | | |||||
Depreciation and amortization | | 36,404 | |
| 33,292 | |||||
Amortization of intangibles from acquisitions | | 3,247 | | | 3,258 | |||||
Provision for doubtful accounts | | 3,153 | |
| 2,299 | | 1,378 | |
| 1,913 |
Amortization of debt discount and debt issuance costs | | 1,004 | |
| 337 | | 569 | |
| 501 |
Loss on disposition of long-lived assets | | 3,392 | | | 861 | |||||
(Gain) loss on disposition of long-lived assets | | (167) | | | 3,420 | |||||
Stock-based compensation | | 4,028 | |
| 3,511 | | 1,778 | |
| 1,461 |
Deferred income taxes | | (3,871) | |
| (3,236) | | (1,953) | |
| 191 |
Loss on pension settlement | | 369 | | | — | |||||
Gain on equity investments | | (3,401) | | | (1,793) | | (315) | | | (4,222) |
Loss on pension settlement | | 1,725 | | | — | |||||
Unrealized gain on foreign currency | | — | | | (81) | |||||
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | | | | | | |
Accounts receivable | | (81) | |
| 1,226 | | 3,573 | |
| 1,677 |
Customer receivable | | (2,298) | | | (21,586) | | 745 | | | (746) |
Prepaid income taxes | | 6,206 | |
| — | | 679 | |
| 6,206 |
Accrued taxes | | 3,227 | |
| (1,360) | | 6,953 | |
| 2,763 |
Materials and supplies, prepayments, and other current assets | | (12,868) | |
| (73) | | (3,503) | |
| (5,330) |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | (9,970) | |
| (1,745) | | (24,548) | |
| (27,465) |
Other assets | | (3,291) | | | 782 | | 141 | | | (325) |
Other liabilities | | (6,587) | |
| 91 | | (2,283) | |
| (3,249) |
Net cash provided by operating activities |
| 50,720 | |
| 27,460 |
| 16,012 | |
| 11,388 |
Cash flows from investing activities: | | | | | | | | | | |
Capital expenditures |
| (71,204) | |
| (35,424) |
| (50,598) | |
| (34,220) |
Reimbursable capital expenditures | | (3,894) | | | (6,508) | |||||
Government capital programs | | | | | | |||||
Amounts disbursed | | (2,127) | | | (248) | |||||
Amounts received | | 593 | | | — | |||||
Purchases of strategic investments | | (1,400) | | | (5,242) | | (630) | | | — |
Receipt of capital government grants | | — | | | 3,292 | |||||
Sale of businesses, net of transferred cash of $0 and $0.9 million, respectively | | 1,835 | | | 18,597 | |||||
Net cash used in investing activities |
| (74,663) | |
| (25,285) |
| (52,762) | |
| (34,468) |
Cash flows from financing activities: | | | | | | | | | | |
Dividends paid on common stock |
| (5,348) | |
| (5,411) |
| (3,310) | |
| (2,672) |
Distributions to noncontrolling interests |
| (1,375) | |
| (4,488) |
| — | |
| (263) |
Payment of debt issuance costs |
| (119) | |
| — | |||||
Finance lease payment | | (574) | | | — | | (249) | | | (338) |
Term loan - repayments |
| (938) | |
| (1,883) |
| (1,171) | |
| (938) |
Revolving credit facility – borrowings | | 49,000 | | | — | | 57,553 | | | 36,500 |
Revolving credit facility – repayments | | (24,500) | | | — | | (14,000) | | | (15,500) |
Proceeds from customer receivable credit facility |
| 8,000 | |
| 17,582 |
| 4,300 | |
| 8,000 |
Repayment of customer receivable credit facility | | (2,258) | | | (384) | | (1,570) | | | (1,003) |
Purchases of common stock – stock- based compensation | | (1,169) | | | (1,713) | | (1,433) | | | (1,136) |
Purchases of common stock – share repurchase plan | | (941) | | | (2,219) | | (1,407) | | | (941) |
Investments made by minority shareholders in consolidated affiliates | | 11 | | | — | |||||
Repurchases of noncontrolling interests | | (4,502) | | | (12,699) | | (595) | | | (2,481) |
Net cash provided by (used in) financing activities |
| 15,406 | |
| (11,215) | |||||
Net cash provided by financing activities |
| 37,999 | |
| 19,228 | |||||
Net change in cash, cash equivalents, and restricted cash |
| (8,537) | |
| (9,040) |
| 1,249 | |
| (3,852) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 80,697 | |
| 104,997 |
| 59,728 | |
| 80,697 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 72,160 | | $ | 95,957 | $ | 60,977 | | $ | 76,845 |
Noncash investing activity: | | | | | | |||||
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 13,303 | | $ | 11,990 | $ | 16,208 | | $ | 13,221 |
| | | | | |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
98
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND BUSINESS OPERATIONS
The Company is a provider ofprovides digital infrastructure and communications services in the United States and internationally, including in the Caribbean region, with a focus on smaller markets, many of which are rural andor remote, markets with a growing demand for infrastructure investments. The Company’sinvestments, Through its operating subsidiaries, todayit primarily provide:provides: (i) advanced wireless and wireline connectivity to residential, business and government customers, including a range of high-speed Internet and data services, fixed and mobile wireless solutions, and video and voice services; and (ii) carrier and enterprise communications services, such as terrestrial and submarine fiber optic transport, and communications tower facilities.
facilities; and (ii) fixed and mobile telecommunications connectivity to residential, business and government customers, including a range of high-speed internet and data services, fixed and mobile wireless solutions, and video and voice services.
At the holding company level, the Company oversees the allocation of capital within and among its subsidiaries, affiliates, new investments, and stockholders. The Company also has developed significant operational expertise and resources that it uses to augment the capabilities of its individual operating subsidiaries in its local markets. Over the past 10 years, theThe Company has built a platform of resources and expertise to support its operating subsidiaries and to improve their quality of service with greater economies of scale and expertise than would typically be available at the operating subsidiary level. The Company also provides management, technical, financial, regulatory, and marketing services to its operating subsidiaries and typically receivesreceive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. The Company also actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally lookslook for those that it believes fit the Company’s profile of telecommunications businesses and have the potential to complement its “Glass“glass and Steel”steel” and “fiber first”“first to fiber” approach in markets while generating steady excess cash flows over extended periods of time. The Company uses the cash generated from its operations to re-invest in organic growth in its existing businesses, to make strategic investments in additional businesses, and to return cash to its investors through dividends or stock repurchases.
As of June 30, 2022,March 31, 2023, the Company offered the following types of services to its customers:
● | Mobility Telecommunications Services. |
● | Fixed Telecommunications Services. The Company provides fixed data and voice telecommunications services to |
● | Carrier Telecommunication Services. |
● | Managed Services. |
Through June 30, 2022,As was previously disclosed, and effective January 27, 2021, the Company no longer provides distributed generation solar power to commercial and industrial customers. These operations were the only operations within the Company’s Renewable Energy segment. As such, the Company no longer identifies the Renewable Energy segment as
9
an operating segment and now has identified 3only two operating segments to manage and review its operations and to facilitate investor presentations of its results. These 3two operating segments are as follows:
● | International |
● | US |
10
The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which it reports its revenue and the markets it served during the three months ended June 30, 2022:March 31, 2023:
| | | | | | |
Segment |
| Services |
| Markets |
| Tradenames |
International Telecom |
| Mobility Services |
| Bermuda, Guyana, US Virgin Islands |
| One, |
| | Fixed Services |
| Bermuda, Cayman Islands, Guyana, US Virgin Islands |
| One, Logic, GTT, Viya |
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, |
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT, Viya |
US Telecom |
| Mobility Services |
| United States (rural markets) |
| Choice, Choice NTUA Wireless |
| | Fixed Services | | United States |
| Alaska Communications, Commnet, Choice, Choice NTUA Wireless, Sacred Wind Communications, Ethos |
| | Carrier Services | | United States | | Alaska Communications, Commnet, Essextel, Sacred Wind Communications |
|
| Managed Services |
| United States |
| Alaska Communications, Choice |
|
|
|
|
|
|
|
For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 13 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Liquidity
COVID-19
The Company continues to monitor and assess the effectsCompany’s 2019 CoBank Credit Facility matures on April 10, 2024, which is within twelve months of the ongoing COVID-19 pandemic on its commercial operations, the safetyissuance of its employees and their families, its sales force and customers.
The preparation of the condensedthese consolidated financial statements requiresstatements. At March 31, 2023, the Company to make estimates, judgments and assumptions, which are evaluated on an ongoing basis, which may affectowed $122.0 million for amounts drawn under the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The Company assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context withcredit facility. For the information and estimates reasonably available toyear ended December 31, 2022, the Company andgenerated positive cash flows from operating activities of $102.9 million. At March 31, 2023, the unknown future impactsCompany had $56.0 million of COVID-19 as of June 30, 2022unrestricted cash and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, the carrying value of goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.
1110
cash equivalents and $5.0The Company’s assessment million of restricted cash. If the Company is unable to refinance its existing debt or obtain additional financing on or before the maturity of the 2019 CoBank Credit Facility, this could impact the Company’s ability to meet its obligations coming due within one year after issuance of COVID-19 onthese consolidated financial statements. Management is actively pursuing debt financing options which would extend the maturity date of the 2019 CoBank Credit Facility and may increase its capacity, and management expects to complete this financing process during 2023. In the event the Company is unable to refinance or replace its 2019 CoBank Credit Facility, the Company has additional actions at its discretion, including reducing capital expenditures not required to sustain current network operations, didreducing operating cash outflows such as marketing and general and administrative expenses, and pursuing equity financing through issuance of equity securities in public markets. However, management does not indicate thatcurrently believe these additional actions will be required to be implemented due to its debt refinancing plans.
In light of the plans discussed above, management believes it is probable the Company will meet its obligations as they come due for a minimum of twelve months from the issuance date of these consolidated financial statements. However, if the Company were unable to refinance its existing debt, obtain additional financing, or implement the above plans, as needed, there was a materialcould be an adverse impact toon the Company’s operations.
Restructuring Expense
In connection with the repositioning of the Company’s legacy wholesale roaming operations in its consolidated financial statements as of and forUS Telecom segment, the Company recorded a $2.9 million restructuring charge during the three and six months ended June 30, 2022. However, future assessmentsMarch 31, 2023 related to the decommissioning of certain cell sites. The charge is recorded in the Restructuring Expense on the Company’s statement of operations. As of March 31, 2023, the Company paid $0.5 million, recorded a gain of $0.3 million on lease termination, and accrued $2.7 million of the impacts of COVID-19, as well as other factors, includingrestructuring expenses. In conjunction with the possible reinstatement of certain COVID-19 travel-related and stay-at-home restrictions, could result in material adverse impacts to its consolidated financial statements in future reporting periods. For example,restructuring the Company may experience difficulty in procuring network or retail equipment, such as handsets for subscribers, as a resultterminated $5.0 million of COVID-19 restrictionslease right of use assets and related supply chain challenges. In addition, there is increased uncertainty related to predicting subscribers’ procurement behavior for services.
$5.3 million of lease liabilities from its balance sheet.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for the periods described therein. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 16, 2022.
15, 2023.
The condensed consolidated financial statements include the accounts of the Company, its subsidiaries in which the Company holds controlling interests and certain entities which are consolidated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) authoritative guidance on the consolidation of variable interest entities, since it is determined that the Company is the primary beneficiary of these entities.
1211
Presentation of Revenue
Effective October 1, 2021, the Company’s statement of operations separately reflects Construction revenue. All periods presented have been adjusted to conform to these presentation updates.
Presentation of Operating Expenses
Effective January 1, 2021, the Company changed its presentation of operating expenses in the Condensed Consolidated Statements of Operations by combining the previously disclosed Termination and Access Fees with Engineering and Operations as the newly represented Costs of Communication Services and Other. In addition, the previously disclosed Sales, Marketing and Customer Service expenses are now combined with the previously disclosed General and Administrative expenses within the newly represented Selling, General and Administrative expenses. The change in presentation was made to better align the Company’s results with industry standards. Cost of construction services continues to be broken out separately and all depreciation and amortization continues to be shown separately.
Recent Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company prospectively adopted this accounting standard in 2021. The adoption of ASC 2021-08 will result in the recognition of larger deferred revenue balances in future acquisitions.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which required entities to make specific annual disclosures about transactions with a government. The new standard is effective for fiscal years beginning after December 15, 2021. The adoption of ASU 2021-10 did not have a material impact on the Company’s disclosures. Going forward the Company will evaluate the disclosure requirements based on its participation in government programs.
3. REVENUE RECOGNITION AND RECEIVABLES
Revenue Accounted for in Accordance with Other Guidance
The Company records revenue in accordance with ASC 606 from contracts with customers and ASC 842 from lease agreements, as well as government grants. Lease revenue recognized under ASC 842 is disclosed in Note 4 and government grant revenue is disclosed in Note 9.
Timing of Revenue Recognition
Revenue accounted for in accordance with ASC 606 consisted of the following for the periods presented below.
| | | | | | | | | | | | ||||||
| Three months ended | | Six months ended | | | | | | | ||||||||
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | Three months ended | | ||||||||
| | | | | | | | | | | | | March 31, 2023 | | March 31, 2022 | ||
Services transferred over time | $ | 154,680 | | $ | 104,488 | | $ | 308,272 | | $ | 206,520 | | | | | | |
US Telecom | $ | 81,072 | | $ | 72,290 | | |||||||||||
International Telecom | | 85,680 | | | 81,302 | | |||||||||||
Total | | 166,752 | | | 153,592 | | |||||||||||
Goods and services transferred at a point in time | | 11,867 | | | 11,876 | | | 18,188 | | | 27,272 | | | | | | |
US Telecom | | 2,546 | | | 3,597 | | |||||||||||
International Telecom | | 3,259 | | | 2,723 | | |||||||||||
Total | | 5,805 | | | 6,320 | | |||||||||||
Total revenue accounted for under ASC 606 | | 166,547 | | | 116,364 | | | 326,460 | | | 233,792 | | 172,557 | | | 159,912 | |
Contract Assets and Liabilities
The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from consumer Mobility contracts with both a multiyear service period and a promotional discount. In these contracts, the revenue recognized exceeds the amount billed to the customer. The current portion of
13
the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s balance sheets.
Contract liabilities consist of advance payments and billings in excess of revenue recognized. Mobility and Fixed revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including Mobility services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities also include certain long term fixed business and carrier service customer contracts. Contract liabilities are recorded in advanced payments and deposits and other liabilities on the Company’s balance sheets.
In July 2019, the Company entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC (“AT&T”) and subsequently entered into amendments in August 2020, May 2021 and August 2022 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, the Company is building a portion of AT&T’s network for the First Responder Network Authority in or near the Company’s current operating areas in the western United States (the “FirstNet Transaction”). The FirstNet Transaction includes construction and service performance obligations. The Company allocated the transaction price of the FirstNet Agreement to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances. The current portion of receivables under this agreement is recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.
12
The Company has certain Carrier Services roaming agreements that contain stand-ready performance obligations and management allocates transaction value to performance obligations based on the standalone selling price. The standalone selling price is the estimated price the Company would charge for the good or service with similar customers in similar circumstances. Management determined the performance obligations were obligations to make the service continuously available and will recognize revenue evenly over the service period.
Contract assets and liabilities consisted of the following (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | | | $ Change | | % Change | March 31, 2023 | | December 31, 2022 | | | $ Change | | % Change | ||||||
Contract asset – current | $ | 3,502 | | $ | 4,805 | | $ | (1,303) | | (27) | % | $ | 3,010 | | $ | 2,932 | | $ | 78 | | 3 | % |
Contract asset – noncurrent | | 906 | | | 900 | | | 6 | | 1 | % | | 3,734 | | | 3,775 | | | (41) | | (1) | % |
Contract liability – current | | (25,181) | | | (25,332) | | | 151 | | 1 | % | | (26,086) | | | (27,284) | | | 1,198 | | 4 | % |
Contract liability – noncurrent | | (75,919) | | | (81,391) | | | 5,472 | | 7 | % | | (70,444) | | | (72,543) | | | 2,099 | | 3 | % |
Net contract liability | $ | (96,692) | | $ | (101,018) | | $ | 4,326 | | 4 | % | $ | (89,786) | | $ | (93,120) | | $ | 3,334 | | 4 | % |
The contract asset – current is included in prepayments and other current assets and the contract asset – noncurrent is included in other assets on the Company’s balance sheet. The contract liability – current is included in advance payments and deposits and the contract liability – noncurrent is included in other liabilities on the Company’s balance sheet. The decrease in the Company’s net contract liability was due to the timing of customer prepayments, contract billings, and recognition of deferred revenue. During the sixthree months ended June 30, 2022,March 31, 2023, the Company recognized revenue of $20.414.8 million related to its December 31, 20212022 contract liability and amortized $1.4$0.7 million of the December 31, 20212022 contract asset intoto revenue.
Contract Acquisition Costs
The June 30, 2022March 31, 2023 balance sheet includes contract acquisition costs of $5.9$9.0 million in other assets. During the three and six months ended June 30,March 31, 2023 and 2022, the Company amortized $0.81.1 million and $1.6$0.8 million, respectively, of contract acquisition costs. During the three and six months ended June 30, 2021, the Company amortized $0.6 million and $1.2 million, respectively, of contract acquisition costs.
14
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear Mobility contracts, which include a promotional discount, Managed Services contracts, and the Company’s Carrier Services construction and service contracts. The transaction price allocated to unsatisfied performance obligations was $332286 million and $369$312 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The Company expects to satisfy approximately 51%50% of the remaining performance obligations and recognize the transaction price within 24 months and the remainder thereafter.
The Company has certain Mobility, Fixed, and Carrier Services contracts where the transaction price is allocated to remaining performance obligations. However, the Company omits these contracts from its disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 13 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision makers for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from Communication Services, Construction, and Other revenue. Communication Services revenue is further disaggregated into business and consumer Mobility, business and consumer Fixed, Carrier Services, and Other services. Other revenue is further disaggregated into Renewable Energy and Managed Services revenue. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Receivables
The Company records an estimate of future credit losses in conjunction with the revenue transaction based on the information available including historical experience and management’s expectations of future conditions. Those estimates will be updated as additional information becomes available. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.
At June 30, 2022, the Company had gross accounts receivable of $132.4 million, an allowance for credit losses of $15.7 million and a receivable under the FirstNet Agreement totaling $46.1 million of which $6.2 million was current and $39.9 million was long-term. At December 31, 2021, the Company had gross accounts receivable of $131.4 million, an allowance for credit losses of $13.9 million and a receivable under the FirstNet Agreement totaling $43.8 million, of which $4.1 million was current and $39.7 million was long-term. The Company monitors receivables through the use of historical operating data adjusted for expectation of future performance as appropriate. Activity in the allowance for credit losses is below:
| | | | | | |
|
| Six months ended June 30, 2022 | | Six months ended June 30, 2021 | ||
| | | | | | |
Balance at beginning of period |
| $ | 13,885 | | $ | 12,121 |
Current period provision for expected losses |
| | 3,153 | | | 2,299 |
Write-offs charged against the allowance |
| | (1,497) | | | (1,196) |
Recoveries collected | | | 208 | | | 267 |
Balance at end of period | | $ | 15,749 | | $ | 13,491 |
1513
accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.
At March 31, 2023, the Company had gross accounts receivable of $152.3 million, an allowance for credit losses of $16.0 million and a receivable under the FirstNet Agreement totaling $51.8 million of which $6.1 million was current and $45.7 million was long-term. At December 31, 2022, the Company had gross accounts receivable of $154.5 million, an allowance for credit losses of $15.2 million and a receivable under the FirstNet Agreement totaling $52.5 million, of which $5.8 million was current and $46.7 million was long-term. The Company monitors receivables through the use of historical operating data adjusted for the expectation of future performance as appropriate. Activity in the allowance for credit losses is below:
| | | | | | |
| | Three months ended | ||||
|
| March 31, 2023 |
| March 31, 2022 | ||
| | | | | | |
Balance at beginning of period |
| $ | 15,171 | | $ | 13,885 |
Current period provision for expected losses |
| | 1,378 | | | 1,913 |
Write-offs charged against the allowance |
| | (591) | | | (862) |
Recoveries collected | | | 74 | | | 108 |
Balance at end of period | | $ | 16,032 | | $ | 15,044 |
4. LEASES
Lessee Disclosure
The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The lease terms are generally between three and 10 years, some of which include additional renewal options.
Supplemental lease information
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended | Three months ended | ||||||||||||
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | March 31, 2023 |
| March 31, 2022 | ||||||
Operating lease cost: | | | | | | | | | | | | | | | | |
Operating lease cost | $ | 6,194 | | $ | 4,248 | | $ | 12,337 | | $ | 8,473 | $ | 5,981 | | $ | 6,142 |
Short-term lease cost | | 645 | | | 729 | | | 1,154 | | | 1,137 | | 677 | | | 509 |
Variable lease cost | | 642 | | | 1,016 | | | 1,446 | | | 2,080 | | 662 | | | 804 |
Total operating lease cost | $ | 7,481 | | $ | 5,993 | | $ | 14,937 | | $ | 11,690 | $ | 7,320 | | $ | 7,455 |
| | | | | | | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | | | | | | |
Amortization of right-of-use asset | $ | 782 | | $ | 615 | | $ | 1,579 | | $ | 1,190 | $ | 699 | | $ | 797 |
Variable costs | | 210 | | | 197 | | | 458 | | | 392 | | 203 | | | 248 |
Interest costs | | 95 | | | — | | | 197 | | | — | | 84 | | | 102 |
Total finance lease cost | $ | 1,087 | | $ | 812 | | $ | 2,234 | | $ | 1,582 | $ | 986 | | $ | 1,147 |
During the six month periodsthree months ended June 30,March 31, 2023 and 2022, and 2021, the Company paid $10.8$5.0 million and $7.6$5.6 million, respectively, for operating lease liabilities. During the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, the Company recorded $5.1$2.9 million and $6.3$3.7 million, respectively, of operating lease liabilities arising from ROU assets. During the three months ended March 31, 2023, in conjunction with the restructuring activities the Company terminated $5.0
14
million of lease right of use assets, $5.3 million of lease liabilities from its balance sheet, and recorded a gain of $0.3 million in the restructuring expense line of its statement of operations.
At June 30, 2022,March 31, 2023, finance leases with a cost of $27.2$27.5 million and accumulated amortization of $12.0$14.1 million were included in property, plant and equipment. During the three months ended June 30, 2022,March 31, 2023, the Company paid $0.6$0.2 million of financing cash flows, $0.9 million of investing cash flows and $0.1 million of operating cash flows for finance lease liabilities and recorded $0.2 million of additional finance lease liabilities. Additionally, during the six months ended June 30, 2022, the Company disposed of a finance lease with a net book value of $1.0 million recording a loss for that amount. At June 30, 2022,March 31, 2023, finance leases had a lease liability of $5.85.1 million, of which $0.9$1.0 million was current.
During the six months ended June 30, 2021, the Company recorded $1.4 million of additional finance lease liabilities. At December 31, 2021,2022, finance leases with a cost of $30.8$26.6 million and accumulated amortization of $12.1$13.5 million were included in property, plant and equipment.
The weighted average remaining lease terms and discount rates as of March 31, 2023 and December 31, 2022 are noted in the table below:
| | | | | |
| March 31, 2023 | | December 31, 2022 | ||
Weighted-average remaining lease term | | | | | |
Operating leases | | 13.1 years | | | 12.4 years |
Financing leases | | 9.3 years | | | 9.3 years |
| | | | | |
Weighted-average discount rate | | | | | |
Operating leases | | 6.1% | | | 6.0% |
Financing leases | | 6.9% | | | 6.7% |
Maturities of lease liabilities as of March 31, 2023 were as follows (in thousands):
| | | | | |
| Operating Leases | | Financing Leases | ||
2023 (excluding the three months ended March 31, 2023) | | 12,977 | | | 1,045 |
2024 | | 17,023 | | | 1,240 |
2025 | | 13,897 | | | 972 |
2026 | | 9,771 | | | 504 |
2027 | | 7,708 | | | 495 |
Thereafter | | 79,134 | | | 2,651 |
Total lease payments | | 140,510 | | | 6,907 |
Less imputed interest | | (53,450) | | | (1,822) |
Total | $ | 87,060 | | $ | 5,085 |
1615
The weighted average remaining lease terms and discount rates as of June 30, 2022 and December 31, 2021 are noted in the table below:
| | | | | |
| June 30, 2022 | | December 31, 2021 | ||
Weighted-average remaining lease term | | | | | |
Operating leases | | 11.3 years | | | 11.3 years |
Financing leases | | 9.7 years | | | 9.5 years |
| | | | | |
Weighted-average discount rate | | | | | |
Operating leases | | 5.4% | | | 5.4% |
Financing leases | | 6.5% | | | 6.4% |
Maturities of lease liabilities as of June 30,December 31, 2022 were as follows (in thousands):
| | | | | |
| Operating Leases | | Financing Leases | ||
2022 (excluding the six months ended June 30, 2022) | $ | 11,451 | | $ | 651 |
2023 | | 18,831 | | | 1,307 |
2024 | | 17,294 | | | 1,198 |
2025 | | 14,461 | | | 992 |
2026 | | 10,349 | | | 547 |
Thereafter | | 69,233 | | | 3,145 |
Total lease payments | | 141,619 | | | 7,840 |
Less imputed interest | | (41,765) | | | (2,085) |
Total | $ | 99,854 | | $ | 5,755 |
Maturities of lease liabilities as of December 31, 2021 were as follows (in thousands):
| | | | | | | | | | |
| Operating Leases | | Financing Leases | Operating Leases | | Financing Leases | ||||
2022 | $ | 20,474 | | $ | 1,269 | |||||
2023 | | 17,941 | | | 1,278 | $ | 19,417 | | $ | 1,403 |
2024 | | 16,634 | | | 1,169 | | 17,836 | | | 1,342 |
2025 | | 13,640 | | | 975 | | 14,805 | | | 978 |
2026 | | 9,610 | | | 484 | | 10,505 | | | 504 |
2027 | | 8,096 | | | 495 | |||||
Thereafter | | 65,902 | | | 3,145 | | 76,452 | | | 2,651 |
Total lease payments | | 144,201 | | | 8,320 | | 147,111 | | | 7,373 |
Less imputed interest | | (42,333) | | | (2,268) | | (53,794) | | | (1,914) |
Total | $ | 101,868 | | $ | 6,052 | $ | 93,317 | | $ | 5,459 |
As of June 30, 2022,March 31, 2023, the Company did not have any material operating or finance leases that have not yet commenced.
17
Lessor Disclosure
The Company is the lessor in agreements to lease the use of its network assets including its cell sites and buildings. For the three and six months ended June 30,March 31, 2023 and 2022, the Company recorded $1.9$1.9 million and $2.9$1.0 million, respectively, of lease income from agreements in which the Company is the lessor. Lease income is classified as Carrier Services revenue in the statement of operations.
The following table presents the maturities of future undiscounted lease payments for the periods indicated:
| | | | |
2022 (excluding the six months ended June 30, 2022) | $ | 2,776 | ||
2023 | | 5,024 | ||
2023 (excluding the three months ended March 31, 2023) | $ | 4,609 | ||
2024 | | 4,633 | | 5,891 |
2025 | | 4,518 | | 5,716 |
2026 | | 4,179 | | 5,410 |
2027 | | 4,267 | ||
Thereafter | | 10,758 | | 14,360 |
Total future lease payments | $ | 31,888 | $ | 40,253 |
5. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates relate to the allowance for credit losses on trade receivables, useful lives of the Company’s fixed and finite-lived intangible assets, allocation of purchase price to assets acquired and liabilities assumed in business combinations, fair value of indefinite-lived intangible assets, goodwill assessing the impairment of assets, revenue, and income taxes. Actual results could differ significantly from those estimates. See Note 1 to the Unaudited Condensed Consolidated Financial Statements included in this Report for a discussion of the impact of COVID-19 on the use of these estimates.
6. ACQUISITIONS AND DISPOSITIONS
US Telecom
Pending Acquisition of Sacred Wind Enterprises
On July 26, 2022, the Company, via its newly formed wholly owned subsidiary Alloy, Inc. (“Alloy”), entered into a stock purchase agreement (the “Purchase Agreement”) to acquire all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), a rural telecommunications provider in New Mexico. Under the Purchase Agreement, the Company will contribute all of its ownership interests in its Commnet Wireless business to Alloy, and issue Alloy equity to the Sacred Wind stockholders representing the combined ownership of Sacred Wind and Commnet. The acquisition is subject to certain closing conditions, including the receipt of required third party and regulatory approvals such as approval of the Federal Communications Commission . Under the Purchase Agreement, Sacred Wind will keep in place its approximately $32 million in debt and the Company will issue consideration of a combination of $24 million in cash, the issuance of $13 million of equity representing an approximate 6% in Alloy, Inc. In addition, the Purchase Agreement includes certain earn-outs, the accounting for which will be determined upon the Company’s completion of the acquisition, to be paid to the Sacred Wind stockholders.
The Company believes that the acquisition of Sacred Wind will expand the Company’s infrastructure reach and broadband services in the rural Southwest and increase its wholesale carrier, residential and business broadband services.
The acquisition of Sacred Wind is expected to close subject to Federal Communications Commission and other required approvals in the fourth quarter of 2022 or first quarter of 2023.
18
Completed Acquisition of Alaska Communications
On July 22, 2021 (“Closing Date”), the Company completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”) pursuant to the terms of the Merger Agreement whereby Alaska Communications became a consolidated subsidiary of the Company (the “Alaska Transaction”). At completion of the acquisition, each Alaska Communications common share was converted into the right to receive $3.40 per share in cash representing a total value of $353.3 million of cash and consideration payable (“Merger Consideration”). The consideration transferred consists of $339.5 million of cash, net of $11.9 million of cash and restricted cash acquired and $1.9 million of accrued consideration representing amounts payable related to stock compensation payable within one year of the close date. The cash consideration was used to purchase $186.8 million of Alaska Communications equity and repay $164.6 million of existing Alaska Communications debt.
The Company funded the acquisition with cash on hand, debt, and a contribution from the Freedom 3 Investors. The Company borrowed, through multiple financing transactions, a net of $283 million. On the Closing Date, the lenders advanced (a) the full $210 million aggregate amount of the Alaska Term Loan (as defined below) in a single borrowing and (b) $10 million of the Alaska Revolving Facility (as defined below). The Company incurred $6.6 million of debt issuance and debt discount costs. Also, to fund the Merger Consideration in part, the Company drew a net $63.0 million under its revolving credit facility under the 2019 CoBank Credit Facility (as defined below). Lastly, the Freedom 3 Investors contributed $71.5 million in conjunction with the Merger. The Company has accounted for the Freedom 3 Investment as redeemable noncontrolling interests in its consolidated financial statements. On the Closing Date, the redeemable noncontrolling interests consisted of $22.6 million of redeemable common units, $48.3 million of redeemable preferred units, and $0.6 million of warrants to purchase common units. The common units contain a put option allowing the holder to sell the common units to a subsidiary of the Company at the then fair market value. The put option begins at the earlier of a future initial public offering of the Alaska Communications operations or July 2028. The redeemable preferred units carry a 9% preferred dividend which compounds quarterly. The preferred units contain a put option allowing the holder to sell the preferred units to a subsidiary of the Company at the unpaid issue price plus unpaid dividends. The put option begins at the earlier of a future initial public offering of the Alaska Communications operations or July 2028. Lastly, the Company issued warrants in the Alaska Communications operations allowing the holders to purchase an additional 3% of the common units at a fixed price.
The fair value of the common units remained at $22.6 million at June 30, 2022, unchanged from the value at July 22, 2021. The value of the preferred units was $52.6 million at June 30, 2022 which consists of the original issue price of $48.3 million and $4.3 million of accrued preferred dividends. The value of the warrants was $0.6 million at June 30, 2022, unchanged from July 22, 2021.
As a result of the Alaska Transaction, the Company owns 52% of the common equity of Alaska Communications and controls its operations and management.
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6. ACQUISITIONS AND DISPOSITIONS
US Telecom
Acquisition of Sacred Wind Enterprises
On November 7, 2022, the Company’s newly formed wholly owned subsidiary Alloy, Inc. (Alloy”) acquired all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), Inc., a rural telecommunications provider in New Mexico for $44.6 million of consideration (“Sacred Wind Transaction”). The purchase price allocation was finalized during the three months ended March 31, 2023. As part of the Sacred Wind Transaction, the Company transferred consideration of $18.0 million of cash, net of $9.4 million of cash acquired, $14.8 million of redeemable noncontrolling interests, and $3.7 million of contingent consideration less $1.3 million of receivables related to working capital adjustments. Upon completion of the Sacred Wind Transaction, the former Sacred Wind shareholders own 6% of the Alloy equity. This equity is classified as redeemable noncontrolling interests in the Company’s financial statements because the holders have an option, beginning in 2026, to put the equity interest to a subsidiary of the Company at the then fair market value. The redeemable noncontrolling interests do not have preference relative to other equity units and participate in gains and losses in Alloy. The contingent consideration is earned based on certain operating metrics of Sacred Wind beginning in 2025 through 2027. The fair value of the contingent consideration was calculated using discounted cash flow analysis based on a range of probability weighted outcomes. The Company funded the acquisition with borrowings under its CoBank Credit Facility and assumed $31.6 million of Sacred Wind debt, to the United States of America administered through the Rural Utilities Service.
The table below represents the purchase price allocation of the total consideration transferred to the acquired assets and assumed liabilities based on management’s estimate of their acquisition date fair values (amounts in thousands):
| | |
Consideration Transferred | $ | 353,280 |
Noncontrolling interests | | 470 |
Total value to allocate | | 353,750 |
Purchase price allocation: | | |
Cash and cash equivalents | | 10,553 |
Restricted cash | | 1,326 |
Short-term investments | | 434 |
Accounts receivable | | 30,453 |
Inventory, materials and supplies | | 1,374 |
Prepayments and other current assets | | 8,038 |
Fixed assets | | 408,694 |
Telecommunication licenses | | 683 |
Intangible assets | | 44,333 |
Operating lease right-of-use assets | | 60,402 |
Other assets | | 2,387 |
Accounts payable and accrued liabilities | | (39,188) |
Accrued taxes | | (3,766) |
Advance payments and deposits | | (15,842) |
Current portion of lease liabilities | | (2,425) |
Deferred income taxes | | (17,040) |
Lease liabilities, excluding current portion | | (44,234) |
Other liabilities | | (92,432) |
Net assets acquired | $ | 353,750 |
| | |
Consideration Transferred | $ | 44,560 |
Preliminary purchase price allocation: | | |
Cash and cash equivalents | | 2,619 |
Restricted cash | | 6,747 |
Current assets | | 4,888 |
Operating lease right of use assets | | 989 |
Fixed assets | | 85,255 |
Intangible assets | | 1,232 |
Current liabilities | | (10,176) |
Lease liabilities | | (967) |
Deferred taxes | | (14,388) |
Debt | | (31,639) |
Net assets acquired | $ | 44,560 |
The acquired fixed assets are comprised of telecommunication equipment located in Alaska and the westernSouthwest United States. The fixed assets were valued using the income and cost approaches. Cash flows were discounted between 4%7% and 14%12% based on the risk associated with the cash flows to determine fair value under the income approach. The fixed assets have useful lives ranging from 21 to 3025 years. The intangible assets consist of $34.9include a $0.6 million of customer relationships and $9.5 million of trade name. The intangible assets were valued using an income approach based on data specific to Alaska Communications as well as market participant assumptions where appropriate. The estimated fair value of the customer relationships was determined using the multi-period excess earnings method. The estimated fair value of the trade name was determined using the relief from royalty method. The useful liveslife of the customer relationships and trade name are five and 15 years, respectively.is 5 years. The acquired receivables consist of trade receivables incurred in the ordinary course of business. The Company expects to collect the full amount of the receivables. OtherCurrent liabilities includes $81.5$6.5 million of deferred revenue from long term customer contracts. The Company adopted ASU 2021-08deposits received under government grant programs that will be used to construct fixed assets in 2021, which requires contract liabilities to be accounted for consistently with how they were recognized and measured in the acquiree’s financial statements. As a result, the acquired deferred revenue was recorded at Alaska Communications’ book value as of the Closing Date.future periods.
The Company’s statement of operations for the three months ended June 30, 2022 includes $62.6 million of revenue and $1.5 million of losses before taxes attributable to the Alaska Transaction, excluding transaction fees. The Company’s statement of operations for the six months ended June 30, 2022 includes $120.9 million of revenue and $4.3 million of losses before taxes attributable to the Alaska Transaction, excluding transaction fees. The Company incurred $11.2$0.8 million of transaction relatedtransaction-related charges pertaining to legal, accounting, consulting services, and employee related costs associated with the transaction of which $0.2 million and $0.8 million were incurred during the three and six months ended June 30, 2022, respectively.
The following table reflects unaudited pro forma operating results of the Company for the three and six months ended June 30, 2021 assuming the transaction occurred on January 1, 2020. The unaudited pro forma amounts adjust Alaska Communications’ results to reflect the depreciation and amortization that would have been recorded assuming the fair value adjustments to fixed assets and intangible assets had been applied from January 1, 2020. Additionally, all
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transaction costs associated with the Alaska Transaction were recorded on January 1, 2020 in the unaudited pro forma results. Lastly, the unaudited pro forma results were adjusted to reflect changes to the acquired entities’ financial structure related to the transaction. Specifically, the pre-closing debt of $164.6 million, and associated interest, was removed and $283.0 million of transaction debt, and associated interest, was included in the unaudited pro forma results. In addition, the pro forma results included the allocation of income and accrual of preferred dividends to the redeemable noncontrolling interest.
| | | | | | | | | | | |
| | Three months ended | | | Six months ended | ||||||
| | June 30, 2021 | | | June 30, 2021 | ||||||
| | As Reported | | | Pro Forma | | | As Reported | | | Pro Forma |
| | | | | | | | | | | |
Revenue | $ | 123,865 | | $ | 185,508 | | $ | 248,375 | | $ | 370,686 |
Net Income (loss) attributable to ATN International, Inc. Stockholders | $ | 2,019 | | $ | (209) | | $ | 4,723 | | $ | 315 |
| | | | | | | | | | | |
Earnings (loss) Per Share | | | | | | | | | | | |
Basic | $ | 0.13 | | $ | (0.09) | | $ | 0.30 | | $ | (0.13) |
Diluted | $ | 0.13 | | $ | (0.09) | | $ | 0.30 | | $ | (0.13) |
The unaudited pro forma adjustments decreased net income attributable to ATN International, Inc. Stockholders by $2.2 million and $4.4 million for the three and six months ended June 30, 2021, respectively. The decrease was due to an increase from the net income of the Alaska Communications operations excluding transaction costs offset by increased acquisition related depreciation and amortization expenses.
The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisitions had been consummated on these dates or of future operating results of the combined company following this transaction.
Renewable Energy
Disposition of International Solar Business
In January 2021, the Company completed the sale of 67% of the outstanding equity in its business that owns and operates distributed generation solar power projects operated under the Vibrant name in India (the “Vibrant Transaction”). The post-sale results of the Company’s ownership interest in Vibrant are recorded through the equity method of accounting within the Corporate and Other operating segment. As such, the Company’s consolidated financial statements do not include revenue and operating expenses from Vibrant, but instead, “other income (expense)” within the Corporate and Other operating segment includes the Company’s share of Vibrant’s profits or losses. The Company will continue to present the historical results of its Renewable Energy segment for comparative purposes.
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The table below identifies the assets and liabilities transferred (in thousands):
| | |
Consideration Received | $ | 35,218 |
Assets and liabilities disposed | | |
Current assets | | 4,899 |
Property, plant and equipment | | 45,891 |
Other assets | | 439 |
Current liabilities | | (759) |
Net assets disposed | $ | 50,470 |
| | |
Consideration less net assets disposed | | (15,252) |
| | |
Foreign currency losses reclassified from accumulated other comprehensive income | | (6,258) |
| | |
Loss on sale | | (21,510) |
Transaction costs | | (1,283) |
Loss on sale including transaction costs | $ | (22,793) |
The Company reported a loss on sale of $21.5 million during the year ended December 31, 2020 due to the Vibrant Transaction. The Company recorded transaction costs of $1.3 million on the Vibrant Transaction, of which $0.7 million was recorded during the year ended December 31, 2020 and $0.6 million was recorded during the year ended December 31, 2021. The consideration received includes $19.5 million of cash and $3.9 million of receivables related to the amounts held in escrow and earn out consideration. The Company has recorded $11.8 million pursuant to an equity method investment with respect to its remaining 33% ownership interest in Vibrant. The Company is assessing earn out and escrow amounts which will be finalized in 2023. During the year ended December 31, 2021, the Company recorded additional losses of $1.6 million related to the ongoing working capital, escrow, and contingent consideration assessment. During the three months ended June 30, 2022, the Company received $1.8 million of amounts previously held in escrow. The Company has 24 months after the close of the transaction to satisfy the conditions necessary to receive the earn-out consideration.
The Vibrant Transaction does not qualify as discontinued operations because the disposition was not a strategic shift which will have a major effect on the Company’s operations, and as a result, the historical results and financial position of the operations are presented within continuing operations.
2022.
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7. FAIR VALUE MEASUREMENTS AND INVESTMENTS
In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, and defines fair value based upon an exit price model.
The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
| | |
Level 1 | | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market. |
| | |
Level 2 | | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes corporate obligations and non-exchange traded derivative contracts. |
| | |
Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments and intangible assets that have been impaired whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
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Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2022March 31, 2023 and December 31, 20212022 are summarized as follows (in thousands):
| | | | | | | | | |
| | March 31, 2023 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,694 | | | 1,694 |
Alaska Communications redeemable common units | | | — | | | (22,266) | | | (22,266) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (654) | | | (654) |
Total assets and liabilities measured at fair value | | $ | 300 | | $ | (35,986) | | $ | (35,686) |
| | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||
| | Significant Other | ||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | |||
| | Active Markets | | Inputs | | Inputs | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||
Money market funds | | $ | 2,822 | | $ | — | | $ | — | | $ | 2,822 |
Short term investments | | | 300 | | | — | | | — | | | 300 |
Other investments | | | — | | | — | | | 1,961 | | | 1,961 |
Alaska Communications redeemable common units | | | — | | | — | | | (22,640) | | | (22,640) |
Warrants on Alaska Communications redeemable common units | | | — | | | — | | | (559) | | | (559) |
Total assets and liabilities measured at fair value | | $ | 3,122 | | $ | — | | $ | (21,238) | | $ | (18,116) |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | Significant Other | ||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | |||
| | Active Markets | | Inputs | | Inputs | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||
Money market funds | | $ | 3,301 | | $ | — | | $ | — | | $ | 3,301 |
Short term investments | | | 300 | | | — | | | — | | | 300 |
Other investments | | | — | | | — | | | 1,925 | | | 1,925 |
Alaska Communications redeemable common units | | | — | | | — | | | (22,640) | | | (22,640) |
Warrants on Alaska Communications redeemable common units | | | — | | | — | | | (559) | | | (559) |
Interest rate swap | | | — | | | (894) | | | — | | | (894) |
Total assets and liabilities measured at fair value | | $ | 3,601 | | $ | (894) | | $ | (21,274) | | $ | (18,567) |
During the six months ended June 30, 2022, the fair value of the remaining Level 3 investments increased $0.1 million due to income recognized in the other income line of the Company’s statement of operations.
Certificate of Deposit
As of June 30, 2022 and December 31, 2021 this asset class consisted of a time deposit at a financial institution denominated in US dollars. The asset class is classified within Level 2 of the fair value hierarchy because the fair value was based on observable market data.
Money Market Funds
As of June 30, 2022 and December 31, 2021, this asset class consisted of a money market portfolio that comprises Federal government and US Treasury securities. The asset class is classified within Level 1 of the fair value hierarchy because its underlying investments are valued using quoted market prices in active markets for identical assets.
| | | | | | | | | |
| | December 31, 2022 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,616 | | | 1,616 |
Alaska Communications redeemable common units | | | — | | | (22,557) | | | (22,557) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (654) | | | (654) |
Total assets and liabilities measured at fair value | | $ | 300 | | $ | (36,355) | | $ | (36,055) |
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Other Investments
The Company holds investments in equity securities consisting of noncontrolling investments in privately held companies. The investments are accounted for using equity method accounting, the measurement alternative for investments without a readily determinable fair value, or fair value. In the first quarter of 2021, the Company began to account for its former India solar operations under the equity method of accounting. The fair value investments are valued using level 3 inputs and the Company used the income approach to fair value the investment. The inputs consisted of a discount rate and future cash flows calculated based on the investment attributes. A roll forward of the investments is below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Investments without a readily determinable fair value | | Fair value investments | | Equity investments | | Total | | Investments without a readily determinable fair value | | Fair value investments | | Equity investments | | Total | ||||||||
Balance, December 31, 2022 | | $ | 22,590 | | $ | 1,616 | | $ | 13,963 | | $ | 38,169 | ||||||||||||
Income recognized | | | — | | | 77 | | | 238 | | | 315 | ||||||||||||
Contributions | | | — | | | — | | | 630 | | | 630 | ||||||||||||
Foreign currency gain | | | — | | | — | | | 111 | | | 111 | ||||||||||||
Balance, March 31, 2023 | | $ | 22,590 | | $ | 1,693 | | $ | 14,942 | | $ | 39,225 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Balance, December 31, 2021 | | $ | 17,820 | | $ | 1,925 | | $ | 28,699 | | $ | 48,444 | | $ | 17,820 | | $ | 1,925 | | $ | 28,699 | | $ | 48,444 |
Income recognized | | | — | | | 205 | | | (1,645) | | | (1,440) | ||||||||||||
Contributions / (distributions) | | | — | | | (169) | | | 1,400 | | | 1,231 | ||||||||||||
Foreign currency loss | | | — | | | — | | | (1,423) | | | (1,423) | ||||||||||||
Income (loss) recognized | | | — | | | 99 | | | (662) | | | (563) | ||||||||||||
Foreign currency gain | | | — | | | — | | | 256 | | | 256 | ||||||||||||
Gain recognized | | | 4,770 | | | — | | | — | | | 4,770 | | | 4,770 | | | — | | | — | | | 4,770 |
Balance, June 30, 2022 | | $ | 22,590 | | $ | 1,961 | | $ | 27,031 | | $ | 51,582 | ||||||||||||
Balance, March 31, 2022 | | $ | 22,590 | | $ | 2,024 | | $ | 28,293 | | $ | 52,907 |
These investments are included with other assets on the consolidated balance sheets.
Redeemable Common Units and Warrants
The Company has issued redeemable common units, and warrants to purchase additional common units, in a subsidiaryconsolidated subsidiaries of the Company in conjunction with its acquisition of Alaska Communications (Refer to Note 6).Company. The instruments are redeemable at the option of the holder. Both the common units and warrants to purchase common units are recorded at fair value in the Company’s financial statements. The common units are recorded in redeemable noncontrolling interest and the warrants are recorded in other liabilities on the Company’s balance sheets. The put options for the Alloy redeemable common units begins in 2026. The put options for the Alaska Communications redeemable common units begin the earlier of a public offering or 2028. The Company calculates the fair value of the instruments using a market approach with Level 3 inputs.
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Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. The fair value of the interest rate swap is measured using Level 2 inputs.
The fair value of long-term debt is estimated using Level 2 inputs. At June 30,March 31, 2023, the fair value of long-term debt, including the current portion, was $519.0 million and its book value was $512.8 million. At December 31, 2022, the fair value of long-term debt, including the current portion, was $403.5$473.7 million and its book value was $396.6$467.2 million. At December 31, 2021, the fair value
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8. LONG-TERM DEBT
CoBank Credit Facility
On April 10, 2019, the Company entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (the(as amended, the “2019 CoBank Credit Facility”). The 2019 CoBank Credit Facility provides for a $200$200 million revolving credit facility that includes (i) up to $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $26.0$24.0 million of performance letters of credit have been issued and remain outstanding and undrawn as of June 30, 2022.March 31, 2023. The 2019 CoBank Credit Facility matures on April 10, 2024.
Refer to Liquidity disclosure in Note 1 regarding the maturity of the facility.
Amounts borrowed under the 2019 CoBank Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging between 1.25% to 2.25% or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.25%. Swingline loans bear interest at the base rate plus the applicable margin for base rate loans. The base rate is equal to the higher of (i) 1.00% plus the higher of (x) LIBOR for an interest period of one month and (y) LIBOR for an interest period of one week; (ii) the Federal Funds Effective Rate (as defined in the 2019 CoBank Credit Facility) plus 0.50% per annum; and (iii) the Prime Rate (as defined in the 2019 CoBank Credit Facility). The applicable margin is determined based on the Total Net Leverage Ratio (as defined in the 2019 CoBank Credit Facility). Under the terms of the 2019 CoBank Credit Facility, the Company must also pay a commitment fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
On November 7, 2022, the Company further amended the 2019 CoBank Credit Facility to allow for the incurrence of certain indebtedness related to payment guarantees in connection with its Replace and Remove project.
On December 28, 2022, the Company further amended the 2019 CoBank Credit Facility, effective November 7, 2022, to allow for certain transactions contemplated with the Sacred Wind Transaction.
The 2019 CoBank Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. The Company’s investments in “unrestricted” subsidiaries and certain dividend payments to itsour stockholders are not limited unless the Total Net Leverage Ratio is equal to or greater than 1.75 to 1.0. The Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 2.75 to 1.0. In the event of a Qualifying Acquisition (as defined in the 2019 CoBank Credit Facility), the Total Net Leverage Ratio increases to 3.25 to 1.0 for the subsequent three fiscal quarters.
The 2019 CoBank Credit Facility also provides for the incurrence by the Company of incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not to exceed $200 million (the “Accordion”). Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant.
As of June 30, 2022,March 31, 2023, the Company was in compliance with all of the financial covenants, had $78.0$122.0 million outstanding in borrowings and net of the $26.0$54.0 million of availability in connection with the 2019 CoBank Credit Facility. There are no outstanding performance letters of credit, had $96.0 million of availabilityinterest rate hedge agreements under the 2019 CoBank Credit Facility. Facility as of March 31, 2023.
Letter of Credit Facility
On November 14, 2022, the Company entered into a General Agreement of Indemnity to issue performance Standby Letters of Credit on behalf of the Company and its subsidiaries. As of March 31, 2023, $4.2 million of Standby Letters of Credit had been issued under this agreement.
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Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a Credit Agreement (the “Alaska Credit Facility”) with Fifth Third Bank, National Association, as Administrative Agent, and a syndicate of lenders to provide a $35.0 million revolving facility (the “Alaska Revolving Facility”) and a $210.0 million initial term loan facility (the “Alaska Term Loan”).
On December 23, 2022, Alaska Communications entered into a First Amendment Agreement (the “ACS Amendment’). The ACS Amendment amends the Alaska Credit Facility to increase its Revolving Credit Commitment from $35.0 million to $75.0 million and Term Loan Commitment from $210 million to $230 million. As a part of the transaction, the Term Loan commitment was fully funded as the outstanding Revolving Credit Commitment balance was transferred.
As of June 30, 2022, $210.0March 31, 2023, Alaska Communications had drawn $17.0 million was outstanding under the Alaskaon its Revolving Credit Commitment and had $58.0 million is available to draw. The Term Loan balance was $230.0 million and $10.0 million was outstanding underprincipal payments commence in the Alaska Revolving Facility.fourth quarter of 2023. Both facilities mature on July 22, 2026.2026
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TableIn addition to the above changes, the ACS Amendment replaced the calculation of Contentsinterest from an applicable margin applied to LIBOR with the same applicable margin applied to the Secured Overnight Financing Rate (“SOFR”) plus a 10-basis point adjustment.
The Company capitalized $6.6$7.3 million of fees associated with the Alaska Credit Facility which are being amortized over the life of the debt and $5.6$5.0 million of such fees were unamortized at June 30, 2022.as of March 31, 2023.
The Alaska Credit Facility also provides for incremental term loansfacilities up to an aggregate principal amount of the greater of $70.0 million and Alaska Communications’ trailing twelve monthtwelve-month Consolidated EBITDA (as defined in the Alaska Credit Facility).
The key terms and conditions of the Alaska Credit Facility include the following:
● | Amounts outstanding bear an interest rate of |
● | Principal repayments are due quarterly commencing in the fourth quarter of 2023 in quarterly amounts as follows: from the fourth quarter of 2023 through the third quarter of 2024, |
● | Alaska Communications is required to maintain financial ratios |
● | The Alaska Credit Facility is non-recourse to the Company and is secured by substantially all of the personal property and certain material real property owned by Alaska Communications. |
Alaska Communication’s interest rate swap, which had been designated as a cash flow hedge with an interest rate of 1.6735%, expired on June 30, 2022. As of March 31, 2023, there are no outstanding interest rate hedge agreements associated with the Alaska Credit Facility.
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Alaska Term Facility
On June 15, 2022, Alaska Communications Systems Holdings, the parent company of Alaska Communications, entered a secured lending arrangement with Bristol Bay Industrial, LLC. (the “Alaska Term Facility”).
The Alaska Term Facility provides for a secured delayed draw term loan in an aggregate principal amount of up to $7.5 million and the proceeds may be used to pay certain invoices from a contractor for work performed in connection with a fiber build. Interest on the Alaska Term Facility accrues at a fixed rate of 4.0% and is payable commencing on March 31, 2023. Scheduled quarterly payments of principal commenced on March 31, 2023. The Alaska Term Facility matures on June 30, 2024.
The Alaska Term Facility contains events of default customary for facilities of this type.
As of March 31, 2023, the Company had $7.1 million outstanding and no available borrowings under the Alaska Term Facility.
FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into a receivables credit facility with the Company, Commnet Wireless, and CoBank, ACB (the “Receivables Credit Facility”).
The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75.0 million and the proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the Receivables Credit Facility, which provide the loan security, relate to the obligations of AT&T under the FirstNet Agreement.
On December 29, 2021,23, 2022, CoBank amended the Receivables Credit Facility and extended the delayed draw period to December 31, 2022.
2023.
The maturity date for each loan will be set by CoBank and will match the weighted average maturity of the certain receivables financed.
Interest on the loans accrues at a fixed annual interest rate to be quoted by CoBank.
The Receivables Credit Facility contains customary events of termination, representations and warranties, affirmative and negative covenants and events of default customary for facilities of this type.
As of June 30, 2022,March 31, 2023, the Company had $41.3$48.7 million outstanding, of which $5.3$6.6 million was current, and $29.7$18.0 million of availability under the Receivables Credit Facility. The Company capitalized $0.90.8 million ofin fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.7$0.6 million were unamortized as of March 31, 2023.
GTT Credit Facilities
On September 5, 2022, GTT received approval from Republic Bank (Guyana) Limited for a $2.9 million term facility and a $5.7 million overdraft facility (the “GTT Credit Facilities”) subject to the approval from the Minister of Finance at June 30, 2022. the Bank of Guyana. Such approval from the Minister of Finance was received during the quarter ended March 31, 2023.
The GTT Credit Facilities are secured by real estate assets and carry a fixed interest rate of 7.5% which will be reviewed by the bank from time to time and subject to change at the bank’s discretion. The term facility is repayable
2723
over five years in equal monthly installments of principal and interest, commencing one month after funds are advanced. The overdraft facility will expire on October 11, 2023.
As of March 31, 2023, $3.6 million was outstanding on the overdraft facility and there were no outstanding amounts under the term facility.
Sacred Wind Term Debt
In connection with the Sacred Wind Transaction completed on November 7, 2022, the Company assumed $31.6 million of term debt (the “Sacred Wind Term Debt”) with the United States of America acting through the Administrator of the Rural Utilities Service (“RUS”). The loan agreements are dated as of October 23, 2006 and March 17, 2016. RUS provides financial assistance in the form of loans under the Rural Electrification Act of 1936 to furnish or improve telecommunications and/or broadband services in rural areas.
The Sacred Wind Term Debt is secured by substantially all assets of Sacred Wind and an underlying mortgage to the United States of America. These mortgage notes are to be repaid in equal monthly installments covering principal and interest beginning after the date of issue and expiring by 2035.
The Sacred Wind Term Debt contains certain restrictions on the declaration or payment of dividends, redemption of capital stock or investment in affiliated companies without the consent by the RUS noteholders. The agreements also contain a financial covenant which Sacred Wind was not in compliance with as of December 31, 2021. Sacred Wind submitted a corrective action plan to comply with the financial covenant as of December 31, 2025. On May 5, 2022, Sacred Wind’s corrective action plan was accepted by the RUS. As of March 31, 2023, the Company was in compliance with that corrective action plan.
As of March 31, 2023, $30.6 million was outstanding under the Sacred Wind Term Debt. Of that amount, $3.2 million was current and $27.4 million was long term.
Viya Debt
The Company, and certain of its subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% per annum and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us. With RTFC’s consent, the Company funded the restoration of Viya’s network, following Hurricanes Irma and Maria in 2017, through an intercompany loan arrangement in the amount of $51.6 million.
The Company paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya Debt. The fee was recorded as a reduction to the Viya Debt carrying amount and is being amortized over the life of the loan.
As of June 30, 2022,March 31, 2023, $60.0 million of the Viya Debt remained outstanding and $0.4$0.3 million of the rate lock fee was unamortized.
On May 5, 2022, RTFC agreed to amend the Net Leverage Ratio to 7.0 to 1.0 through the maturity date of July 1, 2026. This covenant will beThe Ratio is tested onannually and the Company was in compliance with the Net Leverage Ratio as of December 31, 2022.
One Communications Debt
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The Company hashad an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to maturematured and was repaid in full on August 31, 2022 and bearsDecember 22, 2022. This loan bore interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75% per annum paid quarterly.
Debt Maturity
The One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and financial covenants, tested annually as of and fortable below summarizes the twelve months ended December 31st, that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (as defined in the One Communications Debt agreement).
As of June 30, 2022, $3.8 millionannual maturities of the One Communications Debt was outstanding. Company’s debt instruments (amounts in thousands).
| | | | | | | | | | |
| | | | | | | | | Customer | |
| US | | International | | Total | Receivable | ||||
| Telecom | | Telecom | | Debt | Credit Facility | ||||
2023 (excluding the three months ended March 31, 2023) | $ | 4,998 | | $ | 3,553 | | $ | 8,551 | $ | 4,904 |
2024 | | 138,536 | | | — | | | 138,536 | | 6,787 |
2025 | | 14,969 | | | — | | | 14,969 | | 7,083 |
2026 | | 230,469 | | | 60,000 | | | 290,469 | | 7,393 |
2027 | | 3,723 | | | — | | | 3,723 | | 7,718 |
Thereafter | | 14,028 | | | — | | | 14,028 | | 14,794 |
Total | | 406,723 | | | 63,553 | | | 470,276 | | 48,679 |
Debt Discounts | | (5,277) | | | (318) | | | (5,595) | | (572) |
Book Value | | 401,446 | | | 63,235 | | | 464,681 | | 48,107 |
9. GOVERNMENT SUPPORT AND SPECTRUM MATTERS
Universal Service Fund and Connect America Fund Phase II Programs
The Company recognizes revenue from several government funded programs including the Universal Service Fund (“USF”), a subsidy program managed by the Federal Communications Commission (“FCC”), and the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”)., and the Emergency Connectivity Fund (“ECF”), a program to help schools and libraries support remote learning in underserved communities. USF funds are disbursed to telecommunication providers through 4four programs: the High Cost Program; the Low Income Program (“Lifeline Program”); the Schools and Libraries Program (“E-Rate Program”); and the Rural Health Care Support Program.
The Company also recognizes revenue from the Connect America Fund Phase II program (“CAF II”) which offers subsidies to carriers to expand broadband coverage in designated areas. Under CAF II, the Company’s US Telecom segment will receive an aggregate of $27.7 million annually through December 2025 and an aggregate of $8.0 million annually from January 2026 through July 2028.
All of the programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of March 31, 2023. Revenue recognized from the USF and CAFII programs is recognized as revenue from government grants. Revenue from other programs is recognized in accordance with ASC 606.
RDOF (“Rural Digital Opportunities Fund”)
The Company expects to receive approximately $22.7 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”). Revenue recognized from the RDOF program is recognized as revenue from government grants.
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Both the USF and CAFII programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of June 30, 2022. Revenue recognized from the USF and CAFII programs is recognized as revenue from government grants. Revenue from other programs is recognized in accordance with ASC 606.
RDOF (“Rural Digital Opportunities Fund”)
The Company expects to receive approximately $20.1 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”).
The Company recorded the amounts below as communication services revenue for the reported periods:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended | Three months ended | |||||||||||||||||||||
| June 30, 2022 | | June 30, 2022 | March 31, 2023 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| US Telecom | | International Telecom | | Total | | US Telecom | | International Telecom | | Total | US Telecom | | International Telecom | | Total | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
High cost support | $ | 989 | | $ | 2,761 | | $ | 3,750 | | $ | 2,045 | | $ | 5,522 | | $ | 7,567 | $ | 2,494 | | $ | 1,397 | | $ | 3,891 |
CAF II | | 6,822 | | | — | | | 6,822 | | | 13,644 | | | — | | | 13,644 | | 6,815 | | | — | | | 6,815 |
RDOF | | 478 | | | — | | | 478 | | | 956 | | | — | | | 956 | | 608 | | | — | | | 608 |
Other Programs | | 6,167 | | | 22 | | | 6,189 | | | 11,228 | | | 37 | | | 11,265 | | 15,660 | | | 4 | | | 15,664 |
Total | $ | 14,456 | | $ | 2,783 | | $ | 17,239 | | $ | 27,873 | | $ | 5,559 | | $ | 33,432 | $ | 25,577 | | $ | 1,401 | | $ | 26,978 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended | Three months ended | |||||||||||||||||||||
| June 30, 2021 | | June 30, 2021 | March 31, 2022 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| US Telecom | | International Telecom | | Total | | US Telecom | | International Telecom | | Total | US Telecom | | International Telecom | | Total | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
High cost support | $ | 311 | | $ | 4,295 | | $ | 4,606 | | $ | 622 | | $ | 8,385 | | $ | 9,007 | $ | 1,056 | | $ | 2,761 | | $ | 3,817 |
CAF II | | 1,899 | | | — | | | 1,899 | | | 3,798 | | | — | | | 3,798 | | 6,822 | | | — | | | 6,822 |
Other Programs | | 1,777 | | | 10 | | | 1,787 | | | 3,894 | | | 25 | | | 3,919 | | 5,554 | | | — | | | 5,554 |
Total | $ | 3,987 | | $ | 4,305 | | $ | 8,292 | | $ | 8,314 | | $ | 8,410 | | $ | 16,724 | $ | 13,432 | | $ | 2,761 | | $ | 16,193 |
In 2018, the FCC initiated a proceeding to replace the High Cost Program support received by Viya in the US Virgin Islands with a new Connect USVI Fund. On November 16, 2020, the FCC announced that Viya was not the recipient of the Connect USVI Fund award and authorized funding to be issued to the new awardee in June 2021. Pursuant to the terms of the program and effective in July 2021, Viya’s annual USF support was reduced from $16.4 million to $10.9 million. In July 2022, this support was scheduled to be reduced again to $5.5 million for the annual period through June 2023. Thereafter, Viya is not expected to receiveIn April of 2023, the FCC issued an order extending the high cost support underin the High Cost Program.US Virgin Islands at the current $5.5 million per year received from July 2023 through December 31, 2025. In connection with this order, the FCC requires that the Company maintain its current footprint for voice and broadband services in the US Virgin Islands.
Construction Grants
The Company has also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse the Company for its construction costs, is distributed upon completion of a project. As of December 31, 2021, the Company had been awarded approximately $27.9 million of such grants. The Company was awarded $0.4 million of additional grants and cancelled $2.1 million of previously awarded grants in the six months ended June 30, 2022. Of the $26.2 million of retained awards, the Company has completed its construction obligations on $17.1 million of these projects and $9.1 million of such construction obligations remain with
29
completionCompletion deadlines beginningbegin in June 2023. Once2023 and once these projects are constructed, the Company is obligated to provide service to the participants. The Company expects to meet all requirements associated with these grants. A roll forward of the Company’s grant awards is below (in thousands).
During July 2022, we were awarded a grant for approximately $10 million to provide fiber connectivity to certain areas within southern Apache County, Arizona. We are currently assessing the impact that this award will have on our financial statements.
| | |
| Amount | |
Grants awarded, December 31, 2022 | $ | 80,197 |
New grants | | 4,364 |
Grants awarded, March 31, 2023 | $ | 84,561 |
In addition, the Company partners with tribal governments to obtain grants under the Tribal Broadband Connectivity Program ("TBCP"). The TBCP is a program administered by the National Telecommunications and Information Administration to deploy broadband connectivity on tribal lands. The Company was identified as a sub recipient of TBCP grants totaling $145.5 million as of March 31, 2023.
26
Replace and Remove Program
On July 15, 2022, the Company was notified that it was an approved participant in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the Replace and Remove Program, the Company was allocated up to approximately $207 million in reimbursement amounts to cover documented and approved costs to remove and securely destroy all ZTE communications equipment and services in its U.S. networks and replace such equipment. The Replace and Remove Program requires that the Company complete its first request for reimbursement for services performed under the program no later than July 14, 2023, and that it complete the project no later than one year from submitting its initial reimbursement request. The Company is currently assessing the impact of this program on its financial statements and anticipates that it will be able to meet the deadlines and requirements of the program.
CARES Act
As of December At March 31, 2020,2023, the Company had received $16.3established a receivable for $6.7 million of fundingcosts for which it expects to be reimbursed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to construct network infrastructure within the Company’s US Telecom segment. During the year ended December 31, 2021, the Company received an additional $2.4 million of funding for the same purpose. The construction was completed as of December 31, 2021 and $18.4 million of the funding was recorded as a reduction to property, plant and equipment with a subsequent reduction to depreciation expense. The remaining $0.3 million was recorded as a reduction to operating expense in the year ended December 31, 2021.
CBRS Auction
During the third quarter of 2020, the Company participated in the FCC’s Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. The Company was a winning bidder for PALs located strategically throughout the United States at a total cost of approximately $20.4 million. In the third quarter of 2022, the Company surrendered a portion of the PALs that it won in the auction in exchange for repayment of the approximately $1.1 million paid for such licenses, and entered into a Consent Decree with the FCC with respect to such surrender and receipt of the remaining licenses. In connection with the awarded licenses, the Company will have to achieve certain CBRS spectrum build out obligations. The Company currently expects to comply with all applicable requirements related to these licenses.program.
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10. RETIREMENT PLANS
Multi-employer Defined Benefit Plan
Pension benefits for substantially all of the Company’s Alaska-based employees are provided through the Alaska Electrical Pension Fund (“AEPF”). The Company pays a contractual hourly amount based on employee classification or base compensation to the AEPF. As a multi-employer defined benefit plan, the accumulated benefits and plan assets are not determined for, or allocated separately to, the individual employer. This plan was not in endangered or critical status during the plan year.
Defined Benefit Plan
The Company has noncontributory defined benefit pension and noncontributory defined medical, dental, vision, and life benefit plans for eligible employees in its International Telecom segment who meet certain eligibility criteria. As partThe majority of benefits under the Alaska Transaction,plans are frozen and the Company acquired a defined benefit pension plan and a post-retirement medical plan covering certain employees. The pension plan had a projected benefit obligation of $15.4 million and plan assets of $12.1 million on July 22, 2021. The post-retirement medical plan is unfunded and had a projected benefit obligation of $0.4 million on July 22, 2021.plans no longer allow new participants to join.
The Company recorded the net periodic benefit cost identified below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended | Three months ended | ||||||||||||||||||||||||||||||
| June 30, 2022 |
| June 30, 2021 | | June 30, 2022 |
| June 30, 2021 | March 31, 2023 |
| March 31, 2022 | ||||||||||||||||||||||||
| Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | ||||||||||||
Operating expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | $ | 57 | | $ | 36 | | $ | 54 | | $ | 35 | | $ | 114 | | $ | 72 | | $ | 108 | | $ | 70 | $ | 38 | | $ | 31 | | $ | 57 | | $ | 36 |
Non-operating expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest cost | | 565 | | | 33 | | | 572 | | | 41 | | | 1,130 | | | 66 | | | 1,144 | | | 82 | | 593 | | | 35 | | | 565 | | | 33 |
Expected return on plan assets |
| (925) | |
| — | | | (687) | |
| — | |
| (1,850) | |
| — | | | (1,374) | |
| — |
| (953) | |
| — | | | (925) | |
| — |
Settlements | | (1,725) | | | — | | | — | | | — | | | (1,725) | | | — | | | — | | | — | | 369 | | | — | | | — | | | — |
Net periodic pension expense (benefit) | $ | (2,028) | | $ | 69 | | $ | (61) | | $ | 76 | | $ | (2,331) | | $ | 138 | | $ | (122) | | $ | 152 | $ | 47 | | $ | 66 | | $ | (303) | | $ | 69 |
The Company was not required to make contributions to its pension plans during the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. However, the Company periodically evaluates whether to make discretionary contributions. The Company funds its postretirement benefit plans as claims are made and did not make contributions to its pension plans during the three months ended June 30, 2022March 31, 2023 and 2021.
2022.
11. INCOME TAXES
The Company’s effective tax rate for the three months ended June 30,March 31, 2023 and 2022 was 9.5% and 2021 was 75.2% and (88.2%)296.7%, respectively.
The Company recorded an income tax benefit of $4.0$0.7 million in relation to a pretax loss of $5.3$7.8 million for the three months ended June 30, 2022.March 31, 2023. The effective tax rate for the three months ended June 30, 2022 was primarily impacted by the following items (i) the mix of income generated among the jurisdictions in which the Company operates and (ii) discrete items including a $3.3 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $0.3 million expense for interest on unrecognized tax positions.
March 31,
The effective tax rate for the three months ended June 30, 2021 was primarily impacted by the following items: (i) the mix of income generated among the jurisdictions in which the Company operates and (ii) discrete items including a $3.4 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $0.5 million expense for interest on unrecognized tax positions.
The Company’s effective tax rate for the six months ended June 30, 2022 and 2021 was 23.8% and (19.7%), respectively.
The Company recorded an income tax benefit of $1.0 million in relation to a pretax loss of $4.3 million for the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2022 2023 was primarily impacted by the following items (i) the mix of income generated among the jurisdictions in which the Company operates, (ii) a net increase related to valuation allowances placed on certain deferred tax assets and (iii) discrete items including $0.6 million of expense for interest on unrecognized tax positions.
The Company recorded an income tax provision of $ 3.0 million in relation to income before taxes of $1.0 million for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2022 was primarily impacted by the following items: (i) a $ 0.5 million net increase of unrecognized tax positions recognized discretely, (ii) a $ 2.1 million net expense recognized discretely to record a valuation allowance on certain deferred tax
28
assets that are not expected to be realizable based on the weight of positive and negative evidence, and (iii) discrete items including a $3.3 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration, and a $0.8 million expense for interest on unrecognized tax positions.
The effective tax rate for the six months ended June 30, 2021 was primarily impacted by the following items: (i) the mix of income generated among the jurisdictions in which the Company operates and (ii) discrete items including a $3.4 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $1.0 million expense for interest on unrecognized tax positions.
operates.
The Company’s effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. The Company’s consolidated tax rate will continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which the Company operates. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from the Company’s accrued positions as a result of uncertain and complex applications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgments by management. Accordingly, the Company could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
12. EARNINGS PER SHARE AND REDEEMABLE NONCONTROLLING INTERESTS
Earnings Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share (in thousands):
| | | | | |
| Three months ended March 31, | ||||
| 2023 | | 2022 | ||
Numerator: | | | | | |
Net Loss attributable to ATN International, Inc. stockholders- Basic | | (5,885) | | | (948) |
Less: Preferred dividends | | (1,045) | | | (1,116) |
Net Loss attributable to ATN International, Inc. common stockholders- Diluted | $ | (6,930) | | $ | (2,064) |
| | | | | |
Denominator: | | | | | |
Weighted-average shares outstanding- Basic | | 15,768 | | | 15,708 |
Effective of dilutive securities: | | | | | |
Stock options, restricted stock units and performance stock units | | — | | | — |
Weighted-average shares outstanding- Diluted | | 15,768 | | | 15,708 |
3229
12. EARNINGS PER SHARE AND REDEEMABLE NONCONTROLLING INTERESTS
Earnings Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share (in thousands):
| | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, | ||||||||
| 2022 | | 2021 | | 2022 | | 2021 | ||||
Numerator: | | | | | | | | | | | |
Net income (loss) attributable to ATN International, Inc. stockholders | | (525) | | | 2,019 | | | (1,471) | | | 4,723 |
Less: Preferred dividends | | (1,154) | | | — | | | (2,270) | | | — |
Net income (loss) attributable to ATN International, Inc. common stockholders | $ | (1,679) | | $ | 2,019 | | $ | (3,741) | | $ | 4,723 |
| | | | | | | | | | | |
Denominator: | | | | | | | | | | | |
Weighted-average shares outstanding- Basic | | 15,749 | | | 15,912 | | | 15,736 | | | 15,907 |
Effective of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock units and performance stock units | | — | | | 9 | | | — | | | 23 |
Weighted-average shares outstanding- Diluted | | 15,749 | | | 15,921 | | | 15,736 | | | 15,930 |
For each of the three and six months ended June 30, 2021, the calculations of basic and diluted weighted average shares of common stock outstanding do not include 5,000 shares relating to stock options as the effects of those options were anti-dilutive.
Redeemable Noncontrolling Interests
In connection with the Alaska Transaction,certain acquisitions, the Company has accountedaccounts for the Freedom 3 Investmentthird-party non-controlling minority investments as redeemable noncontrolling interests, which consist of both redeemable common and, in some instances, preferred units, in its consolidated financial statements. The redeemable noncontrolling interests consist of $22.6 million of redeemable common units and $48.3
million of redeemable preferred units. The common units contain a put optionoptions allowing the holder to sell at a future date, the common units to a subsidiary of the Company at the then fair market value. The common units participate in the earnings and losses of the subsidiaries and are allocated their applicable share of earning and losses. After the allocation of earnings and losses, the Company estimates the fair value of the common units and adjusts the book value of the common units to that estimated fair value.
The preferred units contain put option is solelyoptions allowing the obligationholder to sell at a future date, the preferred units to a subsidiary of Alaska Communicationsthe Company at a fixed price equal to face value of the units plus unpaid dividends. The preferred units hold a distribution preference over common units and iscarry a fixed dividend rate.
The put options for both the common and preferred units, if any, are nonrecourse to the Company. The put option beginsCompany and exercisable at the earlier of a future initial public offering of the Alaska Communications operationssubsidiary or certain dates beginning in July 2028. The fair value of the common units remained at $22.6 million at June 30, 2022, unchanged from the value at July 22, 2021. The redeemable preferred equity carries a 9% preferred dividend which compounds quarterly. The preferred units contain a put option allowing the holder to sell the preferred units to a subsidiary of the Company at the unpaid issue price plus unpaid dividends. The put option is solely the obligation of Alaska Communications and is nonrecourse to the Company. The put option begins at the earlier of a future initial public offering of the Alaska Communications operations or July 2028. The unpaid preferred dividend was $4.3 million at June 30, 2022.
For the three and six months ended June 30,March 31, 2023 and 2022, the Company allocated losses of $0.6$2.8 million and $1.7$1.1 million, respectively, to the redeemable common units representing their proportionate share of operating losses. Additionally,The Company then compared the book value of the common units to the fair value ofand the redeemable common unitsfair value exceeded the book value. As a result, the book value was increased by $1.7$2.5 million during the sixthree months ended June 30, 2022.
33
March 31, 2023.
The following table provides a roll forward of the activity related to the Company’s redeemable noncontrolling interests for the sixthree months ended June 30,March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | ||||||
Balance, December 31, 2021 | $ | 50,296 | | $ | 22,640 | | $ | 72,936 | ||||||||
Balance, December 31, 2022 | $ | 55,152 | | $ | 37,317 | | $ | 92,469 | ||||||||
Accrued preferred dividend | | 2,270 | | | — | | | 2,270 | | 1,045 | | | — | | | 1,045 |
Allocated net loss | | — | | | (1,678) | | | (1,678) | | — | | | (2,821) | | | (2,821) |
Change in fair value | | — | | | 1,678 | | | 1,678 | | — | | | 2,530 | | | 2,530 |
Balance, June 30, 2022 | $ | 52,566 | | $ | 22,640 | | $ | 75,206 | ||||||||
Balance, March 31, 2023 | $ | 56,197 | | $ | 37,026 | | $ | 93,223 |
| | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | |||
Balance, December 31, 2021 | $ | 50,296 | | $ | 22,640 | | $ | 72,936 |
Accrued preferred dividend | | 1,116 | | | — | | | 1,116 |
Allocated net loss | | — | | | (1,092) | | | (1,092) |
Change in fair value | | — | | | 1,092 | | | 1,092 |
Balance, March 31, 2022 | $ | 51,412 | | $ | 22,640 | | $ | 74,052 |
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13. SEGMENT REPORTING
The Company has the following 3two reportable and operating segments: i) International Telecom and ii) US Telecom, and iii) Renewable Energy.
Telecom.
The following tables provide information for each operating segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||
|
| | |
| |
| | |
| | | | | |
| | |
| |
| | | | | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Corporate and | | | | |||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | |||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 3,675 | | $ | 301 | | $ | — | | $ | — | | $ | 3,976 | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 |
Mobility - Consumer | | | 21,279 | | | 1,549 | | | — | | | — | | | 22,828 | | | 22,532 | | | 987 | | | — | | | 23,519 |
Total Mobility | | | 24,954 | | | 1,850 | | | — | | | — | | | 26,804 | | | 26,107 | | | 1,159 | | | — | | | 27,266 |
Fixed - Business | | | 16,996 | | | 31,866 | | | — | | | — | | | 48,862 | | | 17,113 | | | 36,320 | | | — | | | 53,433 |
Fixed - Consumer | | | 41,353 | | | 19,166 | | | — | | | — | | | 60,519 | | | 41,778 | | | 22,582 | | | — | | | 64,360 |
Total Fixed | | | 58,349 | |
| 51,032 | |
| — | |
| — | |
| 109,381 | | | 58,891 | |
| 58,902 | |
| — | |
| 117,793 |
Carrier Services | | | 3,421 | | | 31,753 | | | — | | | — | | | 35,174 | | | 3,690 | | | 32,084 | | | — | | | 35,774 |
Other | |
| 436 | | | — | | | — | | | — | | | 436 | |
| 400 | | | 75 | | | — | | | 475 |
Total Communication Services Revenue | |
| 87,160 | | | 84,635 | | | — | | | — | | | 171,795 | |
| 89,088 | | | 92,220 | | | — | | | 181,308 |
Construction | | | — | | | 3,297 | | | — | | | — | | | 3,297 | | | — | | | 590 | | | — | | | 590 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Managed Services | | | 1,246 | | | 3,159 | | | — | | | — | | | 4,405 | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Other Revenue | | | 1,246 | | | 3,159 | | | — | | | — | | | 4,405 | ||||||||||||
Total other revenue | | | 1,320 | | | 2,556 | | | — | | | 3,876 | |||||||||||||||
Total Revenue | | | 88,406 | | | 91,091 | | | — | | | — | | | 179,497 | | | 90,408 | | | 95,367 | | | — | | | 185,774 |
Depreciation | |
| 15,074 | |
| 17,763 | |
| — | |
| 980 | |
| 33,817 | ||||||||||||
Depreciation and amortization | |
| 14,186 | |
| 21,487 | |
| 731 | |
| 36,404 | |||||||||||||||
Amortization of intangibles from acquisitions | | | 394 | | | 2,856 | | | — | | | — | | | 3,250 | | | 380 | | | 2,867 | | | — | | | 3,247 |
Non-cash stock-based compensation | |
| 56 | |
| 79 | |
| — | |
| 2,433 | |
| 2,568 | |
| 67 | |
| 77 | |
| 1,634 | |
| 1,778 |
Operating income (loss) | |
| 11,646 | |
| (281) | |
| (22) | |
| (9,621) | |
| 1,722 | |
| 13,825 | |
| (4,342) | |
| (8,847) | |
| 636 |
3531
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||
For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||
|
| | |
|
|
| | |
| | |
| | |
| | |
|
|
| | |
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Corporate and | | | | |||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | |||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 1,298 | | $ | 342 | | $ | — | | $ | — | | $ | 1,640 | | $ | 3,616 | | $ | 374 | | $ | — | | $ | 3,990 |
Mobility - Consumer | | | 21,456 | | | 2,065 | | | — | | | — | | | 23,521 | | | 19,970 | | | 1,456 | | | — | | | 21,426 |
Total Mobility | | | 22,754 | | | 2,407 | | | — | | | — | | | 25,161 | | | 23,586 | | | 1,830 | | | — | | | 25,416 |
Fixed - Business | | | 16,855 | | | 2,031 | | | — | | | — | | | 18,886 | | | 17,254 | | | 27,145 | | | — | | | 44,399 |
Fixed - Consumer | | | 42,271 | | | 3,846 | | | — | | | — | | | 46,117 | | | 41,093 | | | 18,968 | | | — | | | 60,061 |
Total Fixed | | | 59,126 | | | 5,877 | | | — | | | — | | | 65,003 | | | 58,347 | | | 46,113 | | | — | | | 104,460 |
Carrier Services | | | 2,523 | | | 20,038 | | | — | | | — | | | 22,561 | | | 3,402 | | | 32,989 | | | — | | | 36,391 |
Other | |
| 239 | | | — | | | — | | | — | | | 239 | |
| 276 | | | — | | | — | | | 276 |
Total Communication Services Revenue | |
| 84,642 | | | 28,322 | | | — | | | — | | | 112,964 | |
| 85,611 | | | 80,932 | | | — | | | 166,543 |
Construction | | | — | | | 9,325 | | | — | | | — | | | 9,325 | | | — | | | 1,987 | | | — | | | 1,987 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | — | | | — | | | — | ||||||||||||
Managed Services | | | 1,576 | | | — | | | — | | | — | | | 1,576 | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Other Revenue | | | 1,576 | | | — | | | — | | | — | | | 1,576 | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Revenue | | | 86,218 | | | 37,647 | | | — | | | — | | | 123,865 | | | 86,787 | | | 85,232 | | | — | | | 172,019 |
Depreciation | |
| 13,374 | | | 5,079 | | | — | | | 1,286 | |
| 19,739 | |
| 13,897 | | | 18,442 | | | 953 | |
| 33,292 |
Amortization of intangibles from acquisitions | | | 416 | | | — | | | — | | | — | | | 416 | | | 418 | | | 2,840 | | | — | | | 3,258 |
Non-cash stock-based compensation | |
| 10 | | | — | | | — | | | 2,165 | |
| 2,175 | |
| 60 | | | 90 | | | 1,311 | |
| 1,461 |
Operating income (loss) | |
| 14,643 | | | (556) | | | (771) | | | (10,411) | |
| 2,905 | |
| 11,802 | | | (4,635) | | | (7,059) | |
| 108 |
3632
| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2022 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 7,291 | | $ | 674 | | $ | — | | $ | — | | $ | 7,965 |
Mobility - Consumer | | | 41,249 | | | 3,006 | | | — | | | — | | | 44,255 |
Total Mobility | | | 48,540 | | | 3,681 | | | — | | | — | | | 52,220 |
Fixed - Business | | | 34,250 | | | 59,011 | | | — | | | — | | | 93,261 |
Fixed - Consumer | | | 82,446 | | | 38,136 | | | — | | | — | | | 120,583 |
Total Fixed | | | 116,696 | |
| 97,147 | |
| — | |
| — | |
| 213,843 |
Carrier Services | | | 6,823 | | | 64,742 | | | — | | | — | | | 71,565 |
Other | |
| 710 | | | — | | | — | | | — | | | 710 |
Total Communication Services Revenue | |
| 172,769 | | | 165,569 | | | — | | | — | | | 338,338 |
Construction | |
| — | | | 5,283 | | | — | | | — | | | 5,283 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | — | | | — | | | — |
Managed Services | | | 2,422 | | | 5,474 | | | — | | | — | | | 7,896 |
Total Other Revenue | | | 2,422 | | | 5,474 | | | — | | | — | | | 7,896 |
Total Revenue | | | 175,191 | | | 176,326 | | | — | | | — | | | 351,517 |
Depreciation | |
| 28,971 | | | 36,205 | | | — | | | 1,933 | |
| 67,109 |
Amortization of intangibles from acquisitions | | | 812 | | | 5,696 | | | — | | | — | | | 6,508 |
Non-cash stock-based compensation | |
| 116 | | | 169 | | | — | | | 3,743 | |
| 4,028 |
Operating income (loss) | |
| 23,450 | | | (4,914) | | | (45) | | | (16,658) | |
| 1,833 |
37
| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2021 | |||||||||||||||
|
| | |
| |
| | |
| | | | | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 2,495 | | $ | 918 | | $ | — | | $ | — | | $ | 3,413 |
Mobility - Consumer | | | 42,080 | | | 4,349 | | | — | | | — | | | 46,429 |
Total Mobility | | | 44,575 | | | 5,267 | | | — | | | — | | | 49,842 |
Fixed - Business | | | 33,488 | | | 4,728 | | | — | | | — | | | 38,216 |
Fixed - Consumer | | | 84,385 | | | 7,520 | | | — | | | — | | | 91,905 |
Total Fixed | | | 117,873 | |
| 12,248 | |
| — | |
| — | |
| 130,121 |
Carrier Services | | | 4,406 | | | 38,774 | | | — | | | — | | | 43,180 |
Other | |
| 456 | | | — | | | — | | | — | | | 456 |
Total Communication Services Revenue | |
| 167,310 | | | 56,289 | | | — | | | — | | | 223,599 |
Construction | | | — | | | 21,632 | | | — | | | — | | | 21,632 |
Other | | | | | | | | | | | | | | | |
Construction | | | — | | | — | | | — | | | — | | | �� |
Renewable Energy | | | — | | | — | | | 418 | | | — | | | 418 |
Managed Services | | | 2,726 | | | — | | | — | | | — | | | 2,726 |
Total Other Revenue | | | 2,726 | | | — | | | 418 | | | — | | | 3,144 |
Total Revenue | | | 170,036 | | | 77,921 | | | 418 | | | — | | | 248,375 |
Depreciation | |
| 26,803 | | | 10,272 | | | 188 | | | 2,586 | |
| 39,849 |
Amortization of intangibles from acquisitions | | | 813 | | | — | | | — | | | — | | | 813 |
Non-cash stock-based compensation | |
| 47 | | | — | | | 22 | | | 3,442 | |
| 3,511 |
Operating income (loss) | |
| 27,786 | | | (1,090) | | | (1,433) | | | (19,009) | |
| 6,254 |
38
Selected balance sheet data for each of the Company’s segments as of June 30, 2022March 31, 2023 and December 31, 20212022 consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| |
|
| | |
| | |
| |
| |
|
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Corporate and | | | | |||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | |||||||||
June 30, 2022 | | | | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and short term investments | | $ | 36,472 | | $ | 26,867 | | $ | 133 | | $ | 7,889 | | $ | 71,361 | ||||||||||||
March 31, 2023 | | | | | | | | | | | | | |||||||||||||||
Cash, cash equivalents, and short-term investments | | $ | 30,664 | | $ | 19,433 | | $ | 6,219 | | $ | 56,316 | |||||||||||||||
Total current assets | | | 107,004 | | | 108,005 | | | 1,243 | | | 8,028 | | | 224,280 | | | 113,711 | | | 110,108 | | | 7,733 | | | 231,552 |
Fixed assets, net | | | 453,245 | | | 478,443 | | | — | | | 8,585 | | | 940,273 | | | 468,961 | | | 580,633 | | | 6,769 | | | 1,056,363 |
Goodwill | |
| 4,835 | |
| 35,269 | |
| — | |
| — | | | 40,104 | |
| 4,835 | |
| 35,269 | |
| — | | | 40,104 |
Total assets | |
| 632,399 | |
| 864,324 | |
| 14,970 | |
| 84,061 | | | 1,595,754 | |
| 658,621 | |
| 959,395 | |
| 81,999 | | | 1,700,015 |
Total current liabilities | | | 85,703 | | | 91,138 | | | 356 | | | 26,587 | | | 203,784 | | | 88,967 | | | 96,844 | | | 19,573 | | | 205,384 |
Total debt | | | 63,378 | | | 255,269 | | | — | | | 78,000 | | | 396,647 | | | 63,235 | | | 327,553 | | | 122,000 | | | 512,788 |
December 31, 2021 | | | | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and short term investments | | $ | 43,128 | | $ | 28,486 | | $ | 659 | | $ | 7,628 | | $ | 79,901 | ||||||||||||
December 31, 2022 | | | | | | | | | | | | | |||||||||||||||
Cash, cash equivalents, and short-term investments | | $ | 25,345 | | $ | 22,679 | | $ | 6,936 | | $ | 54,960 | |||||||||||||||
Total current assets | | | 108,677 | | | 111,741 | | | 3,585 | | | 8,614 | | | 232,617 | | | 105,324 | | | 116,038 | | | 8,326 | | | 229,688 |
Fixed assets, net | | | 452,856 | | | 480,250 | | | — | | | 10,103 | | | 943,209 | | | 462,447 | | | 585,969 | | | 7,538 | | | 1,055,954 |
Goodwill | |
| 4,835 | |
| 35,269 | |
| — | |
| — | | | 40,104 | |
| 4,835 | |
| 35,269 | |
| — | | | 40,104 |
Total assets | |
| 630,515 | |
| 877,041 | |
| 17,481 | |
| 83,567 | | | 1,608,604 | |
| 643,664 | |
| 980,543 | |
| 83,662 | | | 1,707,869 |
Total current liabilities | | | 91,090 | | | 108,950 | | | 356 | | | 20,548 | | | 220,944 | | | 86,738 | | | 119,755 | | | 26,687 | | | 233,180 |
Total debt | | | 64,243 | | | 240,802 | | | — | | | 61,499 | | | 366,544 | | | 59,659 | | | 308,589 | | | 99,000 | | | 467,248 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Expenditures | | Capital Expenditures | ||||||||||||||||||||
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | | | | International | | | US | | | Corporate and | | | |
Six months ended June 30, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated | ||||||||||||
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated | ||||||||||||
2023 | | $ | 21,464 | | $ | 31,261 | | $ | — | | $ | 52,725 | ||||||||||||
2022 | | $ | 33,870 | | $ | 40,804 | | $ | 424 | | $ | 75,098 | | | 15,170 | | | 19,095 | | | 203 | | | 34,468 |
2021 | | | 21,843 | | | 18,792 | | | 1,297 | | | 41,932 |
(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
14. COMMITMENTS AND CONTINGENCIES
Regulatory and Litigation Matters
The Company and its subsidiaries are subject to certain regulatory and legal proceedings and other claims arising in the ordinary course of business, some of which involve claims for damages and taxes that are substantial in amount. Historically, the Company’s subsidiary, GTT, has been subject to other long-standing litigation proceedings and disputes in Guyana that have not yet been resolved. The Company believes that, except for the items discussed below, for which the Company is currently unable to predict the final outcome, the disposition of proceedingsmatters currently pending will not have a material adverse effect on the Company’s financial position or results of operations.
In 1990,Beginning in 2006, the Company’s Guyana subsidiary, GTT, was awarded a license to provide domestic and international voice and data services in Guyana on an exclusive basis until December 2030. Since 2001,National Frequency Management Unit (now the Government of Guyana has stated its intention to introduce additional competition into Guyana’s telecommunications sector. In connection therewith,Telecommunications Agency , or the Company“NFMU/TA”) and GTT met on several occasions with officialshave been engaged in discussions regarding the amount of the Governmentand methodology for calculation of Guyana to discuss potential modificationsspectrum fees payable by GTT in Guyana. Since that time, GTT has made payments of, GTT’s exclusivity and other rights under the existing agreement and license. On October 5, 2020, the Prime Minister of Guyana formally implemented telecommunications legislation previously passedundisputed spectrum fees as amounts invoiced by the Guyana Parliament in 2016 that introduces material changes to many featuresNFMU/TA. There have been limited further discussions on the subject of Guyana’s existing telecommunications regulatory regimea revised spectrum fee methodology with the intentionTelecommunications Agency and GTT awaits the determination of creating a more competitive market. At that time, the Company was issued a new license to provide domestic and international voice as well as data services and mobile services in Guyana. NaN of thesuch fees.
3933
Company’s competitors were issued service licenses as well. While the Company has requested details of its competitors’ licenses, such information has not been made public by the Guyana Telecommunications Agency, and the Company is not yet able to ascertain whether the licenses issued to its competitors permit any competitors to provide services that have been subject to GTT’s exclusive rights contained in its 1990 license.
On October 23, 2020, the Government of Guyana also brought into effect new telecommunications regulations called for by the telecommunications legislation. The regulations include new requirements for the market as a whole, which impose costly additional regulatory fees and impact the Company’s operations, administrative reporting and services. There can be no assurance that these regulations will be effectively implemented, or that they will be administered in a fair and transparent manner.
Historically, GTT has been subject to other long-standing litigation proceedings and disputes in Guyana that have not yet been resolved. The Company believes that none of these additional proceedings would, in the event of an adverse outcome, have a material impact on the Company’s consolidated financial position, results of operations or liquidity.
In a letter dated September 8, 2006, the National Frequency Management Unit (“NFMU”) agreed that total spectrum fees in Guyana should not increase for the years 2006 and 2007. However, that letter implied that spectrum fees in 2008 and onward may be increased beyond the amount GTT agreed to with the Government of Guyana. GTT has objected to the NFMU’s proposed action and reiterated its position that an increase in fees prior to development of an acceptable methodology would violate the Government’s prior agreement. In 2011, GTT paid the NFMU $2.6 million representing payments in full for 2008, 2009 and 2010. However, by letter dated November 23, 2011, the NFMU stated that it did not concur with GTT’s inference that the amount was payment in full for the specified years as it was NFMU’s continued opinion that the final calculation for spectrum fees was not agreed upon and was still an outstanding issue. By further letter dated November 24, 2011, the NFMU further rejected a proposal that was previously submitted jointly by GTT and another communications provider that outlined a recommended methodology for the calculation of these fees. The NFMU stated that it would prepare its own recommendation for consideration by the Minister of Telecommunications, who would decide the matter. GTT has paid undisputed spectrum fees according to the methodology used for its 2011 payments and has reserved amounts payable according to this methodology. There have been limited further discussions on this subject and GTT has not been given the opportunity to review recommendations to the Minister on spectrum fee methodology, if any.
On May 8, 2009, a GTT competitor, Digicel, filed a lawsuit in Guyana challenging the legality of GTT’s exclusive license rights under Guyana’s constitution and GTT intervened in the suit in order to oppose Digicel’s claims. The case remains pending. The Company believes that any legal challenge to GTT’s exclusive license rights granted in 1990 is without merit and the Company continues to defend vigorously against such legal challenge.
GTT has filed several lawsuits in the High Court of Guyana asserting that, despite its denials, Digicel is engaged in international bypass in violation of GTT’s exclusive license rights, the interconnection agreement between the parties, and the laws of Guyana. Digicel filed counterclaims alleging that GTT has violated the terms of the interconnection agreement and Guyana laws. These suits, filed in 2010 and 2012, have been consolidated with Digicel’s constitutional challenge described above. Prior to the declaration of COVID-19 related travel and business restrictions in Guyana, the consolidated cases were scheduled to proceed to trial in 2020. GTT expects to resume the litigation following the lifting of COVID-19 related restrictions and intends to prosecute these matters vigorously;above, however, the Company cannot accurately predict at this time when the consolidated suit will go to trial.reach a court of final determination.
GTT is also involved in several legal claims regarding its tax filings with the Guyana Revenue Authority (the “GRA”) dating back to 1991 regarding the deductibility of intercompany advisory fees as well as other tax assessments. The Company maintainsGTT’s position has been upheld by various High Court rulings made in its favor including most recently in December 2021, when an assessment relating to 2010-2016 was quashed and declared to have no legal effect. GTT has maintained that it has no unpaid corporation tax due to the GRA and that any liability GTT might be found to have with respect to the disputed tax assessments, totaling $44.1as alleged by the GRA in the aggregate amount of $32 million net of interest, would be offset in part by the amounts necessary to ensure that GTT’s return on investment was no less than 15% per annum for the relevant periods.
40
Table Several High Court rulings in the favor of ContentsGTT have been appealed by the GRA and the Company believes that some adverse outcome in these or pending unheard matters could occur.
On May 20, 2021, the Company was served with a notice of application for enforcement of a foreign judgment with respect to a matter brought by the Trinidad & Tobago Electric Commission (“TTEC”) in the High Court of Justice in the Republic of Trinidad and Tobago in August 2013 against the CompanyGTT and other defendants, alleging breach of contract due to the Company’sGTT’s failure to pay TTEC in connection with amounts alleged to be owed as reimbursement for cable repair costs. In May 2015, the Company failed to appear in theDecember 2022, GTT settled this matter and a default judgment was entered against the Company in the amount of approximately $2.8 million. In May 2021, TTEC took steps to enforce the judgment by commencing proceedings against GTT in Guyana, however, in May of 2022, the High Court of Guyana denied TTEC’s petition. GTT intends to continue to defend its position against the legitimacy of the claim.with TTEC.
In February 2020, the Company’s Alaska Communications subsidiary received a draft audit report from USAC in connection with USAC’s inquiry into Alaska Communications’ funding requests under the Rural Health Care Support Program for certain customers for the time period of July 2012 through June 2017. The draft audit report alleges violations of the FCC’s rules for establishing rural rates and urban rates, the provisioning and billing of ineligible services and products, and violations of the FCC’s competitive bidding rules. Alaska Communications has provided USAC with extensive comments in response to its draft audit report seeking correction of numerous factual and legal errors that it believed it had identified. As a result of these conversations and comments being submitted by Alaska Communications, USAC’s auditors may revise their findings, including the amounts they recommend USAC seek to recover. USAC’s auditors are expected to issue a final audit report incorporating Alaska Communications’ responses that will be sent to USAC’s Rural Health Care Division to review and determine if corrective action would be appropriate. In the event that the Company disagrees with USAC’s final audit report, the Company can appeal that decision to USAC’s Rural Health Care Division and/or the FCC. At this time, the Company cannot predict the contents or timing of the final USAC audit report, the outcome of the audit or the impact on the Company’s business, financial condition, results of operations, or liquidity.
liquidity and may require certain undertakings in addition to any proposed financial settlement.
Alaska Communications also received a Letter of Inquiry on March 18, 2018, and subsequent follow up information requests, from the FCC Enforcement Bureau requesting historical information regarding Alaska Communications’ participation in the FCC’s Rural Health Care Support Program. The Company is engaged in discussions with the FCC’s Enforcement Bureau and will continue to work constructively with the FCC’s Enforcement Bureau to provide it the information it is seeking. At this time, the Company cannot predict theAny adverse outcome ofwith respect to the FCC Enforcement Bureau’s inquiry or the impact it may have on itsan adverse impact the Company’s business, financial condition, results of operations, or liquidity.
liquidity and may require certain undertakings in addition to any proposed financial settlement.
With respect to all of the foregoing matters, the Company believes that some adverse outcome is probable and has accordingly accrued $13.3$15.3 million as of June 30, 2022March 31, 2023 for these and other potential liabilities arising in various
34
claims, legal actions and regulatory proceedings arising in the ordinary course of business. The Company also faces contingencies that are reasonably possible to occur that cannot currently be estimated. It is the Company’s policy to expense costs associated with loss contingencies, including any related legal fees, as they are incurred.
15. SUBSEQUENT EVENTS
Verizon Carrier Managed Services Agreement
On May 10, 2023, Commnet Wireless, LLC (“Commnet”), a subsidiary of ATN International, Inc. (the “Company”) entered into a Carrier Managed Services Master Agreement (the “Agreement”) with Cellco Partnership d/b/a Verizon Wireless (“Verizon”), pursuant to which Commnet will provide a variety of network, infrastructure and technical services that will help deliver next generation wireless services to Verizon’s subscribers in Commnet’s current operating area in the southwestern United States.
Pursuant to the Agreement and subject to certain limitations contained therein, Commnet will upgrade its wireless service in specific areas and provide services to Verizon for an initial seven year term (the “Commitment Period”). The Commitment Period will automatically renew for up to two additional three year periods, unless Verizon provides no less than twelve months’ notice on non-renewal prior to the expiration of the then-current term.
In connection with the Agreement, Commnet has also agreed to provide Verizon with high capacity transport in its coverage area. Verizon will continue to use Commnet’s wireless communications network for roaming services at a fixed rate per site during the build period until such time as upgrades to the network to meet certain performance service level agreements for both RAN operations and transport are met.
Verizon will pay Commnet an aggregate of an estimated approximately $200 million in total amounts for both non-recurring payments for upgrades and construction to its current RAN and transport network and in monthly recurring charges over the initial Commitment Period.
The Agreement may be terminated at any time upon the mutual written consent of Commnet and Verizon. In addition, Verizon may terminate the Agreement upon the occurrence of certain events, including failure to meet certain milestones or completion dates with respect to network coverage, failure to meet certain SLAs with respect to the ongoing services, the declaration of a bankruptcy event by Commnet and breach of any other material terms of the Agreement.
The foregoing summary of the Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of the Agreement. The Company intends to file a redacted copy of the Agreement as an Exhibit to its Quarterly Report on Form 10-Q for the quarter ending June 30, 2023.
4135
15. SUBSEQUENT EVENTS
See Note 6 for a discussion of our pending acquisition of Sacred Wind Enterprises.
See Note 9 for a discussion regarding government grants to be received for our Southern Apache County Fiber to the Home project and the FCC’s Replace and Remove project.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a provider ofprovide digital infrastructure and communications services in the United States and internationally, including in the Caribbean region, with a focus on smaller markets, many of which are rural andor remote, markets with a growing demand for infrastructure investments. Ourinvestments, Through our operating subsidiaries, todaywe primarily provide: (i) advanced wireless and wireline connectivity to residential, business and government customers, including a range of high-speed Internet and data services, fixed and mobile wireless solutions, and video and voice services; and (ii) carrier and enterprise communications services, such as terrestrial and submarine fiber optic transport, and communications tower facilities. facilities; and (ii) fixed and mobile telecommunications connectivity to residential, business and government customers, including a range of high-speed internet and data services, fixed and mobile wireless solutions, and video and voice services.
At the holding company level, we oversee the allocation of capital within and among our subsidiaries, affiliates, new investments, and stockholders. We also have developed significant operational expertise and resources that we use to augment the capabilities of our individual operating subsidiaries in our local markets. Over the past 10 years, weWe have built a platform of resources and expertise to support our operating subsidiaries and to improve their quality of service with greater economies of scale and expertise than would typically be available at the operating subsidiary level. We also provide management, technical, financial, regulatory, and marketing services to our operating subsidiaries and typically receive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. We also actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally look for those that we believe fit our profile of telecommunications businesses and have the potential to complement our “Glass“glass and Steel”steel” and “fiber first”“first to fiber” approach in markets while generating steady excess cash flows over extended periods of time. We use the cash generated from our operations to re-invest in organic growth in our existing businesses, to make strategic investments in additional businesses, and to return cash to our investors through dividends or stock repurchases.
For further information about our financial segments and geographical information about our operating revenues and assets, see Notes 1 and 13 to the Consolidated Financial Statements included in this Report.
As of June 30, 2022,March 31, 2023, we offer the following types of services to our customers:
● | Mobility Telecommunications Services. We offer mobile communications services |
● | Fixed Telecommunications Services. We provide fixed data and voice telecommunications services |
● | Carrier Telecommunication Services. We deliver services |
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● | Managed Services. We provide information technology services |
Through June 30, 2022,As was previously disclosed, and effective January 27, 2021, we no longer provide distributed generation solar power to commercial and industrial customers. These operations were the only operations within our Renewable Energy segment. As such, we no longer identify the Renewable Energy segment as an operating segment and now have identified three only two
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operating segments to manage and review our operations and to facilitate investor presentations of our results. These threetwo operating segments are as follows:
● | International Telecom. In our international markets, we offer |
● | US Telecom. In the United States, we offer |
The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of June 30, 2022:
| | | | | | |
Segment |
| Services |
| Markets |
| Tradenames |
International Telecom |
| Mobility Services |
| Bermuda, Guyana, US Virgin Islands |
| One, |
| | Fixed Services |
| Bermuda, Cayman Islands, Guyana, US Virgin Islands |
| One, Logic, GTT, Viya |
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, |
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT, Viya |
US Telecom |
| Mobility Services |
| United States (rural markets) |
| Choice, Choice NTUA Wireless |
| | Fixed Services | | United States |
| Alaska Communications, Commnet, Choice, Choice NTUA Wireless, Sacred Wind Communications, Ethos |
| | Carrier Services | | United States | | Alaska Communications, Commnet, Essextel, Sacred Wind Communications |
|
| Managed Services |
| United States |
| Alaska Communications, Choice |
|
|
|
|
|
|
|
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The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of March 31, 2023:
Pending Acquisition of Sacred Wind Enterprises
On July 26,November 7, 2022, we, via our newly formed wholly owned subsidiary Alloy, Inc. (“Alloy”), entered into a stock purchase agreement (the “Purchase Agreement”) to acquireacquired all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), a rural telecommunications provider in New Mexico. UnderMexico (the “Sacred Wind Transaction”) for $44.6 million of consideration. The purchase price allocation was finalized during the Purchase Agreement,three months ended March 31, 2023. As part of the Sacred Wind Transaction, we will contribute alltransferred consideration of our ownership$18.0 million of cash, net of $9.4 million of cash acquired, $14.8 million of redeemable noncontrolling interests, and $3.7 million of contingent consideration, less $1.3 million of receivables related to working capital adjustments. Upon completion of the Sacred Wind Transaction, the former Sacred Wind shareholders own 6% of the Alloy equity. This equity is classified as redeemable noncontrolling interests in our Commnet Wireless businessfinancial statements because the holders have an option, beginning in 2026, to Alloy,put the equity interest to a subsidiary of the Company at the then fair market value. The redeemable noncontrolling interests do not have preference relative to other equity units and issue Alloy equity to
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the Sacred Wind stockholders representing the combined ownershipparticipate in gains and losses in Alloy. The contingent consideration is earned based on certain operating metrics of Sacred Wind and Commnet.beginning in 2025 through 2027. The acquisition is subject to certain closing conditions, including the receipt of required third party and regulatory approvals such as approvalfair value of the Federal Communications Commission. Undercontingent consideration was calculated using discounted cash flow analysis based on a range of probability weighted outcomes. We funded the Purchase Agreement,acquisition with borrowing under our CoBank Credit Facility and assumed $31.6 million of Sacred Wind will keep in place its approximately $32 million in debt, and we will issue consideration of a combination of $24 million in cash, the issuance of $13 million of equity representing an approximate 6% in Alloy, Inc. In addition, the Purchase Agreement includes certain earn-outs, the accounting for which will be determined upon our completion of the acquisition, to be paid to the Sacred Wind stockholders.United States of America administered through the Rural Utilities Service.
We believe that the acquisition of Sacred Wind will expand our infrastructure reach and broadband services in the rural Southwest and increase our wholesale carrier, residential and business broadband services.
The acquisition of Sacred Wind is expected to close subject to Federal Communications Commission and other required approvals in the fourth quarter of 2022 or first quarter of 2023.
Completed Acquisition of Alaska Communications
On July 22, 2021, we completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company, for approximately $339.5 million in cash, net of cash acquired, (the “Alaska Transaction”). Alaska Communications provides broadband telecommunication and managed information technology services to customers in the state of Alaska and beyond using its statewide and interstate telecommunications network.
In conjunction with the Alaska Transaction, we entered into an agreement with affiliates and investment funds managed by Freedom 3 Capital, LLC as well as other institutional investors (collectively the “Freedom 3 Investors”). The Freedom 3 Investors contributed $71.5 million in conjunction with the Alaska Transaction (the “Freedom 3 Investment”). The Freedom 3 Investment consists of common and preferred equity instruments in our subsidiary of which holds the ownership of Alaska Communications. We accounted for the Freedom 3 Investment as a redeemable noncontrolling interest in our consolidated financial statements and we also entered into a financing transaction drawing $220 million on a new credit facility to complete the Alaska Transaction. As a result of the Alaska Transaction, we own approximately 52% of the common equity of Alaska Communications and control its operations and management. Beginning on July 22, 2021, the results of Alaska Communications are included in our US Telecom segment.
See Liquidity and Capital Resources for a discussion regarding the credit agreement used to help finance the Alaska Transaction.
COVID-19
We are continuing to monitor and assess the effects of the ongoing COVID-19 pandemic on our commercial operations, the safety of our employees and their families, our sales force and customers.
The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions, which are evaluated on an ongoing basis, which may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context with the information and estimates reasonably available to us and the unknown future impacts of COVID-19 as of June 30, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, the carrying value of goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.
Our assessment of the impact of COVID-19 on our operations did not indicate that there was a material adverse impact to our consolidated financial statements as of and for the three months ended June 30, 2022. However, future assessments of the impacts of COVID-19, as well as other factors, including the possible reinstatement of certain COVID-19 travel-related and stay-at-home restrictions, could result in material adverse impacts to our consolidated financial statements in future reporting periods. For example, we may experience difficulty in procuring network or retail equipment, such as handsets for subscribers, as a result of COVID-19 restrictions and related supply chain challenges. In addition, there is increased uncertainty related to predicting subscribers’ procurement behavior for services.
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Disposition of International Solar Business
In January 2021, we completed the sale of 67% of the outstanding equity in our business that owns and operates distributed generation solar power projects operated under the Vibrant name in India (the “Vibrant Transaction”). The post-sale results of our ownership interest in Vibrant, representing 33% of Vibrant’s profits and losses, will be recorded through the equity method of accounting within the Corporate and Other operating segment. We will continue to present the historical results of our Renewable Energy segment for comparative purposes.
The operations of Vibrant did not qualify as discontinued operations because the disposition did not represent a strategic shift that had a major effect on our operations and financial results.
FirstNet Agreement
In July 2019, we entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC (“AT&T”) that we amended in August 2020, May 2021 and August 2022 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, we are building a portion of AT&T’s network for the First Responder Network Authority (“FirstNet”) in or near our current operating areaareas in the Western United States. Pursuant to the FirstNet Agreement and subject to certain limitations contained therein, all cell sites must be completed and accepted within a specified period of time. Since inception ofWe expect that total construction revenue related to FirstNet will approximate $80 million to $85 million. During the project through June 30,three months ended March 31, 2023 and 2022, we have recorded $52.1$0.6 million and $2.0 million in construction revenue, including $5.3 million during 2022. In 2022, we also expect to record additional costs of construction revenue, as sites are completed, that will approximate that revenue.respectively. Revenues from construction are expected to have minimal impact on operating income. The network build portionAs of March 31, 2023, approximately 75% of the cell sites related to the FirstNet Agreement has continued during the COVID-19 pandemic, but the overall timing ofwere completed and we expect to substantially complete the build schedule has been delayed. by the end of 2023 with the remainder to be completed in early 2024.
Following acceptance of a cell site, AT&T will own the cell site and we will assign to AT&T any third-party tower lease applicable to such cell site. If the cell site is located on a communications tower we own, AT&T will pay us pursuant to a separate lease agreement for an initial term of eight years. In addition to building the network, we will provide ongoing equipment and site maintenance and high-capacity transport to and from these cell sites for an initial term ending in 2029.
AT&T will continue to use our wholesale domestic mobility network for roaming services at a fixed rate per site during the construction period until such time as the cell site is transferred to AT&T. Thereafter, revenue from the maintenance, leasing and transport services provided to AT&T is expected to generally offset revenue from wholesale mobility roaming services. We are currently receiving revenue from the FirstNet Transaction and expect overall operating income contributions from the FirstNet Transaction to have a relatively steady impact going forward.
Universal Service Fund and Connect America Fund Phase II Programs
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We recognize revenue from several government funded programs including the USF, a subsidy program managed by the Federal Communications Commission (“FCC”), and the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”)., and the Emergency Connectivity Fund (“ECF”), a program to help schools and libraries support remote learning in underserved communities. USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; the Low Income Program (“Lifeline Program”); the Schools and Libraries Program (“E-Rate Program”); and the Rural Health Care Support Program.
We also recognize revenue from the Connect America Fund Phase II program (“CAF II”) which offers subsidies to carriers to expand broadband coverage in designated areas. Under CAF II, our US Telecom segment will receive an aggregate of $27.7 million annually through December 2025 and an aggregate of $8.0 million annually from January 2026 through July 2028.
BothAll of the USF and CAFII programs are subject to certain operational and reporting compliance requirements. We believe we are in compliance with these requirements as of June 30, 2022.March 31, 2023.
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In 2018, the FCC initiated a proceeding to replace the High Cost Program support received by Viya in the US Virgin Islands with a new Connect USVI Fund. On November 16, 2020, the FCC announced that Viya was not the recipient of the Connect USVI Fund award and authorized funding to be issued to the new awardee in June 2021. Pursuant to the terms of the program and effective in July 2021, Viya’s annual USF support was reduced from $16.4 million to $10.9 million. In July 2022, this support will bewas reduced again to $5.5 million for the annual period through June 2023. Thereafter, Viya will not receive High Cost Program support.
In April of 2023, the FCC issued an order extending the high cost support in the US Virgin Islands at the current $5.5 million per year received from July 2023 through December 31, 2025. In connection with this order, the FCC requires that we maintain our current footprint for voice and broadband services in the US Virgin Islands.
RDOF (“Rural Digital Opportunities Fund”)
We expect to receive approximately $20.1$22.7 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”). We recorded $0.5 million and $1.0$0.6 million of revenue from the RDOF program during the three and six months ended June 30, 2022, respectively.
March 31, 2023.
Construction Grants
We have also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse us for our construction costs, is generally distributed upon completion of a project. As of December 31, 2021, we had been awarded approximately $27.9 million of such grants. We were awarded $0.4 million of additional grants and cancelled $2.1 million of previously awarded grants during the three months ended June 30, 2022. Of this $26.2 million of retained awards, we have completed our construction obligations on $17.1 million of these projects and $9.1 million of such construction obligations remain with completionCompletion deadlines beginningbegin in June 2023. Once2023 and once these projects are constructed, we are obligated to provide service to the participants. We expect to meet all requirements associated with these grants. A roll forward of our grant awards is below (in thousands).
| | |
| Amount | |
Grants awarded, December 31, 2022 | $ | 80,197 |
New grants | | 4,364 |
Grants awarded, March 31, 2023 | $ | 84,561 |
In addition, we partner with tribal governments to obtain grants under the Tribal Broadband Connectivity Program ("TBCP"). The TBCP is a program administered by the National Telecommunications and Information Administration to deploy broadband connectivity on tribal lands. We were identified as a sub recipient of TBCP grants totaling $145.5 million as of March 31, 2023.
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Replace and Remove Program
On July 15, 2022, we were notified that we were an approved participant in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the Replace and Remove Program, we were allocated up to approximately $207 million in reimbursement amounts to cover documented and approved costs to remove and securely destroy all ZTEprohibited communications equipment and services in our U.S. networks and replace such equipment. The Replace and Remove Program requires that we complete our first request for reimbursement for services performed under the program no later than July 14, 2023 and that we complete the project no later than one year from submitting our initial reimbursement request. We are currently assessing the impact of this program on our financial statements and anticipatesanticipate that we will be able to meet the deadlines and requirements of the program.
CBRS Auction At March 31, 2023, we established a receivable for $6.7 million of costs for which we expect to be reimbursed under the program.
During the third quarter of 2020, we participated in the FCC’s Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. We were a winning bidder for PALs located strategically throughout the United States at a total cost of approximately $20.4 million. In the third quarter of 2022, we surrendered a portion of the PALs that we won in the auction in exchange for repayment of the approximately $1.1 million paid for such licenses and entered into a Consent Decree with the FCC with respect to such surrender and receipt of the remaining licenses. In connection with the awarded licenses, we will have to achieve certain CBRS spectrum build out obligations. We currently expect to comply with all applicable requirements related to these licenses.
Presentation of Revenue
Effective July 1, 2021, we began to categorize Mobility revenue and Fixed revenue as either “consumer” or “business” based upon the characteristics of our subscribers. Effective October 1, 2021, our statement of operations
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separately reflects Construction revenue. All periods presented have been adjusted to conform to these presentation updates.
Presentation of Operating Expenses
Effective January 1, 2021, we changed our presentation of operating expenses in the Condensed Consolidated Statements of Operations by combining the previously disclosed Termination and Access Fees with Engineering and Operations as the newly represented Cost of communications services and other. In addition, the previously disclosed Sales, Marketing and Customer Service expenses are now combined with the previously disclosed General and Administrative expenses within the newly represented Selling, General and Administrative expenses. The change in presentation was made to better align our results with industry standards. Cost of construction services continues to be broken out separately and all depreciation and amortization continues to be shown separately.
Selected Segment Financial Information
The following represents selected segment information for the three months ended June 30,March 31, 2023 and 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | |
| | |
| |
| | |
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Corporate and | | | | |||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | |||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 3,675 | | $ | 301 | | $ | — | | $ | — | | $ | 3,976 | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 |
Mobility - Consumer | | | 21,279 | | | 1,549 | | | — | | | — | | | 22,828 | | | 22,532 | | | 987 | | | — | | | 23,519 |
Total Mobility | | | 24,954 | | | 1,850 | | | — | | | — | | | 26,804 | | | 26,107 | | | 1,159 | | | — | | | 27,266 |
Fixed - Business | | | 16,996 | | | 31,866 | | | — | | | — | | | 48,862 | | | 17,113 | | | 36,320 | | | — | | | 53,433 |
Fixed - Consumer | | | 41,353 | | | 19,166 | | | — | | | — | | | 60,519 | | | 41,778 | | | 22,582 | | | — | | | 64,360 |
Total Fixed | |
| 58,349 | |
| 51,032 | |
| — | |
| — | |
| 109,381 | |
| 58,891 | |
| 58,902 | |
| — | |
| 117,793 |
Carrier Services | | | 3,421 | | | 31,753 | | | — | | | — | | | 35,174 | | | 3,690 | | | 32,084 | | | — | | | 35,774 |
Other | |
| 436 | |
| — | |
| — | |
| — | |
| 436 | |
| 400 | |
| 75 | |
| — | |
| 475 |
Total Communication Services Revenue | | | 87,160 | | | 84,635 | | | — | | | — | | | 171,795 | | | 89,088 | | | 92,220 | | | — | | | 181,308 |
Construction | | | — | | | 3,297 | | | — | | | — | | | 3,297 | | | — | | | 590 | | | — | | | 590 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Managed Services | | | 1,246 | | | 3,159 | | | — | | | — | | | 4,405 | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Other Revenue | | | 1,246 | | | 3,159 | | | — | | | — | | | 4,405 | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Revenue | | | 88,406 | | | 91,091 | | | — | | | — | | | 179,497 | | | 90,408 | | | 95,367 | | | — | | | 185,774 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | |
| 11,646 | |
| (281) | |
| (22) | |
| (9,621) | |
| 1,722 | |
| 13,825 | |
| (4,342) | |
| (8,847) | |
| 636 |
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| | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2021 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 1,298 | | $ | 342 | | $ | — | | $ | — | | $ | 1,640 |
Mobility - Consumer | | | 21,456 | | | 2,065 | | | — | | | — | | | 23,521 |
Total Mobility | | | 22,754 | | | 2,407 | | | — | | | — | | | 25,161 |
Fixed - Business | | | 16,855 | | | 2,031 | | | — | | | — | | | 18,886 |
Fixed - Consumer | | | 42,271 | | | 3,846 | | | — | | | — | | | 46,117 |
Total Fixed | |
| 59,126 | |
| 5,877 | |
| — | |
| — | |
| 65,003 |
Carrier Services | | | 2,523 | | | 20,038 | | | — | | | — | | | 22,561 |
Other | |
| 239 | |
| — | |
| — | |
| — | |
| 239 |
Total Communication Services Revenue | | | 84,642 | | | 28,322 | | | — | | | — | | | 112,964 |
Construction | | | — | | | 9,325 | | | — | | | — | | | 9,325 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | — | | | — | | | — |
Managed Services | | | 1,576 | | | — | | | — | | | — | | | 1,576 |
Total Other Revenue | | | 1,576 | | | — | | | — | | | — | | | 1,576 |
Total Revenue | | | 86,218 | | | 37,647 | | | — | | | — | | | 123,865 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 14,643 | |
| (556) | |
| (771) | |
| (10,411) | |
| 2,905 |
| | | | | | | | | | | | |
For the Three Months Ended March 31, 2022 | ||||||||||||
|
| | |
| |
| | |
| | | |
| | International | | US | | Corporate and | | | | |||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||
Revenue | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | |
Mobility - Business | | $ | 3,616 | | $ | 374 | | $ | — | | $ | 3,990 |
Mobility - Consumer | | | 19,970 | | | 1,456 | | | — | | | 21,426 |
Total Mobility | | | 23,586 | | | 1,830 | | | — | | | 25,416 |
Fixed - Business | | | 17,254 | | | 27,145 | | | — | | | 44,399 |
Fixed - Consumer | | | 41,093 | | | 18,968 | | | — | | | 60,061 |
Total Fixed | |
| 58,347 | |
| 46,113 | |
| — | |
| 104,460 |
Carrier Services | | | 3,402 | | | 32,989 | | | — | | | 36,391 |
Other | |
| 276 | |
| — | |
| — | |
| 276 |
Total Communication Services Revenue | | | 85,611 | | | 80,932 | | | — | | | 166,543 |
Construction | | | — | | | 1,987 | | | — | | | 1,987 |
Other | | | | | | | | | | | | |
Managed Services | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Other Revenue | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Revenue | | | 86,787 | | | 85,232 | | | — | | | 172,019 |
| | | | | | | | | | | | |
Operating income (loss) | |
| 11,802 | |
| (4,635) | |
| (7,059) | |
| 108 |
(1) Corporate and OtherReconciling items refer to corporate overhead costs and consolidating adjustments
adjustments.
A comparison of our segment results for the three months ended June 30,March 31, 2023, and 2022 and 2021 is as follows:
International Telecom. Revenues within our International Telecom segment increased $2.2$3.6 million, or 2.6%4.1%, to $88.4$90.4 million from $86.2$86.8 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, as a result of improved retail and marketing strategies which drove an increase in Fixedsubscribers and Mobility subscribersequipment sales within all of our international markets. In addition, our US Virgin Islands and Bermuda markets recognized an increase of $0.9 milliongrowth in Carrier Services revenue as a result of increased roaming revenues due to an increase in tourism as certain COVID-19 related travel and stay-at-home restrictions were lifted.in those markets. These increases, however, were partially offset by the scheduled $1.4 million scheduled step downreduction in federal high cost support revenues in the US Virgin Islands.
Operating expenses within our International Telecom segment increased by $5.2$1.6 million, or 7.3%2.1%, to $76.8$76.6 million from $71.6$75.0 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The increase in operating expenses was primarily the result of an increase in direct costs, primarily roamingequipment expenses related to increased tourism in the US Virgin Islands and Bermuda, increased equipment costs, an increase in salesretail and marketing expenses to support the expansion of our subscriber base and additional costs for our continued investment in network expansion and enhancement.
costs.
As a result, our International Telecom segment’s operating income decreased $3.0increased $2.0 million, or 20.5%16.9%, to $11.6$13.8 million from $14.6$11.8 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
US Telecom. Revenue within our US Telecom segment increased by $53.5$10.2 million, or 142.3%12.0%, to $91.1$95.4 million from $37.6$85.2 million for the three months ended June 30,March 31, 2023 and 2022, respectively. Increases in our Alaska subsidiary and 2021, respectively, primarily as a resultthe revenue impact of $44.1 million associated with the AlaskaSacred Wind Transaction were partially offset by a $6.0 million reduction in construction revenue related to the FirstNet Transaction, as well as a reduction in roaming revenue due to the restructuring of certain restructured carrier contracts in our western United States operations.operations, and a reduction in our international long-distance service revenues.
Operating expenses within our US Telecom segment increased $9.9 million, or 11.0%, to $99.7 million from $89.8 million for the three months ended March 31, 2023 and 2022, respectively, as a result of increases in expenses
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Operating expensesbeing incurred to support the increased revenues within our US Telecom segment increased $53.2 million to $91.4 million from $38.2 million forAlaska operations and the three months ended June 30, 2022 and 2021, respectively, as a resultimpact of the AlaskaSacred Wind Transaction and increases in other expenses being incurred in connection with both the FirstNet Transaction and the CARES Act-funded build-out of rural broadband operations, partially offset by athe decrease in FirstNet construction costs as fewer sites were completed in 2023 as compared to 2022 and a reduction in costs related to our wholesale long-distance business as a result of $6.2 million.
its decrease in revenues.
As a result of the above, our US Telecom segment’s operating loss decreased by $0.3 million, or 6.5%, to a loss of $0.3$4.3 million from a loss of $0.6$4.6 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
Renewable Energy. Until the completion of the Vibrant Transaction on January 27, 2021, we distributed generation solar power to commercial and industrial customers under the Vibrant name in India. Accordingly, we did not generate revenue or incur operating expenses within our Renewable Energy segment subsequent to that date.
The following represents a year over year discussion and analysis of our results of operations for the three months ended June 30,March 31, 2023 and 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Amount of | | Percent |
| | Three Months Ended | | Amount of | | Percent |
| ||||||||||
| | June 30, | | Increase | | Increase |
| | March 31, | | Increase | | Increase |
| ||||||||||
| | 2022 | | 2021 | | (Decrease) | | (Decrease) |
| | 2023 | | 2022 | | (Decrease) | | (Decrease) |
| ||||||
REVENUE: |
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Communication services | | $ | 171,795 | | $ | 112,964 | | $ | 58,831 |
| 52.1 | % | | $ | 181,308 | | $ | 166,543 | | $ | 14,765 |
| 8.9 | % |
Construction | | | 3,297 | | | 9,325 | | | (6,028) |
| (64.6) | | | | 590 | | | 1,987 | | | (1,397) |
| (70.3) | |
Other | |
| 4,405 | |
| 1,576 | |
| 2,829 |
| 179.5 | | |
| 3,876 | |
| 3,489 | |
| 387 |
| 11.1 | |
Total revenue | |
| 179,497 | |
| 123,865 | |
| 55,632 |
| 44.9 | | |
| 185,774 | |
| 172,019 | |
| 13,755 |
| 8.0 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of communications services and other | |
| 77,860 | |
| 48,479 | |
| 29,381 |
| 60.6 | | |
| 79,040 | |
| 73,011 | |
| 6,029 |
| 8.3 | |
Cost of construction revenue | | | 3,286 | | | 9,535 | | | (6,249) |
| (65.5) | | | | 588 | | | 2,033 | | | (1,445) |
| (71.1) | |
Selling, general and administrative | |
| 59,178 | |
| 40,652 | |
| 18,526 |
| 45.6 | | |
| 61,348 | |
| 54,882 | |
| 6,466 |
| 11.8 | |
Stock-based compensation | | | 1,778 | | | 1,461 | | | 317 | | 21.7 | | ||||||||||||
Transaction-related charges | |
| 412 | |
| 1,396 | |
| (984) |
| (70.5) | | | | 13 | |
| 554 | |
| (541) |
| (97.7) | |
Depreciation | |
| 33,817 | |
| 19,739 | |
| 14,078 |
| 71.3 | | ||||||||||||
Restructuring charges | |
| 2,887 | |
| — | |
| 2,887 |
| 100.0 | | ||||||||||||
Depreciation and amortization | |
| 36,404 | |
| 33,292 | |
| 3,112 |
| 9.3 | | ||||||||||||
Amortization of intangibles from acquisitions | | | 3,250 | | | 416 | | | 2,834 |
| 681.3 | | | | 3,247 | | | 3,258 | | | (11) |
| (0.3) | |
(Gain) Loss on disposition of long-lived assets | | | (28) | | | 743 | | | (771) |
| (103.8) | | | | (167) | | | 3,420 | | | (3,587) |
| (104.9) | |
Total operating expenses | |
| 177,775 | |
| 120,960 | |
| 56,815 |
| 47.0 | | |
| 185,138 | |
| 171,911 | |
| 13,227 |
| 7.7 | |
Income from operations | |
| 1,722 | |
| 2,905 | |
| (1,183) |
| (40.7) | | |
| 636 | |
| 108 | |
| 528 |
| 488.9 | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | |
| — | |
| 46 | |
| (46) |
| n/m | | |
| 182 | |
| 51 | |
| 131 |
| 256.9 | |
Interest expense | | | (4,278) | | | (1,137) | | | (3,141) |
| 276.3 | | | | (8,807) | | | (3,363) | | | (5,444) |
| 161.9 | |
Other income (expense) | |
| (2,724) | |
| (66) | |
| (2,658) |
| n/m | | ||||||||||||
Other income | |
| 194 | |
| 4,199 | |
| (4,005) |
| (95.4) | | ||||||||||||
Other income (expense), net | |
| (7,002) | |
| (1,157) | |
| (5,845) |
| 505.2 | | |
| (8,431) | |
| 887 | |
| (9,318) |
| (1,050.5) | |
INCOME BEFORE INCOME TAXES | |
| (5,280) | |
| 1,748 | |
| (7,028) |
| (402.1) | | ||||||||||||
Income tax provision | |
| (3,971) | |
| (1,542) | |
| (2,429) |
| 157.5 | | ||||||||||||
NET INCOME (LOSS) | |
| (1,309) | |
| 3,290 | |
| (4,599) |
| (139.8) | | ||||||||||||
(Net income) loss attributable to noncontrolling interests, net of tax: | |
| 784 | |
| (1,271) | |
| 2,055 |
| (161.7) | | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (525) | | $ | 2,019 | | $ | (2,544) |
| (126.0) | % | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | |
| (7,795) | |
| 995 | |
| (8,790) |
| (883.4) | | ||||||||||||
Income tax expense (benefit) | |
| (740) | |
| 2,952 | |
| (3,692) |
| (125.1) | | ||||||||||||
NET LOSS | |
| (7,055) | |
| (1,957) | |
| (5,098) |
| 260.5 | | ||||||||||||
Net loss attributable to noncontrolling interests, net of tax: | |
| 1,170 | |
| 1,009 | |
| 161 |
| 16.0 | | ||||||||||||
NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (5,885) | | $ | (948) | | $ | (4,937) |
| 520.8 | % |
n/m = not meaningful
4943
Communications Services Revenue
Mobility Revenue. Our Mobility revenue consists of retail revenue generated within both our International Telecom and US Telecom segments by providing retail mobile voice and data services over our wireless networks as well as through the sale and repair services of related equipment, such as handsets and other accessories, to our retail subscribers.
Mobility revenue increased by $1.6$1.9 million, or 6.3%7.5%, to $26.8$27.3 million for the three months ended June 30, 2022March 31, 2023 from $25.2$25.4 million for the three months ended June 30, 2021.March 31, 2022. Of this increase, $2.3Mobility revenue from consumer customers increased by $2.1 million, related to an increasepartially offset by a reduction in Mobility revenue from business customers while revenue from consumers declined by $0.7of $0.2 million.
The increase in Mobility revenue, within our segments, consisted of the following:
● | International |
● | US Telecom. Mobility revenue within our US Telecom segment decreased by |
We expect that Mobility revenue within both our US Telecom and International Telecom segmentssegment may increase as a result of anour marketing efforts to increase in subscribers if certain COVID-19 travel related restrictions continue to be lifted.the number of our subscribers. However, such growth in both segments may be partially offset due to increased competition and if COVID-19 related travel restrictions are reinstated soin that segment. We expect that Mobility revenue within our US Telecom segment will decrease over time as to result in significant business interruptions and retail store closures.we put more emphasis on other revenue sources within that segment.
Apart from possible government issued travel restrictions, we currently cannot assess how the impact of COVID-19 may influence our subscribers’ procurement behavior for our services or how that behavior will affect our Mobility revenues in the foreseeable future.
Fixed Revenue. Fixed revenue is primarily generated by broadband, voice, and video service revenues provided to retail and business customers over our wireline networks. Fixed revenue within our US Telecom segment also includes revenueawards from the Connect America Fund Phase II program awards in the western United States and Alaska, as well as revenue from the Alaska Universal Service Fund. Within our International Telecom segment, Fixed revenue also includes funding under the FCC’s High Cost Program in the US Virgin Islands.
Fixed revenue increased by $44.4 million,$13.3 million, or 68.3%12.7%, to $109.4$117.8 million from $65.0$104.5 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Of this increase, $30.0$9.0 million relatesand $4.3 million relate to increases in revenue from business and consumer customers, while the remaining increase of $14.4 million pertains to consumers.respectively. The increase in Fixed revenue, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, Fixed revenue |
● | US Telecom. Fixed revenue within our US Telecom segment increased by |
44
Fixed revenue within our International Telecom segment may further decrease as a result of the loss of USF funding in the US Virgin Islands, a decrease in demand for our video services due to subscribers using alternative
50
methods to receive video content, and if COVID-19 travel related restrictions are reinstated in some of our international markets.content. Such decreases, however, may be partially offset as a result of an increase in demand for broadband subscribersand other data services from consumers, businesses and government, driven by such trends as workers continue to shift to remote working, subscribers adopting higher bandwidth offerings at higher price pointsthe popularity of video and audio streaming, demand for cloud services and smart home, business and city solutions as well as macro-economic and population growth in connection with certain new contracts with oilplaces like the Cayman Islands and gas providers in Guyana.
Within our US Telecom segment, Fixed revenue is expected to increase as both our Alaska operations and our western United States operations, including the impact of the Sacred Wind Transaction, further deploy broadband access to both consumers and businesses.
Apart from possible government issued travel restrictions, we currently cannot assess how the impact of any COVID-19 restrictions may influence our subscribers’ procurement behavior for our services or how that behavior will affect our Fixed revenue in the foreseeable future.
Carrier Services Revenue. Carrier Services revenue is generated by both our International Telecom and US Telecom segments. Within our International Telecom segment, Carrier Services revenue includes international long-distance services, roaming revenues generated by other carriers’ customers roaming into our retail markets, transport services and access services provided to other telecommunications carriers. Within our US Telecom segment, Carrier Services revenue includes services provided under the FirstNet Transaction, wholesale roaming revenues, the provision of network switching services, tower lease revenue and other services provided to other carriers.
Carrier Services revenue increaseddecreased by $12.6$0.6 million, or 55.8%1.6%, to $35.2$35.8 million from $22.6$36.4 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The increase, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, Carrier Services revenue increased by |
● | US Telecom. Carrier Services revenue within our US Telecom segment |
Within our International Telecom segment, Carrier Services revenue may continue to increase if tourism continues to move toward a return to pre-pandemic levels. Apart from possible government issued travel restrictions, we currently cannot assess how the impact of COVID-19 may influence our subscribers’ procurement behavior for our services or how that behavior will affect our revenues in the foreseeable future. Also,However, within our International Telecom segment, we expect that Carrier Services revenue from our international long-distancelong distance business in Guyana may decrease as consumers seek to use alternative technology services to place long-distance calls. In addition,Further, such revenue may decline as the result of the implementation, by the Government of Guyana, of passed legislation which terminates our right to be the exclusive provider of domestic Fixed and international long-distance service in Guyana. While the loss of our exclusive rights in Guyana may cause an immediate reduction in our Carrier Services revenue, the complete impact of the new legislation to our operations will not be fully known until the Government of Guyana makes the terms and conditions of licenses issued to two of our competitors available to us. Over the longer term, such declines in Carrier Services revenue may be offset by increased Fixed revenue from broadband services to consumers and enterprises in Guyana, increased Mobility revenue from an increase in regulated local calling rates in Guyana or possible economic growth within that country.
Within our US Telecom segment, Carrier Services revenue may decrease fromas a result of the impact of continued reduced contractual wholesale roaming rates and imposed revenue caps with our Carrier customers. We believe that maintaining roaming favorable to our carrier customers allows us to preserve revenue for a longer period of time while creating the potential for long-lived shared infrastructure solutions for carriers in areas they may consider to be non-strategic.
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The most significant competitive factor we face within our US Telecom segment is the extent to which our carrier customers in our wholesale carrier services business choose to roam on our networks and lease our tower space and transport services or elect to build or acquire their own infrastructure in a market, reducing or eliminating their need for our services in those markets. We also face competition from other providers of such shared infrastructure solutions. In the past, we have entered into buildout projects with existing carrier customers to help these customers accelerate the buildout of a given area in exchange for the carrier’s agreement to lease us spectrum in that area and enter into a contract with specific pricing and terms. Historically, these arrangements have differed from our FirstNet Transaction and have typically included a purchase right in favor of the carrier to purchase that portion of the network for a predetermined price, depending on when the right to purchase is exercised.
Other Communications Services Revenue. Other Communications Services revenue includes miscellaneous services that the operations within our International Telecom segment provide to retail subscribers. Other Communications Services revenue increased to $0.4$0.5 million from $0.2$0.3 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
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Construction Revenue
Construction revenue represents revenue generated within our US Telecom segment for the construction of network cell sites related to the FirstNet Agreement. During the three months ended June 30,March 31, 2023 and 2022, and 2021, Construction revenue decreased to $3.3$0.6 million from $9.3$2.0 million, respectively, as a result of a decrease in the number of sites completed during the three months ended June 30, 20222023 as compared to the same period in 2021.2022. As of June 30, 2022, 65%March 31, 2023, approximately 75% of the cell sites related to the FirstNet Agreement were completed and we expect another 20%to substantially complete the build by the end of the total build to be completed during second half of 20222023 with the remainder to be completed in early 2023.
2024.
Other Revenue
Renewable Energy Revenue. We did not generate any renewable energy revenue during the three months ended June 30, 2022 or 2021 as a result of the Vibrant Transaction.
Managed Services Revenue. Managed Services revenue is generated within both our International and US Telecom segments and includes network, application, infrastructure, and hosting services.
Managed Services revenue increased by $2.8$0.4 million, or 11.4%, to $4.4$3.9 million from $1.6$3.5 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, as a result of the Alaska Transaction, which generated $3.2 million of Managed Services revenue during the three months ended June 30, 2022respectively.
International Telecom.. Our Managed Services revenue in our International Telecom segment decreased $0.4increased $0.1 million to $1.3 million, or 25.0%8.3%, tofrom $1.2 million from $1.6 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
US Telecom. Within our US Telecom segment, Managed Services revenue increased $0.3 million, or 13.0%, to $2.6 million from $2.3 million for the three months ended March 31, 2023 and 2022, respectively.
We expect that Managed Services revenue may increase in our both our US and International Telecom segments as a result of our continued effort to sell certain Managed Services solutions to both our consumer and business customers in all of our markets.
Operating Expenses
Cost of communication services and other. Cost of communication services and other are charges that we incur for voice and data transport circuits (in particular, the circuits between our Mobility sites and our switches), internet capacity, video programming costs, access fees we pay to terminate our calls, telecommunication spectrum fees and direct costs associated within our managed services businesses. Cost of communication services and otherThese costs also includesinclude expenses associated with developing, operating, upgrading and supporting our telecommunications networks, including the salaries and benefits paid to employees directly involved in the development and operation of those businesses, as well as bad debt reservescredit loss allowances and the cost of handsets and customer resale equipment incurred by our retail businesses.
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Cost of communication services and other increased by $29.4$6.0 million, or 60.6%8.2%, to $77.9$79.0 million from $48.5$73.0 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The net increase in cost of communication services and other, within our segments, consisted of the following:
● | International Telecom.Within our International Telecom segment, cost of communication services and other increased by |
● | US Telecom. Cost of communication services and other within our US Telecom segment increased by |
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We expect that cost of communication services and other may increase within both our International and US Telecom segmentssegment due to an expected increase in roaming and other termination costs if COVID-19 related travel restrictions continuetourism continues to be lifted.return to pre-pandemic levels. Within the US Telecom segment, we expect anthese expenses are expected to increase in the expenses associatedconnection with our funding award under the CARES Actexpected increase in fixed revenue, and anticipated expenses in connection with our performance underrelated to the construction phase of our FirstNet Transaction which is expected to be substantially completed in early 2023. In addition, we expect cost of services may increase as a result of continued inflationary pressure, issues facing the global supply chain and geopolitical uncertainty.
Cost of construction revenue. Cost of construction revenue includes the expenses incurred in connection with the construction of and the delivery to AT&T of cell sites in accordance with our FirstNet Agreement. During the three months ended June 30,March 31, 2023 and 2022, and June 30, 2021, cost of construction revenue decreased to $3.3$0.6 million from $9.5$2.0 million as a result of a decrease in the number of sites completed during the three months ended June 30, 20222023 as compared to the same period in 2021.2022. As of June 30, 2022, 65%March 31, 2023, 75% of the cell sites related to the FirstNet Agreement were completed and we expect another 20%to substantially complete the build by the end of the total build to be completed during the second half of 20222023 with the remainder to be completed in early 2023.
2024.
Selling, general and administrative expenses. Selling, general and administrative expenses include salaries and benefits we pay to sales personnel, customer service expenses and the costs associated with the development and implementation of our promotional and marketing campaigns. Selling, general and administrative expenses also include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources as well as internal costs associated with our performance of due-diligence and integration related costs associated with acquisition activities.
Selling, general and administrative expenses increased by $18.5 million,$6.4 million, or 45.5%11.7%, to $59.2$61.3 million from $40.7$54.9 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The net increase in selling, general and administrative expenses, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, our selling, general and administrative expenses increased by |
● | US Telecom. Selling, general and administrative expenses increased within our US Telecom segment by |
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● | Corporate Overhead. Selling, general and administrative expenses within our corporate overhead increased by |
Within both our International and US Telecom segments, weWe expect that selling, general and administrative expenses may increase if COVID-19 related travel restrictions continuein our international telecom segment to be lifted. We alsosupport our expanded operations. Within the US Telecom segment, we expect an increase in 2022 in these costs as a result of expected costs associated with our recent funding award under the CARES Act, our recently received grant to bring fiber connectivity to certain areas in southern Apache County, Arizona and the cost impact of the construction phase of the FirstNet Transaction, which is expected to be completed during early 2023.the Sacred Wind Transaction, our commitments under the Cares Act funding and other network expansions in Alaska and the southwest US. Our Corporate Overhead segment may also experience an increase in these expenses to support our recent acquisitions and expanding operations. In addition, we expect our selling, general, and administrative expenses may increase as a result of continued inflationary pressure, issues facing the global supply chain and geopolitical uncertainty.
Stock-based compensation. Stock-based compensation represents a non-cash expense related to the amortization of the grants of equity awards to employees and directors.
Stock-based compensation for the three months ended March 31, 2023 and 2022 was $1.8 million and $1.5 million, respectively.
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Transaction-related charges. Transaction-related charges include the external costs, such as legal, tax, accounting and consulting fees directly associated with acquisition and disposition-related activities, which are expensed as incurred. Transaction-related charges also include certain internal personnel costs incurred as a result of the completion of an acquisition or disposition. Transaction-related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions or dispositions or any integration-related costs.
We incurred $0.4 million and $1.4 milliona nominal amount of transaction-related charges primarily related to the Alaska Transaction, during the three months ended June 30, 2022March 31, 2023 and 2021, respectively.$0.6 million during the three months ended March 31, 2022.
Restructuring expenses. In connection with our repositioning of our legacy wholesale roaming operations in our US Telecom segment, we recorded a $2.9 million restructuring charge during the three months ended March 31, 2023 related to the decommissioning of certain cell sites.
Depreciation and amortization expenses. Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment.
Depreciation and amortization expenses increased by $14.1$3.1 million, or 71.6%9.3%, to $33.8$36.4 million from $19.7$33.3 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The net increase in depreciation and amortization expenses, within our segments, consisted primarily of the following:
● | International Telecom. Depreciation and amortization expenses increased within our International Telecom segment by |
● | US Telecom. Depreciation and amortization expenses increased within our US Telecom segment by |
● | Corporate Overhead. Depreciation and amortization expenses decreased within our corporate overhead by |
We expect depreciation and amortization expense to increase within all of our International Telecom and US Telecom segments as we acquire tangible assets to expand or upgrade our telecommunications networks.
Amortization of intangibles from acquisitions. Amortization of intangibles from acquisitions include the amortization of customer relationships and trade names related to our completed acquisitions.
Amortization of intangibles from acquisitions increaseddecreased by $2.9$0.1 million to $3.3$3.2 million from $0.4$3.3 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively,respectively.
We expect that amortization of intangibles from acquisitions will decrease as a result of the Alaska Transaction.such costs continue to amortize.
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Loss on disposition of long-lived assets. During the three months ended June 30, 2022,March 31, 2023, we recorded a nominal gain on the disposaldisposition of certain assets.long-lived assets of $0.2 million within our US Telecom segment.
During the three months ended June 30, 2021,March 31, 2022, we recorded a loss on the disposition of long-lived assets of $0.7$3.4 million. Of this amount, $2.4 million primarily relatedwas incurred in our US Telecom segment relating to the Vibrant Transaction.disposal of certain assets while $1.0 million was incurred in our International Telecom segment as a result of the modification of agreements for the use of other certain assets.
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Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short-term investment balances and werebalances. Interest income was a nominal amounts duringamount for both the three months ended June 30, 2022March 31, 2023 and 2021.2022.
Interest expense. We incur interest expense on the 2019 CoBank Credit Facility, the Alaska Credit Facility (beginning in July 2021),and Term Facilities, the Viya Debt, the One Communications Debt and the Receivables Credit FacilityFacility. Beginning in the fourth quarter of 2022 and the first quarter of 2023, interest expense also includes interest expense on the Sacred Wind Term Debt and the GTT Credit Facilities (each as defined below). InterestPreviously, we also incurred interest expense on the One Communications Debt, which matured on December 22, 2022. In addition, interest expense also includes commitment fees, letter of credit fees and the amortization of debt issuance costs.
Interest expense increased to $4.2$8.8 million from $1.1$3.4 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, as additional interest expense was incurred as a result of newan increase in borrowings under our credit facilities, the 2019 CoBank Credit Facility, the Alaska Credit Facilityinclusion of Sacred Wind Term Debt and the ReceivablesGTT Credit FacilityFacilities, as well as an increase in interest rates on those facilities.
all floating-rate borrowings.
We expect that interest expense willmay increase in future periods as a result of an expected increase in bothincreased interest rates and borrowings under the 2019 CoBank Credit Facility and the Receivables Credit Facility.
borrowings.
Other income (expenses). Other income (expenses) represents miscellaneous non-operational income earned and expenses incurred.
For the three months ended June 30, 2022,March 31, 2023, other income (expenses) was $2.7$0.2 million of expenseincome primarily related to expenses associated with certain employee benefit plans, lossesgains from our noncontrolling investments and losses on foreign currency transactions.
investments.
For the three months ended June 30, 2021,March 31, 2022, other income (expenses) was an expense$4.8 million of $0.1 million which wasincome primarily related to lossesgains from our noncontrolling investments and on foreign currency transactions. These losses were partially offset by miscellaneous income generated during the quarter.non-controlling investments.
Income taxes. Our effective tax rate for the three months ended June 30,March 31, 2023 and 2022 was 9.5% and 2021 was 75.2% and (88.2%)296.7%, respectively.
We recorded an income tax benefit of $4.0$0.7 million in relation to a pre-taxpretax loss of $5.3$7.8 million for the three months ended June 30, 2022.March 31, 2023. The effective tax rate for the three months ended June 30, 2022March 31, 2023 was primarily impacted by the following items (i) the mix of income generated among the jurisdictions in which we operate, (ii) a net increase related to valuation allowances placed on certain deferred tax assets and (ii)(iii) discrete items including a $3.3$0.6 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $0.3 million expense for interest on unrecognized tax positions.
We recorded an income tax provision of $3.0 million in relation to income before taxes of $1.0 million for the three months ended March 31, 2022. The effective tax rate for the three months ended June 30, 2021March 31, 2022 was primarily impacted by the following items: (i) a $0.5 million net increase of unrecognized tax positions recognized discretely, (ii) a $2.1 million net expense recognized discretely to record a valuation allowance on certain deferred tax assets that are not expected to be realizable based on the weight of positive and negative evidence, and (iii) the mix of income generated among the jurisdictions in which we operate and (ii) discrete items including a $3.4 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $0.5 million expense for interest on unrecognized tax positions.
operate.
Our effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or onetime items in the future and the mix of income in any given year generated among the jurisdictions in which we operate. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex applications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include
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estimates and judgments by management. Accordingly, we could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
Net income attributable to noncontrolling interests, net of tax. Net income attributable to noncontrolling interests, net of tax reflected an allocation of $0.8 million of losses and $1.3 million of income generated by our less than wholly owned subsidiaries for the three months ended June 30, 2022 and 2021, respectively. Changes in net income attributable to noncontrolling interests, net of tax, within our segments, consisted of the following:
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was a loss of $0.5 million for the three months ended June 30, 2022 as compared to income of $2.0 million for the three months ended June 30, 2021.
On a per diluted share basis, net income (loss) was a loss of $0.11 per diluted share for the three months ended June 30, 2022 (which includes the impact of accrued preferred dividends of $1.2 million) as compared to income of $0.13 per diluted share for the three months ended June 30, 2021.
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Selected Segment Financial Information
The following represents selected segment information for the six months ended June 30, 2022 and 2021 (in thousands):
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| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 7,291 | | $ | 674 | | $ | — | | $ | — | | $ | 7,965 |
Mobility - Consumer | | | 41,249 | | | 3,006 | | | — | | | — | | | 44,255 |
Total Mobility | | | 48,540 | | | 3,681 | | | — | | | — | | | 52,220 |
Fixed - Business | | | 34,250 | | | 59,011 | | | — | | | — | | | 93,261 |
Fixed - Consumer | | | 82,446 | | | 38,136 | | | — | | | — | | | 120,583 |
Total Fixed | |
| 116,696 | |
| 97,147 | |
| — | |
| — | |
| 213,843 |
Carrier Services | | | 6,823 | | | 64,742 | | | — | | | — | | | 71,565 |
Other | |
| 710 | |
| — | |
| — | |
| — | |
| 710 |
Total Communication Services Revenue | | | 172,769 | | | 165,569 | | | — | | | — | | | 338,338 |
Construction | | | — | | | 5,283 | | | — | | | — | | | 5,283 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | — | | | — | | | — |
Managed Services | | | 2,422 | | | 5,474 | | | — | | | — | | | 7,896 |
Total Other Revenue | | | 2,422 | | | 5,474 | | | — | | | — | | | 7,896 |
Total Revenue | | | 175,191 | | | 176,326 | | | — | | | — | | | 351,517 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 23,450 | |
| (4,914) | |
| (45) | |
| (16,658) | |
| 1,833 |
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| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2021 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 2,495 | | $ | 918 | | $ | — | | $ | — | | $ | 3,413 |
Mobility - Consumer | | | 42,080 | | | 4,349 | | | — | | | — | | | 46,429 |
Total Mobility | | | 44,575 | | | 5,267 | | | — | | | — | | | 49,842 |
Fixed - Business | | | 33,488 | | | 4,728 | | | — | | | — | | | 38,216 |
Fixed - Consumer | | | 84,385 | | | 7,520 | | | — | | | — | | | 91,905 |
Total Fixed | |
| 117,873 | |
| 12,248 | |
| — | |
| — | |
| 130,121 |
Carrier Services | | | 4,406 | | | 38,774 | | | — | | | — | | | 43,180 |
Other | |
| 456 | |
| — | |
| — | |
| — | |
| 456 |
Total Communication Services Revenue | | | 167,310 | | | 56,289 | | | — | | | — | | | 223,599 |
Construction | | | — | | | 21,632 | | | — | | | — | | | 21,632 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 418 | | | — | | | 418 |
Managed Services | | | 2,726 | | | — | | | — | | | — | | | 2,726 |
Total Other Revenue | | | 2,726 | | | — | | | 418 | | | — | | | 3,144 |
Total Revenue | | | 170,036 | | | 77,921 | | | 418 | | | — | | | 248,375 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 27,786 | | | (1,090) | | | (1,433) | | | (19,009) | | | 6,254 |
A comparison of our segment results for the six months ended June 30, 2022, and 2021 is as follows:
International Telecom. Revenues within our International Telecom segment increased $5.2 million, or 3.1%, to $175.2 million from $170.0 million for the six months ended June 30, 2022 and 2021, respectively, as a result of an increase in Fixed and Mobility subscribers within our international markets. In addition, our US Virgin Islands and Bermuda markets recognized an increase in Carrier Services revenue as a result of increased tourism as certain COVID-19 related travel and stay-at-home restrictions were lifted. These increases, however, were partially offset by a $2.7 million reduction in federal support revenues in the US Virgin Islands.
Operating expenses within our International Telecom segment increased by $9.5 million, or 6.7%, to $151.7 million from $142.2 million for the six months ended June 30, 2022 and 2021, respectively. The increase was primarily the result of an increase in direct costs, primarily roaming expenses due to increased tourism in the US Virgin Islands and Bermuda, equipment expenses due to increased handset sales and an increase in sales and marketing expenses to support the expansion of our subscriber base.
As a result, our International Telecom segment’s operating income decreased $4.3 million, or 15.5%, to $23.5 million from $27.8 million for the six months ended June 30, 2022 and 2021, respectively.
US Telecom. Revenue within our US Telecom segment increased by $98.4 million, or 126.3%, to $176.3 million from $77.9 million for the six months ended June 30, 2022 and 2021, respectively, primarily as a result of $120.9 million associated with the Alaska Transaction partially offset by a $16.3 million reduction in construction revenue related to the FirstNet Transaction as well as a reduction in roaming revenue due to the restructuring of certain carrier contracts in our western United States operations.
Operating expenses within our US Telecom segment increased $102.2 million to $181.2 million from $79.0 million for the six months ended June 30, 2022 and 2021, respectively, as a result of the Alaska Transaction and increases in other expenses being incurred in connection with both the FirstNet Transaction and the CARES Act-funded
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build-out of rural broadband operations, partially offset be a decrease in FirstNet construction costs of $16.8 million. In addition, certain costs were incurred during the six months ended June 30, 2022 that were not incurred during the six months ended June 30, 2021 as a result of the impact of COVID-19 restrictions.
As a result of the above, our US Telecom segment’s operating loss increased by $3.8 million to a loss of $4.9 million from a loss of $1.1 million for the six months ended June 30, 2022 and 2021, respectively.
Renewable Energy. Until the completion of the Vibrant Transaction on January 27, 2021, we distributed generation solar power to commercial and industrial customers under the Vibrant name in India. Accordingly, we did not generate revenue or incur operating expenses within our Renewable Energy segment subsequent to that date. For the six months ended June 30, 2021, we generated revenue, incurred operating expenses and reported an operating loss of $0.4 million, $1.1 million and $0.7 million, respectively.
The following represents a year over year discussion and analysis of our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | |
| | Six Months Ended | | Amount of | | Percent |
| |||||
| | June 30, | | Increase | | Increase |
| |||||
| | 2022 | | 2021 | | (Decrease) | | (Decrease) |
| |||
|
| | | | | | | | | | | |
REVENUE: | | |
|
| |
|
| |
|
|
| |
Communication services | | $ | 338,338 | | $ | 223,599 | | $ | 114,739 |
| 51.3 | % |
Construction | | | 5,283 | | | 21,632 | | | (16,349) |
| (75.6) | |
Other | |
| 7,896 | |
| 3,144 | |
| 4,752 |
| 151.1 | |
Total revenue | | | 351,517 | | | 248,375 | | | 103,142 |
| 41.5 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Cost of communication services and other | | | 150,871 | | | 97,986 | | | 52,885 |
| 54.0 | |
Cost of construction revenue | | | 5,319 | | | 22,142 | | | (16,823) | | (76.0) | |
Selling, general and administrative | | | 115,519 | | | 78,344 | | | 37,175 |
| 47.5 | |
Transaction-related charges | | | 966 | | | 2,126 | | | (1,160) |
| (54.6) | |
Depreciation and amortization | | | 67,109 | | | 39,849 | | | 27,260 |
| 68.4 | |
Amortization of intangibles from acquisitions | | | 6,508 | | | 813 | | | 5,695 |
| n/m | |
Loss on disposition of long-lived assets | | | 3,392 | | | 861 | | | 2,531 |
| 294.0 | |
Total operating expenses | | | 349,684 | | | 242,121 | | | 107,563 |
| 44.4 | |
Income (loss) from operations | | | 1,833 | | | 6,254 | | | (4,421) |
| (70.7) | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
Interest income | | | 3 | | | 40 | | | (37) |
| (92.5) | |
Interest expense | | | (7,593) | | | (2,285) | | | (5,308) |
| 232.3 | |
Other income (expense) | | | 1,474 | | | 2,309 | | | (835) |
| (36.2) | |
Other income (expense), net | | | (6,116) | | | 64 | | | (6,180) |
| n/m | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (4,283) | |
| 6,318 | |
| (10,601) |
| (168) | |
Income tax provision (benefit) | |
| (1,018) | |
| (1,247) | |
| 229 |
| (18.4) | |
NET LOSS | |
| (3,265) | |
| 7,565 | |
| (10,830) |
| (143.2) | |
Net income attributable to noncontrolling interests, net of tax: | |
| 1,794 | |
| (2,842) | |
| 4,636 |
| (163.1) | |
NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (1,471) | | $ | 4,723 | | $ | (6,194) |
| (131.1) | % |
n/m = not meaningful
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Communications Services Revenue
Mobility Revenue. Mobility revenue increased by $2.4 million, or 4.8%, to $52.2 million for the six months ended June 30, 2022 from $49.8 million for the six months ended June 30, 2021. Of this increase, $4.6 million related to an increase in revenue from business customers while revenue from consumers declined by $2.2 million. The increase in Mobility revenue, within our segments, consisted of the following:
Fixed Revenue. Fixed revenue increased by $83.7 million, or 64.3%, to $213.8 million from $130.1 million for the six months ended June 30, 2022 and 2021, respectively. Of this increase, $55.0 million and $28.7 million relate to revenue from business and consumer customers, respectively. The increase in Fixed revenue, within our segments, consisted of the following:
Carrier Services Revenue. Carrier Services revenue increased by $28.4 million, or 65.7%, to $71.6 million from $43.2 million for the six months ended June 30, 2022 and 2021, respectively. The increase, within our segments, consisted of the following:
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Other Communications Services Revenue. Other Communications Services revenue increased to $0.7 million from $0.5 million for the six months ended June 30, 2022 and 2021, respectively.
Construction Revenue
During the six months ended June 30, 2022 and 2021, Construction revenue decreased to $5.3 million from $21.6 million, respectively, as a result of a decrease in the number of sites completed during 2022 as compared to 2021. As of June 30, 2022, 65% of the cell sites related to the FirstNet Agreement were completed and we expect another 20% of the total build to be completed during the second half 2022 with the remainder to be completed in early 2023.
Other Revenue
Renewable Energy Revenue. As a result of the Vibrant Transaction, we did not generate any renewable energy revenue during the six months ended June 30, 2022 and generated $0.4 million of renewable energy revenue during the six months ended June 30, 2021.
Managed Services Revenue. Managed Services revenue increased by $5.2 million to $7.9 million from $2.7 million for the six months ended June 30, 2022 and 2021, respectively, as a result of the Alaska Transaction, which generated $5.5 million during the six months ended June 30, 2022. Our Managed Services revenue in our International Telecom segment decreased $0.3 million, or 11.1%, to $2.4 million from $2.7 million for the six months ended June 30, 2022 and 2021, respectively.
Operating Expenses
Cost of communication services and other. Cost of communication services and other increased by $52.9 million, or 54.0%, to $150.9 million from $98.0 million for the six months ended June 30, 2022 and 2021, respectively. The net increase in cost of communication services and other, within our segments, consisted of the following:
Cost of construction revenue. During the six months ended June 30, 2022 and June 30, 2021, cost of construction revenue decreased to $5.3 million from $22.1 million as a result of a decrease in the number of sites completed during 2022 as compared to 2021. As of June 30, 2022, 65% of the cell sites related to the FirstNet Agreement were completed and we expect another 20% of the total build to be completed during the second half of 2022 with the remainder to be completed in early 2023.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by $37.2 million, or 47.5%, to $115.5 million from $78.3 million for the six months ended June 30, 2022 and 2021, respectively. The net increase in selling, general and administrative expenses, within our segments, consisted of the following:
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Transaction-related charges.We incurred $1.0 million and $2.1 million of transaction-related charges during the six months ended June 30, 2022 and 2021, respectively. Transaction-related charges incurred during both periods were primarily related to the Alaska Transaction.
Depreciation and amortization expenses. Depreciation and amortization expenses increased by $27.3 million, or 68.6%, to $67.1 million from $39.8 million for the six months ended June 30, 2022 and 2021, respectively. The net increase in depreciation and amortization expenses, within our segments, consisted primarily of the following:
Amortization of intangibles from acquisitions.Amortization of intangibles from acquisitions increased by $5.7 million to $6.5 million from $0.8 million for the six months ended June 30, 2022 and 2021, respectively, as a result of the Alaska Transaction.
Loss on disposition of long-lived assets. During the six months ended June 30, 2022, we recorded a loss on the disposition of long-lived assets of $3.4 million. Of this amount, $2.4 million was incurred in our US Telecom segment relating to the disposal of certain assets while $1.0 million was incurred in our International Telecom segment as a result of the modification of agreements for the use of other certain assets.
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During the six months ended June 30, 2021, we recorded a loss on the disposition of long-lived assets of $0.9 million, primarily related to the Vibrant Transaction.
Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short-term investment balances and were nominal amounts during both the six months ended June 30, 2022 and 2021.
Interest expense. Interest expense increased to $7.6 million from $2.3 million for the six months ended June 30, 2022 and 2021, respectively, as additional interest expense was incurred as a result of new borrowings under the 2019 CoBank Credit Facility, the Alaska Credit Facility and the Receivables Credit Facility as well as an increase in interest rates.
Other income (expenses). For the six months ended June 30, 2022, other income (expenses) was $1.5 million of income primarily related to gains from our noncontrolling investments partially offset by increased expenses associated with certain employee benefit plans and losses on foreign currency transactions.
For the six months ended June 30, 2021, other income (expense) was income of $2.3 million which was primarily related to gains from our noncontrolling investments partially offset by a net loss on foreign currency transactions.
Income taxes.Our effective tax rate for the six months ended June 30, 2022 and 2021 was 23.8% and (19.7%), respectively.
We recorded an income tax benefit of $1.0 million in relation to a pretax loss of $4.3 million for the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2022 was primarily impacted by the following items (i) the mix of income generated among the jurisdictions in which we operate, (ii) a $2.1 million net expense recognized discretely to record a valuation allowance on certain deferred tax assets that are not expected to be realizable based on the weight of positive and negative evidence and (iii) discrete items including a $3.3 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration, and a $0.8 million expense for interest on unrecognized tax positions.
The effective tax rate for the six months ended June 30, 2021 was primarily impacted by the following items: (i) the mix of income generated among the jurisdictions in which we operate and (ii) discrete items including a $3.4 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration and a $1.0 million expense for interest on unrecognized tax positions.
Our effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or onetimeone-time items in the future and the mix of income in any given year generated among the jurisdictions in which we operate. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex applications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgments by management. Accordingly, we could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
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Net income attributable to noncontrolling interests, net of tax. Net income attributable to noncontrolling interests, net of tax reflected an allocation of $1.8losses of $1.2 million of losses and $2.8$1.0 million of income generated by our less than wholly owned subsidiaries for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Changes in net income attributable to noncontrolling interests, net of tax, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, net income attributable to noncontrolling interests, net of tax |
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as a result of |
● | US Telecom. Within our US Telecom segment, |
Net income (loss)loss attributable to ATN International, Inc. stockholders. Net income (loss)loss attributable to ATN International, Inc. stockholders was a loss of $1.5$5.9 million for the sixthree months ended June 30, 2022March 31, 2023 as compared to incomea loss of $4.7$0.9 million for the sixthree months ended June 30, 2021.March 31, 2022.
On a per diluted share basis, net income (loss)loss was a loss of $0.24$0.44 per diluted share for the sixthree months ended June 30, 2022 (which includes the impact of accrued preferred dividends of $2.3 million)March 31, 2023 as compared to incomea loss of $0.30$0.13 per diluted share for the sixthree months ended June 30, 2021.
March 31, 2022. Such per share amounts were negatively impacted by accrued preferred dividends of $1.0 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively.
Regulatory and Tax Issues
We are involved in a number ofseveral regulatory and tax proceedings. A material and adverse outcome in one or more of these proceedings could have a material adverse impact on our financial condition and future operations. For a discussion of ongoing proceedings, see Note 14 toof the Consolidated Financial Statements in this Report.
Tax Reform
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017, has resulted in significant changes to the US corporate income tax system and the US Virgin Islands mirror code which replaces “United States” with “US Virgin Islands” throughout the Internal Revenue Code. The Tax Act transitions international taxation from a worldwide system to a modified territorial system and includes two base erosion prevention measures on non-US earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to US taxation as global intangible low taxed income (“GILTI”), eliminates the deduction of certain payments made to related foreign corporations, and imposes a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (“BEAT”). These changes became effective beginning in 2018 but did not have an impact on us in the initial or following years. Based on our forecasted income for 2022, we are not currently projecting a GILTI inclusion. We do not expect we will be subject to BEAT and therefore have not included any tax impacts of BEAT in our consolidated financial statements for the quarter ended June 30, 2022.
Liquidity and Capital Resources
Historically, we have met our operational liquidity needs and have funded our capital expenditures and acquisitions through a combination of cash-on-hand, internally generated funds, proceeds from dispositions, borrowings under our credit facilities and seller financings. We believe our current cash, cash equivalents, short term investments and availability under our current credit facilities will be sufficient to meet our cash needs for at least the next twelve months for working capital needs and capital expenditures.
Total liquidity. As of June 30, 2022,March 31, 2023, we had approximately $72.2$61.0 million in cash, cash equivalents, and restricted cash. Of this amount, $25.5$25.7 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. In addition, we had approximately $396.6$464.7 million of debt, net of unamortized deferred financing costs, as of June 30, 2022.March 31, 2023. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns.
Uses of Cash
Acquisitions and investments. We have historically funded our acquisitions with a combination of cash-on-hand, borrowings under our credit facilities as well as equity investor and seller financings.
Sacred Wind Transaction. On November 7, 2022, we assumed $31.6 million of debt in connection with the Sacred Wind Transaction. See Acquisition of Sacred Wind Enterprises.
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Alaska Transaction. On July 22, 2021, Alaska Communications entered into a new debt financing in connection with the Alaska Transaction. See Acquisition of Alaska Communications System Group, Inc.
We continue to explore opportunities to expand our telecommunications business or acquire new businesses and telecommunications licenses in the United States, the Caribbean and elsewhere. Such acquisitions may require external financing. While there can be no assurance as to whether, when or on what terms we will be able to acquire any such businesses or licenses or make such investments, such acquisitions may be completed through the issuance of shares of our capital stock, payment of cash or incurrence of additional debt. From time to time, we may raise capital ahead of any definitive use of proceeds to allow us to move more quickly and opportunistically if an attractive investment materializes.
Cash used in investing activities. Cash used in investing activities increased by $49.4was $52.8 million to $74.7 million from $25.3and $34.5 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Capital expenditures for the six months ended June 30, 2022 and 2021 were $75.1 million and $41.9 million, respectively. Of these capital expenditure amounts, $3.9 million and $6.5 million for the six months ended June 30, 2022 and 2021, respectively, are reimbursable. We also incurred expenditures of $1.4 million and $5.2 million during the six months ended June 30, 2022 and 2021, respectively, for strategic investments. Partially offsetting these expenditures were cash receipts of $1.8 million and $18.6 million during the six months ended June 30, 2022 and 2021, respectively, for the proceeds from the Vibrant Transaction and a receipt of $3.3 million during the six months ended June 30, 2021 for certain government grants.
Cash provided by (used in) financing activities. Our financing activities provided us with $15.4 million during the six months ended June 30, 2022. For the six months ended June 30, 2021, we used $11.2 million for our financing activities. The net changeincrease in cash used for investing activities of $26.6$18.3 million was primarily athe result of an increase in capital expenditures of $18.3 million, which includes an increase in reimbursable capital expenditures under certain government programs of $1.9 million.
Cash provided by financing activities. Cash provided by financing activities increased by $18.8 million to $38.0 million from $19.2 million for the three months ended March 31, 2023 and 2022, respectively. This increase was primarily related to an increase in borrowings, fromnet of repayments, under our credit facilities of $39.4$22.4 million and a $1.9 million reduction in cash used to repurchase non-controlling interests in certain less than wholly-owned subsidiaries. These increases in cash provided by financing activities were partially offset by thea reduction in borrowings, due to repayments under our customer receivable credit facility of $4.3 million and a $0.6 million increase in our repayments under those facilities of $25.4 million. Other significant changes in financing activities included the decreases in payments made for the repurchase of noncontrolling interests in our less than wholly-owned subsidiaries, distributions made to the minority stockholders of our less than wholly-owned subsidiaries and the repurchase ofdividends paid on our common stock of $8.2 million, $3.1 million and $1.3 million, respectively.
stock.
Working Capital. Historically, we have internally funded our working capital needs. Pursuant to the FirstNet Agreement, AT&T has the option to repay construction costs, with interest, over an eight-year period. To fund the working capital needs created by AT&T’s option to extend its payment terms, we completed the Receivables Credit Facility, as discussed below, on March 26, 2020.
Capital expenditures. Historically, a significant use of our cash has been for capital expenditures to expand and upgrade our telecommunications networks and to expand our previously owned renewable energy operations.business support systems.
For the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, we spent approximately $75.1$52.7 million and $41.9$34.5 million, respectively, on capital expenditures relating to our telecommunications networks and our business support systems of which $3.9$2.1 million and $6.5$0.2 million, respectively, are reimbursable.reimbursable under various government programs. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
| | | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Six months ended June 30, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2022 | | $ | 33,870 | | $ | 40,804 | | $ | 424 | | $ | 75,098 |
2021 | | | 21,843 | | | 18,792 | | | 1,297 | | | 41,932 |
| | | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2023 | | $ | 21,464 | | $ | 31,261 | | $ | — | | $ | 52,725 |
2022 | | | 15,170 | | | 19,095 | | | 203 | | | 34,468 |
(1) | Corporate and other items refer to corporate overhead costs and consolidating |
We are continuing to invest in our telecommunication networks along with our operating and business support systems in many of our markets. SuchFor the year ended December 31, 2023, such investments primarily relate to the upgrade and expansion of our networks and are expected to total approximately $150$160 million to $160$170 million, net of reimbursable amounts, for the full year 2022.
We expectand will primarily relate to fund our current capital expenditures primarily from our current cash balances, cash generated from operationsnetwork expansion and our existing credit facilities including the Receivables Credit Facility.
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upgrades which are expected to further drive subscriber and revenue growth in future periods.
Income taxes. We have historically used cash-on-hand to make payments for income taxes. Our policy is to allocate capital where we believe we will get the best returns and to date has been to indefinitely reinvest the undistributed earnings of our foreign subsidiaries. As we continue to reinvest our remaining foreign earnings, no additional provision for income taxes has been made on accumulated earnings of foreign subsidiaries.
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Dividends. We use cash-on-hand to make dividend payments to our stockholders when declared by our Board of Directors. For the sixthree months ended June 30, 2022,March 31, 2023, our Board of Directors declared $5.4$3.3 million of dividends to our stockholders which includes a $0.17$0.21 per share dividend declared on June 13, 2022March 14, 2023 and paid on July 8, 2022.April 7, 2023. We have declared quarterly dividends since the fourth quarter of 1998.
Stock Repurchase Plan. On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). We repurchased $0.9$1.4 million and $2.2$0.9 million of our common stock under the 2016 Repurchase Plan during the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. As of June 30, 2022,March 31, 2023, we had $19.5$18.0 million authorized and available for share repurchases under the 2016 Repurchase Plan.
Sources of Cash
Cash provided by operations. Cash provided by operating activities was $50.7$16.0 million for the six monthsyear ended June 30, 2022March 31, 2023 as compared to $27.5$11.4 million for the sixthree months ended June 30, 2021.March 31, 2022. The increase of $23.2$4.6 million was primarily related to a decrease in net income of $10.8 million offset by an increase in depreciationcash provided by operating assets and amortizationliabilities, primarily receivables of $1.9 million and certain accrued expenses of $33.0$2.9 million.
CoBank Credit Facility
On April 10, 2019, we entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (the(as amended, the “2019 CoBank Credit Facility”). The 2019 CoBank Credit Facility provides for a $200 million revolving credit facility that includes (i) up to $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $26.0$24.0 million of performance letters of credit have been issued and remain outstanding and undrawn as of June 30, 2022.March 31, 2023. The 2019 CoBank Credit Facility matures on April 10, 2024.
Amounts borrowed under the 2019 CoBank Credit Facility bear interest at a rate equal to, at our option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging between 1.25% to 2.25% or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.25%. Swingline loans bear interest at the base rate plus the applicable margin for base rate loans. The base rate is equal to the higher of (i) 1.00% plus the higher of (x) LIBOR for an interest period of one month and (y) LIBOR for an interest period of one week; (ii) the Federal Funds Effective Rate (as defined in the 2019 CoBank Credit Facility) plus 0.50% per annum; and (iii) the Prime Rate (as defined in the 2019 CoBank Credit Facility). The applicable margin is determined based on the Total Net Leverage Ratio (as defined in the 2019 CoBank Credit Facility). Under the terms of the 2019 CoBank Credit Facility, we must also pay a commitment fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
On November 7, 2022, we further amended the 2019 CoBank Credit Facility to allow for the incurrence of certain indebtedness related to payment guarantees in connection with its Replace and Remove project.
On December 28, 2022, we further amended the 2019 CoBank Credit Facility, effective November 7, 2022, to allow for certain transactions contemplated with our recently completed acquisition of Sacred Wind Enterprises, Inc.
The 2019 CoBank Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. Our investments in “unrestricted” subsidiaries and certain dividend payments to our stockholders are not limited unless the Total Net Leverage Ratio is equal to or greater than 1.75 to 1.0. The Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 2.75 to 1.0. In the event of a Qualifying Acquisition (as defined in the 2019 CoBank Credit Facility), the Total Net Leverage Ratio increases to 3.25 to 1.0 for the subsequent three fiscal quarters.
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The 2019 CoBank Credit Facility also provides for the incurrence by us of incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not to exceed $200 million (the
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“Accordion” “Accordion”). Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant.
As of June 30, 2022,March 31, 2023, we were in compliance with all of the financial covenants, had $78.0$122.0 million outstanding in borrowings and net of the $26.0$54.0 million of availability in connection with the 2019 CoBank Credit Facility. There were no outstanding performance letters of credit, had $96.0 million of availabilityinterest rate hedge agreements under the 2019 CoBank Credit Facility. Facility as of March 31, 2023.
Letter of Credit Facility
On November 14, 2022, we entered into General Agreement of Indemnity to issue performance Standby Letters of Credit on behalf of us and our subsidiaries. As of March 31, 2023, $4.2 million of Standby Letters of Credit had been issued under this agreement.
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a Credit Agreement (the “Alaska Credit Facility”) with Fifth Third Bank, National Association, as Administrative Agent, and a syndicate of lenders to provide a $35.0 million revolving facility (the “Alaska Revolving Facility”) and a $210.0 million initial term loan facility (the “Alaska Term Loan”).
On December 23, 2022, Alaska Communications entered into a First Amendment Agreement (the “ACS Amendment’). The ACS Amendment amends the Alaska Credit Facility to increase its Revolving Credit Commitment from $35.0 million to $75.0 million and Term Loan Commitment from $210 million to $230 million. As a part of the transaction, the Term Loan commitment was fully funded as the outstanding Revolving Credit Commitment balance was transferred.
As of June 30, 2022, $210.0March 31, 2023, Alaska Communications had drawn $17.0 million was outstanding under the Alaskaon its Revolving Credit Commitment and had $58.0 million is available to draw. The Term Loan balance was $230.0 million and $10.0 million was outstanding underprincipal payments commence in the Alaska Revolving Facility.fourth quarter of 2023. Both facilities mature on July 22, 2026.2026
In addition to the above changes, the ACS Amendment replaced the calculation of interest from an applicable margin applied to LIBOR with the same applicable margin applied to the Secured Overnight Financing Rate (“SOFR”) plus a 10-basis point adjustment.
We capitalized $6.6$7.3 million of fees associated with the Alaska Credit Facility which are being amortized over the life of the debt and $5.6$5.0 million were unamortized as of June 30, 2022.March 31, 2023.
The Alaska Credit Facility also provides for incremental term loansfacilities up to an aggregate principal amount of the greater of $70.0 million and Alaska Communications’ trailing twelve-month Consolidated EBITDA (as defined in the Alaska Credit Facility).
The key terms and conditions of the Alaska Credit Facility include the following:
● | Amounts outstanding bear an interest rate of |
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● | Principal repayments are due quarterly commencing in the fourth quarter of 2023 in quarterly amounts as follows: from the fourth quarter of 2023 through the third quarter of 2024, |
● | Alaska Communications is required to maintain financial ratios as defined in the Alaska Credit Facility, including (a) a maximum Consolidated Net Total Leverage Ratio of 4.00 to 1, stepping down to 3.75 to 1 beginning with the second quarter of 2024; and (b) a minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1; and |
● | The Alaska Credit Facility is non-recourse to |
Alaska Communication’s interest rate swap, which had been designated as a cash flow hedge with an interest rate of 1.6735%, expired on June 30, 2022. As of March 31, 2023, there are no outstanding interest rate hedge agreements associated with the Alaska Credit Facility.
Alaska Term Facility
On June 15, 2022, Alaska Communications Systems Holdings, the parent company of Alaska Communications, entered a secured lending arrangement with Bristol Bay Industrial, LLC. (the “Alaska Term Facility”).
The Alaska Term Facility provides for a secured delayed draw term loan in an aggregate principal amount of up to $7.5 million and the proceeds may be used to pay certain invoices from a contractor for work performed in connection with a fiber build. Interest on the Alaska Term Facility accrues at a fixed rate of 4.0% and is payable commencing on March 31, 2023. Scheduled quarterly payments of principal commenced on March 31, 2023. The Alaska Term Facility matures on June 30, 2024.
The Alaska Term Facility contains events of default customary for facilities of this type.
As of March 31, 2023, we had $7.1 million outstanding and no available borrowings under the Alaska Term Facility.
FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into a receivables credit facility with the Company,us, Commnet Wireless, and CoBank, ACB (the “Receivables Credit Facility”).
The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75.0 million and the proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the Receivables Credit Facility, which provide the loan
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security, relate to the obligations of AT&T under the FirstNet Agreement.
On December 29, 2021,23, 2022, CoBank amended the Receivables Credit Facility and extended the delayed draw period to December 31, 2022.
2023.
The maturity date for each loan will be set by CoBank and will match the weighted average maturity of the certain receivables financed.
Interest on the loans accrues at a fixed annual interest rate to be quoted by CoBank.
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The Receivables Credit Facility contains customary events of termination, representations and warranties, affirmative and negative covenants and events of default customary for facilities of this type.
As of June 30, 2022,March 31, 2023, we had $41.3$48.9 million outstanding, of which $5.3$6.8 million was current, and $$18.0 29.7 million of availability under the Receivables Credit Facility. We capitalized $0.9$0.8 million ofin fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.7$0.6 million were unamortized as of June 30, 2022. March 31, 2023.
GTT Credit Facilities
On September 5, 2022, GTT received approval from Republic Bank (Guyana) Limited for a $2.9 million term facility and a $5.7 million overdraft facility (the “GTT Credit Facilities”) subject to the approval from the Minister of Finance at the Bank of Guyana. Such approval from the Minister of Finance was received during the quarter ended March 31, 2023.
The GTT Credit Facilities are secured by real estate assets and carry a fixed interest rate of 7.5% which will be reviewed by the bank from time to time and subject to change at the bank’s discretion. The term facility is repayable over five years in equal monthly installments of principal and interest, commencing one month after funds are advanced. The overdraft facility will expire on October 11, 2023.
As of March 31, 2023, $3.6 million was outstanding under the overdraft facility and there were no outstanding amounts under the term facility.
Sacred Wind Term Debt
In connection with the Sacred Wind acquisition completed on November 7, 2022, we assumed $31.6 million of term debt (the “Sacred Wind Term Debt”) with the United States of America acting through the Administrator of the Rural Utilities Service (“RUS”). The loan agreements are dated as of October 23, 2006 and March 17, 2016. RUS provides financial assistance in the form of loans under the Rural Electrification Act of 1936 to furnish or improve telecommunications and/or broadband services in rural areas.
The Sacred Wind Term Debt is secured by substantially all assets of Sacred Wind and an underlying mortgage to the United States of America. These mortgage notes are to be repaid in equal monthly installments covering principal and interest beginning after date of issue and expiring by 2035.
The Sacred Wind Term Debt contains certain restrictions on the declaration or payment of dividends, redemption of capital stock or investment in affiliated companies without the consent by the RUS noteholders. The agreements also contain a financial covenant which Sacred Wind Enterprises was not in compliance with as of December 31, 2021. Sacred Wind Enterprises submitted a corrective action plan to comply with the financial covenant as of December 31, 2025. On May 5, 2022, Sacred Wind Enterprise’s corrective action plan was accepted by the RUS. As of March 31, 2023, we were in compliance with that corrective action plan.
As of March 31, 2023, $30.6 million was outstanding under the Sacred Wind Term Debt. Of that amount, $3.2 million was current and $27.4 million was long term.
Viya Debt
We, and certain of our subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid
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quarterly at a fixed rate of 4.0% per annum and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us.
We paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya Debt. The fee was recorded as a reduction to the Viya Debt carrying amount and is being amortized over the life of the loan.
As of June 30, 2022,March 31, 2023, $60.0 million of the Viya Debt remained outstanding and $0.4$0.3 million of the rate lock fee was unamortized.
On May 5, 2022, RTFC agreed to amend the Net Leverage Ratio to 7.0 to 1.0 through the maturity date of July 1, 2026. This covenant will beThe Ratio is tested onannually and we were in compliance with the Net Leverage Ratio as of December 31, 2022.
One Communications Debt
We havehad an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to maturematured and was repaid in full on August 31, 2022 and bearsDecember 22, 2022. This loan bore interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75% per annum paid quarterly.
The One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and financial covenants, tested annually as of and for the twelve months ended December 31st, that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (as defined in the One Communications Debt agreement).
As of June 30, 2022, $3.8 million of the One Communications Debt was outstanding.
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Factors Affecting Sources of Liquidity
Internally generated funds. The key factors affecting our internally generated funds are demand for our services, competition, regulatory developments, economic conditions in the markets where we operate our businesses and industry trends within the telecommunications and renewable energy industries.industry.
Restrictions under Credit Facility. Our 2019 CoBank Credit Facility contains customary representations, warranties and covenants, including covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes.
In addition,Maturity of Credit Facility. Our 2019 CoBank Credit Facility matures on April 10, 2024, which is within twelve months of the date these consolidated financial statements are available to be issued. At March 31, 2023, we owed $122.0 million for amounts drawn under the credit facility. For the year ended December 31, 2022, we generated positive cash flows from operating activities of $102.9 million. At March 31, 2023, we had $56.0 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash. If we are unable to refinance our existing debt or obtain additional financing on or before the maturity of the 2019 CoBank Credit Facility, contains athis could impact our ability to meet our obligations coming due within one year after issuance of these consolidated financial covenant that imposes a maximum ratio of indebtedness to EBITDA. As of June 30, 2022, we were in compliance with all ofstatements. We are actively pursuing debt financing options which would extend the financial covenantsmaturity date of the 2019 CoBank Credit Facility.Facility and may increase its capacity, and we expect to complete this financing process during 2023. In the event that we are unable to refinance or replace our 2019 CoBank Credit Facility, we have additional actions at our discretion, including reducing capital expenditures not required to sustain current network operations, reducing operating cash flows such as marketing and general and administrative expenses, and pursuing equity financing through issuance of equity securities in public markets. However, we do not currently believe these additional actions will be required to be implemented due to our debt financing plans.
In light of the plans discussed above, we believe it is probable we will meet our obligations as they come due for a minimum of twelve months from the issuance of date of these consolidated financial statements. .However, if we are unable to refinance its existing debt, obtain additional financing, or implement the above plans, as needed, there could be an adverse impact on our operations.
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Capital markets. Our ability to raise funds in the capital markets depends on, among other things, general economic conditions, the conditions of the telecommunications and renewable energy industries,industry, our financial performance, the state of the capital markets and our compliance with SEC requirements for the offering of securities.
We may file a new “universal” shelf registration statement with the SEC, to register potential future offerings of our securities.
Foreign Currency
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income within our income statement. During each of the three months ended June 30,March 31, 2023 and 2022, and 2021, we recorded $0.2 millionand $0.3 million, respectively, in losses on foreign currency transactions. During each of the six months ended June 30, 2022 and 2021, we recorded $0.4 million in losses on foreign currency transactions. We will continue to assess the impact of our exposure to the Guyana Dollar.
Inflation
Several of our markets have experienced increasesan increase in operating costs, some of which we believe, areis attributable to inflation. If inflation continues or worsens, it could negatively impact our Company by increasing our operating expenses. Inflation may lead to cost increases in multiple areas across our business, for example, rises in the prices of raw materials and manufactured goods, increased energy rates, as well as increased wage pressures and other expenses related to our employees. In particular, where we have agreed to undertake infrastructure build outs on a fixed budget for our carrier customers or by accepting government grants, inflation may result in build costs that exceed our original budget given the long delays experienced in procuring equipment and materials due to global supply chain delays. To the extent that we are unable to pass on these costs through increased prices, revised budget estimates, or offset them in other ways, they may impact our financial condition and cash flows.
Recent Accounting Pronouncements
See Note 2 to the Unaudited Condensed Consolidated Financial Statements included in this Report.None.
Critical Accounting Estimates
There were no changes to critical accounting estimates from those disclosed in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended December 31, 2021.
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2022.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Translation and Remeasurement. We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income on our income statement.
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Employee Benefit Plans. We sponsor pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in our income statement. We recognize a pension or other postretirement plan’s funded status as either an asset or liability in our consolidated balance sheet. Actuarial gains and losses are reported as a component of other comprehensive income and amortized through other income in subsequent periods.
Interest Rate Sensitivity.As of June 30, 2022,March 31, 2023, we had $301.8$372.6 million of outstanding variable rate debt outstanding, which is subject to fluctuations in interest rates. Our interest expense may be affected by changes in interest rates. We believe that a 100-basis-point change in the interest rates on our variable rate debt would result in a $3.1$3.7 million change in our annual interest expense. We may have additional exposure to fluctuations in interest rates if we again borrow amounts under our revolver loans within our credit facilities.
Item 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures.Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022.March 31, 2023. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), meansmean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified inby the SEC’sSecurities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022,March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting. Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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Item 1A.1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed under Part I, Item 1A “Risk Factors” of our 20212022 Annual Report on Form 10-K. The risks described herein and in our 20212022 Annual Report on Form 10-K, as amended, are not the only risks facing our Company. Additional risks and
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uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
We may not be able to consummate our merger with Sacred Wind on a timely basis or at all.
On July 26, 2022, we entered into a stock purchase agreement (the “Purchase Agreement”) with Sacred Wind Enterprises, Inc. (“Sacred Wind”) to purchase all of the issued and outstanding Sacred Wind stock (the “SWE Transaction”). The SWE Transaction remains subject to customary closing terms and conditions including (i) obtaining the necessary consents of third parties, including the Federal Communications Commission (“FCC”), (ii) obtaining the consent of the Rural Utility Service to the continuation of Sacred Wind’s current loan facilities, and (iii) the absence of certain legal impediments. There can be no guarantee that the regulatory authorities will grant such required approvals. In addition, the FCC may impose conditions on any approval, such as requiring the divestiture of certain markets and spectrum licenses. These conditions, if imposed and if sufficiently significant, may permit Sacred Wind not to consummate the transaction or may have other negative impacts on our business.
If we are able to successfully consummate the SWE Transaction, we may have difficulties integrating its operations and its business and our business, financial condition and results of operations could be adversely affected.
The SWE Transaction will occur as we are engaged in the transformation of our rural Southwest business from a primarily wholesale wireless business to a rural broadband and carrier service business model. We anticipate that the SWE Transaction will contribute to business transformation needed in our US Telecom segment by growing our fiber assets and increasing internal operational experience running those fiber assets. The complexities of the integration and expansion of Sacred Wind’s operations are not yet known, and our team will be executing on the integration alongside the transformation ofrefinance our existing business. We have devoted and will continue to devote a significant amount of time and attention to integrating these operations with our existing operations. If we have difficulties with the integration or transition process, it could harm our reputation and have a material adverse effect on our business, financial condition or results of operations.
We are reliant on government funding to comply with the FCC’s “Replace and Remove” Program.
A number of our equipment suppliers and vendors are based outside the United States, with China serving as a significant non-US source for our telecommunications network equipment in the United States. The FCC, and other governmental restrictions on the procurement of equipment and services from certain Chinese vendors, will result in a costly network replacement build in our western United States operations that, if not offset by government support, could adversely affect our results of operations. We have been allocated more than $207 million to reimburse us for our demonstrated costs attributable to the FCC’s Replace and Remove Program for our Chinese vendor equipment and services, however, due to a universal reduction in funding to all applicants in the Replace and Remove Program by the FCC, this represents less than the total amount of funding that we initially applied for. Although Congress is currently considering increasing funding to the FCC for the Replace and Remove Program, there can be no assurances that the FCC will actually receive such additional funding, that it will allocate any such additional funds to us, or that any such funds will be adequate to completely remove, securely destroy, and replace all prohibited equipment from our network.
In addition, the FCC has mandated an aggressive timeline for the completion of the Replace and Remove Program, requiring that participants only receive funding in reimbursement for costs incurred in program-related activities, and that the initial reimbursement request be submitted no later than July 14, 2023. In addition, we must complete the project no later than one year after submitting our initial reimbursement request, in effect requiring that build activities be concluded no later than July 2024. If we are unable to complete the removal and replacement in that time frame, cannot secure advanced funding for the program activitiescredit facility on terms and conditions that are acceptable to us,
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or have underestimated the cost of replacement, it could adversely affect our ability to operate, maintain or expand our domestic network infrastructure.
Changes in interest rates and credit markets could impact our ability to service and expand our financing.
We require a significant amount of capital to expand our networks and grow our business that we fund partially from cash from operations and in part from borrowings under our credit facilities. InterestOn April 10, 2019, we entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (as amended, the “2019 CoBank Credit Facility”). At March 31, 2023, we owed $122.0 million for amounts drawn under the 2019 CoBank Credit Facility. For the year ended December 31, 2022, we generated positive cash flows from operating activities of $102.9 million. At March 31, 2023, we had $56.0 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash. The 2019 CoBank Credit Facility matures on April 10, 2024 at which point the full amount outstanding is due and payable. Management is actively pursuing debt financing options which would extend the maturity date of the 2019 CoBank Credit Facility and may increase its capacity, however, higher interest rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and,less availability in particular, the U.S. Federal Reserve. Changes in monetary policy, including changes in interest rates,debt markets could increase our costs of borrowing.
In the event we are unable to refinance or replace the 2019 CoBank Credit Facility on terms and conditions favorable to us or at all, we may need to take actions impacting our operations such as reducing capital expenditures not required to sustain current network operations, reducing operating cash outflows such as marketing and general and administrative expenses. If we are unable to refinance our existing debt, obtain additional financing through the debt or equity markets, as needed, there may be an adverse impact on our operations or financial results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). We have $19.5$18.0 million available to be repurchased under that plan as of June 30, 2022.
March 31, 2023.
The following table reflects the repurchases by us of our common stock during the quarter ended June 30, 2022:March 31, 2023:
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| (d) | |
| | | | | | | | | Maximum | |
| | | | | | | | | Number (or | |
| | | | | | | (c) | | Approximate | |
| | | | (b) | | Total Number of | | Dollar Value) of | ||
| | (a) | | Average | | Shares Purchased | | Shares that May | ||
| | Total Number | | Price | | as Part of Publicly | | be Purchased | ||
| | of Shares | | Paid per | | Announced Plans | | Under the Plans or | ||
Period | | Purchased | | Share | | or Programs | | Programs | ||
April 1, 2022 — April 30, 2022 |
| 831 | (1) | $ | 39.53 | | | | $ | 19,451,514 |
May 1, 2022 — May 31, 2022 |
| — | | | — | | — | | | 19,451,514 |
June 1, 2022 — June 30, 2022 |
| — | | | — | | — | | | 19,451,514 |
|
(1) |
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Item 5. Other Information
Verizon Carrier Managed Services Agreement
ReplaceOn May 10, 2023, Commnet Wireless, LLC (“Commnet”), a subsidiary of ATN International, Inc. (the “Company”) entered into a Carrier Managed Services Master Agreement (the “Agreement”) with Cellco Partnership d/b/a Verizon Wireless (“Verizon”), pursuant to which Commnet will provide a variety of network, infrastructure and Remove Program
On July 15, 2022, the Company was notifiedtechnical services that it was an approved participantwill help deliver next generation wireless services to Verizon’s subscribers in Commnet’s current operating area in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. southwestern United States.
Pursuant to the ReplaceAgreement and Remove, the Company was allocatedsubject to certain limitations contained therein, Commnet will upgrade its wireless service in specific areas and provide services to Verizon for an initial seven year term (the “Commitment Period”). The Commitment Period will automatically renew for up to two additional three year periods, unless Verizon provides no less than twelve months’ notice on non-renewal prior to the expiration of the then-current term.
In connection with the Agreement, Commnet has also agreed to provide Verizon with high capacity transport in its coverage area. Verizon will continue to use Commnet’s wireless communications network for roaming services at a fixed rate per site during the build period until such time as upgrades to the network to meet certain performance service level agreements for both RAN operations and transport are met.
Verizon will pay Commnet an aggregate of an estimated approximately $207$200 million in reimbursementtotal amounts for both non-recurring payments for upgrades and construction to cover documentedits current RAN and approved coststransport network and in monthly recurring charges over the initial Commitment Period.
The Agreement may be terminated at any time upon the mutual written consent of Commnet and Verizon. In addition, Verizon may terminate the Agreement upon the occurrence of certain events, including failure to removemeet certain milestones or completion dates with respect to network coverage, failure to meet certain SLAs with respect to the ongoing services, the declaration of a bankruptcy event by Commnet and securely destroy all ZTE communications equipmentbreach of any other material terms of the Agreement.
The foregoing summary of the Agreement is not intended to be complete and servicesis qualified in its U.S. networks and replace such equipment. The Replace and Remove Program requires thatentirety by reference to the Company complete its first request for reimbursement for services performed underfull text of the program no later than July 14, 2023 and that it complete the project no later than one year from submitting its initial reimbursement request.Agreement. The Company is currently assessing the impact of this program on its financial statements and anticipates that it will be ableintends to meet the deadlines and requirementsfile a redacted copy of the program.
On August 4, 2022, we amended our FirstNet Agreement with AT&Tas an Exhibit to extendits Quarterly Report on Form 10-Q for the overall build schedule. For more information about our FirstNet Agreement with AT&T, please refer to “FirstNet Agreement” under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
quarter ending June 30, 2023.
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Item 6. Exhibits:
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31.1* | | |||
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31.2* | | |||
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32.1** | | |||
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32.2** | | |||
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101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | ||
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
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104 | | Cover Page Interactive Data file (formatted as Inline XBRL and embedded within Exhibit 101). |
* Filed herewith.
** The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Report and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates them by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| ATN International, Inc. |
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Date: | /s/ Michael T. Prior |
| Michael T. Prior |
| President and Chief Executive Officer |
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Date: | /s/ Justin D. Benincasa |
| Justin D. Benincasa |
| Chief Financial Officer |
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