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 SeptemberJune 30, 20202021
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 $.01 per share | ATNI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large accelerated filer ⌧ | | Accelerated filer ◻ |
| | |
Non-accelerated filer ◻ | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ⌧
As of November 4, 2020,August 9, 2021, the registrant had outstanding 15,898,47715,864,072 shares of its common stock ($.01 par value).
1
ATN INTERNATIONAL, INC.
FORM 10-Q
Quarter Ended SeptemberJune 30, 20202021
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| Notes to Unaudited Condensed Consolidated Financial Statements | 10 | |
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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 the impact of the novel coronavirus pandemic on the economies of the markets we serve, and on our business and operations; expectations regarding future revenue, operating income, EBITDA and capital expenditures; the competitive environment in our key markets, demand for our services and industry trends; our expectations regarding construction progress under our FirstNet agreement and the effect such progress will have on our financial results; our expectations regarding the benefits of our acquisition of Alaska Communications; the impact of federal support program revenues; 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) the general performance of our operations, including operating margins, revenues, capital expenditures, and the retention of and future growth and retention of our major customers and subscriber base, including growth in our private networks business; (2) our ability to successfully integrate our newly acquired Alaska Communications business with our own and consumer demand for solar power; (2)realize cost synergies and expansion plans; (3) our ability to maintain favorable roaming arrangements, receive roaming traffic and satisfy the needs and demands of our major wireless customers; (3)(4) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes in the telecommunications industry; (4)(5) government regulation of our businesses, which may impact our FCC and other telecommunications licenses or our renewables businesses; (5)licenses; (6) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (6)(7) economic, political and other risks and opportunities facing our operations, including those resulting from the pandemic; (7)(8) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (8) our ability to expand and obtain funding for our renewable energy business; (9) our ability to find investment or acquisition or disposition opportunities that fit the strategic goals of the Company; (10) the occurrence of weather events and natural catastrophes;catastrophes and our ability to secure the appropriate level of insurance coverage for these assets; (11) increased competition; (12) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; and (13) our continued access to capital and credit markets; and (14) the risk of currency fluctuation for those markets in which we operate.markets. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on March 2, 2020, as amended by Amendment No. 1, to the Annual Report on Form 10-K filed with the SEC on April 29, 2020,2021, and the other reports we file from time to time with the SEC. The Company undertakes no obligation and has no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.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.
Reference 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)
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 135,153 | | $ | 161,287 |
Restricted cash | |
| 1,072 | |
| 1,071 |
Short-term investments | |
| 403 | |
| 416 |
Accounts receivable, net of allowances for credit losses of $12.2 million and $12.7 million, respectively | |
| 43,471 | |
| 35,904 |
Inventory, materials and supplies | |
| 5,127 | |
| 5,253 |
Prepayments and other current assets | |
| 40,358 | |
| 24,792 |
Total current assets | |
| 225,584 | |
| 228,723 |
Fixed Assets: | | | | | | |
Property, plant and equipment | |
| 1,297,519 | |
| 1,237,555 |
Less accumulated depreciation | |
| (708,091) | |
| (631,974) |
Net fixed assets | |
| 589,428 | |
| 605,581 |
Telecommunication licenses, net | |
| 114,083 | |
| 93,686 |
Goodwill | |
| 60,691 | |
| 60,691 |
Customer relationships, net | |
| 6,266 | |
| 7,441 |
Operating lease right-of-use assets | |
| 64,294 | |
| 68,763 |
Other assets | |
| 53,068 | |
| 65,841 |
Total assets | | $ | 1,113,414 | | $ | 1,130,726 |
LIABILITIES AND EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Current portion of long-term debt | | $ | 3,750 | | $ | 3,750 |
Accounts payable and accrued liabilities | |
| 82,961 | |
| 74,093 |
Dividends payable | |
| 2,725 | |
| 2,721 |
Accrued taxes | |
| 7,921 | |
| 8,517 |
Current portion of lease liabilities | | | 10,902 | | | 11,406 |
Advance payments and deposits | |
| 24,603 | |
| 19,182 |
Total current liabilities | |
| 132,862 | |
| 119,669 |
Deferred income taxes | |
| 2,602 | |
| 8,680 |
Lease liabilities, excluding current portion | | | 53,543 | | | 56,164 |
Other liabilities | |
| 49,836 | |
| 57,454 |
Long-term debt, excluding current portion | |
| 79,973 | |
| 82,676 |
Total liabilities | |
| 318,816 | |
| 324,643 |
Commitments and contingencies (Note 13) | | | | | | |
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; 17,383,898 and 17,324,858 shares issued, respectively, 15,898,477 and 16,001,937 shares outstanding, respectively | |
| 172 | |
| 172 |
Treasury stock, at cost; 1,485,421 and 1,322,921 shares, respectively | |
| (59,456) | |
| (51,129) |
Additional paid-in capital | |
| 191,578 | |
| 188,471 |
Retained earnings | |
| 540,119 | |
| 541,890 |
Accumulated other comprehensive income | |
| (4,538) | |
| (3,282) |
Total ATN International, Inc. stockholders’ equity | |
| 667,875 | |
| 676,122 |
Non-controlling interests | |
| 126,723 | |
| 129,961 |
Total equity | |
| 794,598 | |
| 806,083 |
Total liabilities and equity | | $ | 1,113,414 | | $ | 1,130,726 |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 94,885 | | $ | 103,925 |
Restricted cash | |
| 1,072 | |
| 1,072 |
Accounts receivable, net of allowances for credit losses of $13.5 million and $12.1 million, respectively | |
| 40,644 | |
| 44,152 |
Customer receivable | | | 4,094 | | | 1,227 |
Inventory, materials and supplies | |
| 6,837 | |
| 5,504 |
Prepayments and other current assets | |
| 52,313 | |
| 49,450 |
Assets held for sale | | | — | | | 34,735 |
Total current assets | |
| 199,845 | |
| 240,065 |
Fixed Assets: | | | | | | |
Property, plant and equipment | |
| 1,276,517 | |
| 1,252,780 |
Less accumulated depreciation | |
| (750,232) | |
| (716,318) |
Net fixed assets | |
| 526,285 | |
| 536,462 |
Telecommunication licenses, net | |
| 114,083 | |
| 114,083 |
Goodwill | |
| 60,690 | |
| 60,691 |
Customer relationships, net | |
| 5,233 | |
| 5,913 |
Operating lease right-of-use assets | |
| 62,287 | |
| 63,235 |
Customer receivable - long term | | | 28,333 | | | 9,614 |
Other assets | |
| 69,818 | |
| 53,648 |
Total assets | | $ | 1,066,574 | | $ | 1,083,711 |
LIABILITIES AND EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Current portion of long-term debt | | $ | 3,750 | | $ | 3,750 |
Current portion of Customer receivable credit facility | | | 2,335 | | | — |
Accounts payable and accrued liabilities | |
| 84,811 | |
| 96,205 |
Dividends payable | |
| 2,707 | |
| 2,703 |
Accrued taxes | |
| 7,496 | |
| 7,501 |
Current portion of lease liabilities | | | 12,871 | | | 12,371 |
Advance payments and deposits | |
| 22,602 | |
| 24,681 |
Liabilities held for sale | |
| — | |
| 717 |
Total current liabilities | |
| 136,572 | |
| 147,928 |
Deferred income taxes | |
| 7,439 | |
| 10,675 |
Lease liabilities, excluding current portion | | | 51,306 | | | 51,082 |
Other liabilities | |
| 48,455 | |
| 50,617 |
Customer receivable credit facility, net of current portion | | | 14,322 | | | — |
Long-term debt, excluding current portion | |
| 67,294 | |
| 69,073 |
Total liabilities | |
| 325,388 | |
| 329,375 |
Commitments and contingencies (Note 14) | | | | | | |
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; 17,466,542 and 17,383,898 shares issued, respectively, 15,899,714 and 15,898,477 shares outstanding, respectively | |
| 172 | |
| 172 |
Treasury stock, at cost; 1,566,828 and 1,485,421 shares, respectively | |
| (63,388) | |
| (59,456) |
Additional paid-in capital | |
| 189,006 | |
| 187,754 |
Retained earnings | |
| 516,208 | |
| 516,901 |
Accumulated other comprehensive income | |
| (72) | |
| 278 |
Total ATN International, Inc. stockholders’ equity | |
| 641,926 | |
| 645,649 |
Non-controlling interests | |
| 99,260 | |
| 108,687 |
Total equity | |
| 741,186 | |
| 754,336 |
Total liabilities and equity | | $ | 1,066,574 | | $ | 1,083,711 |
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(Unaudited)
(In Thousands, Except Per Share Data)Data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
REVENUE: | | | | | | | | | | | | | | | | | | | | | | | | |
Communication services | | $ | 108,721 | | $ | 112,840 | | $ | 322,865 | | $ | 318,473 | | $ | 112,964 | | $ | 106,240 | | $ | 223,599 | | $ | 214,145 |
Other | |
| 3,018 | |
| 2,776 | |
| 8,878 | |
| 8,164 | |
| 10,901 | |
| 2,858 | |
| 24,776 | |
| 5,859 |
Total revenue | |
| 111,739 | |
| 115,616 | |
| 331,743 | |
| 326,637 | |
| 123,865 | |
| 109,098 | |
| 248,375 | |
| 220,004 |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | | | | | | | | | | | | | |
Termination and access fees | |
| 26,979 | |
| 27,622 | |
| 83,562 | |
| 83,440 | ||||||||||||
Construction costs | | | 390 | | | — | | | 390 | | | — | ||||||||||||
Engineering and operations | |
| 18,127 | |
| 20,095 | |
| 53,983 | |
| 58,234 | ||||||||||||
Sales, marketing and customer service | |
| 9,344 | |
| 9,785 | |
| 28,220 | |
| 29,048 | ||||||||||||
General and administrative | |
| 25,735 | |
| 25,110 | |
| 75,413 | |
| 75,518 | ||||||||||||
Cost of services | |
| 48,479 | |
| 45,837 | |
| 97,986 | |
| 92,439 | ||||||||||||
Cost of construction revenue | | | 9,535 | | | — | | | 22,142 | | | — | ||||||||||||
Selling, general and administrative | |
| 40,652 | |
| 34,125 | |
| 78,344 | |
| 68,552 | ||||||||||||
Transaction-related charges | |
| 31 | |
| 21 | |
| 147 | |
| 89 | |
| 1,396 | |
| 72 | |
| 2,126 | |
| 116 |
Depreciation and amortization | |
| 21,580 | |
| 22,603 | |
| 66,089 | |
| 64,870 | |
| 20,155 | |
| 21,991 | |
| 40,662 | |
| 44,509 |
(Gain) Loss on disposition of long-lived assets | | | (4) | | | 132 | | | 60 | | | 321 | ||||||||||||
Loss on disposition of long-lived assets | | | 743 | | | 49 | | | 861 | | | 64 | ||||||||||||
Total operating expenses | |
| 102,182 | |
| 105,368 | |
| 307,864 | |
| 311,520 | |
| 120,960 | |
| 102,074 | |
| 242,121 | |
| 205,680 |
Income from operations | |
| 9,557 | |
| 10,248 | |
| 23,879 | |
| 15,117 | |
| 2,905 | |
| 7,024 | |
| 6,254 | |
| 14,324 |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 118 | | | 414 | | | 427 | | | 1,860 | | | 46 | | | 66 | | | 40 | | | 309 |
Interest expense | |
| (1,361) | |
| (1,298) | |
| (4,091) | | | (3,843) | |
| (1,137) | |
| (1,574) | |
| (2,285) | | | (2,730) |
Other income (expense) | |
| (2,031) | |
| (2,686) | |
| (4,341) | | | (2,755) | |
| (66) | |
| 590 | |
| 2,309 | | | (2,310) |
Other income (expense), net | |
| (3,274) | |
| (3,570) | |
| (8,005) | |
| (4,738) | |
| (1,157) | |
| (918) | |
| 64 | |
| (4,731) |
INCOME BEFORE INCOME TAXES | |
| 6,283 | |
| 6,678 | |
| 15,874 | |
| 10,379 | |
| 1,748 | |
| 6,106 | |
| 6,318 | |
| 9,593 |
Income tax provisions | |
| 92 | |
| 1,834 | |
| (1,057) | |
| 2,774 | |
| (1,542) | |
| (2,258) | |
| (1,247) | |
| (1,149) |
NET INCOME | |
| 6,191 | |
| 4,844 | |
| 16,931 | |
| 7,605 | |
| 3,290 | |
| 8,364 | |
| 7,565 | |
| 10,742 |
Net income attributable to non-controlling interests, net of tax expense of $0.2 million, $0.4 million, $0.8 million, $1.2 million, respectively. | |
| (3,530) | |
| (3,459) | |
| (10,538) | |
| (8,657) | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | 2,661 | | $ | 1,385 | | $ | 6,393 | | $ | (1,052) | ||||||||||||
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | | | | ||||||||||||
Net income attributable to non-controlling interests, net of tax expense of $0.3 million, $0.2 million, $0.4 million, and $0.6 million, respectively. | |
| (1,271) | |
| (3,618) | |
| (2,842) | |
| (7,009) | ||||||||||||
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | 2,019 | | $ | 4,746 | | $ | 4,723 | | $ | 3,733 | ||||||||||||
NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | | | | ||||||||||||
Basic | | $ | 0.17 | | $ | 0.09 | | $ | 0.40 | | $ | (0.07) | | $ | 0.13 | | $ | 0.30 | | $ | 0.30 | | $ | 0.23 |
Diluted | | $ | 0.17 | | $ | 0.09 | | $ | 0.40 | | $ | (0.07) | | $ | 0.13 | | $ | 0.30 | | $ | 0.30 | | $ | 0.23 |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | |
| 15,962 | |
| 16,000 | |
| 15,946 | |
| 15,984 | |
| 15,912 | |
| 15,970 | |
| 15,907 | |
| 15,958 |
Diluted | |
| 16,011 | |
| 16,007 | |
| 15,990 | |
| 15,984 | |
| 15,921 | |
| 16,004 | |
| 15,930 | |
| 15,993 |
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK | | $ | 0.17 | | $ | 0.17 | | $ | 0.51 | | $ | 0.51 | | $ | 0.17 | | $ | 0.17 | | $ | 0.34 | | $ | 0.34 |
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(Unaudited)
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | Three months ended | | Six months ended | ||||||||||||||||
|
| 2020 |
| 2019 | | 2020 | | 2019 | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income | | $ | 6,191 | | $ | 4,844 | | $ | 16,931 | | $ | 7,605 | $ | 3,290 | | $ | 8,364 | | $ | 7,565 | | $ | 10,742 |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 1,521 | |
| (1,194) | |
| (1,113) | |
| (694) |
| (370) | |
| 1,782 | |
| (410) | |
| (2,644) |
Unrealized gain (loss) on derivatives | | | 35 | | | (38) | | | (143) | | | (211) | | 29 | | | 8 | | | 60 | | | (168) |
Other comprehensive income (loss), net of tax | |
| 1,556 | |
| (1,232) | |
| (1,256) | |
| (905) |
| (341) | |
| 1,790 | |
| (350) | |
| (2,812) |
Comprehensive income | |
| 7,747 | |
| 3,612 | |
| 15,675 | |
| 6,700 |
| 2,949 | |
| 10,154 | |
| 7,215 | |
| 7,930 |
Less: Comprehensive income attributable to non-controlling interests | |
| (3,530) | |
| (3,459) | |
| (10,538) | |
| (8,657) |
| (1,271) | |
| (3,618) | |
| (2,842) | |
| (7,009) |
Comprehensive income (loss) attributable to ATN International, Inc. | | $ | 4,217 | | $ | 153 | | $ | 5,137 | | $ | (1,957) | |||||||||||
Comprehensive income attributable to ATN International, Inc. | $ | 1,678 | | $ | 6,536 | | $ | 4,373 | | $ | 921 |
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 SEPTEMBERJUNE 30, 20202021 AND 20192020
(Unaudited)
(In Thousands, Except Per Share Data)
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| Accumulated |
| Total |
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| | | |
| | |
| | |
| | |
| | |
| Accumulated |
| Total |
| | |
| | | | ||||
| | | | | Treasury | | Additional | | | | | Other | | ATNI | | Non- | | | | | | | | | Treasury | | Additional | | | | | Other | | ATNI | | Non- | | | | | ||||||||||
| | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total | | | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total | | ||||||||||||||||
| | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity |
| | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity |
| ||||||||||||||||
Balance, June 30, 2020 | | $ | 172 | | $ | (55,316) | | $ | 189,785 | | $ | 540,183 | | $ | (6,094) | | $ | 668,730 | | $ | 128,913 | | $ | 797,643 | | |||||||||||||||||||||||||
Purchase of 80,754 shares of common stock upon exercise of stock options | |
| — | | | (4,140) | | | — | | | — | | | — | | | (4,140) | | | — | | | (4,140) | | |||||||||||||||||||||||||
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) | | |||||||||||||||||||||||||
Repurchase of non-controlling interests | | | — | | | — | | | (74) | | | — | | | — | | | (74) | | | (1,085) | | | (1,159) | | |||||||||||||||||||||||||
Investments made by minority shareholders in consolidated affiliates | | | — | | | — | | | — | | | — | | | — | | | — | | | 329 | | | 329 | | |||||||||||||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Net income | |
| — | | | — | | | — | | | 2,019 | | | — | | | 2,019 | | | 1,271 | | | 3,290 | | |||||||||||||||||||||||||
Other comprehensive income | |
| — | | | — | | | — | | | — | | | (341) | | | (341) | | | — | | | (341) | | |||||||||||||||||||||||||
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 1,678 | |
| 1,271 | |
| 2,949 | | |||||||||||||||||||||||||
Balance, June 30, 2021 | | $ | 172 | | $ | (63,388) | | $ | 189,006 | | $ | 516,208 | | $ | (72) | | $ | 641,926 | | $ | 99,260 | | $ | 741,186 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Balance, March 31, 2020 | | $ | 172 | | $ | (54,358) | | $ | 189,667 | | $ | 538,161 | | $ | (7,884) | | $ | 665,758 | | $ | 127,321 | | $ | 793,079 | | |||||||||||||||||||||||||
Purchase of 17,854 shares of common stock upon exercise of stock options | |
| — | | | (958) | | | — | | | — | | | — | | | (958) | | | — | | | (958) | | |||||||||||||||||||||||||
Stock-based compensation | |
| — | | | — | | | 1,793 | | | — | | | — | | | 1,793 | | | 94 | | | 1,887 | | |
| — | | | — | | | 1,418 | | | — | | | — | | | 1,418 | | | 131 | | | 1,549 | |
Dividends declared on common stock ($0.17 per common share) | |
| — | | | — | | | — | | | (2,725) | | | — | | | (2,725) | | | (962) | | | (3,687) | | |
| — | | | — | | | — | | | (2,724) | | | — | | | (2,724) | | | (1,321) | | | (4,045) | |
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,852) | | | (4,852) | | | | — | | | — | | | (1,300) | | | — | | | — | | | (1,300) | | | (836) | | | (2,136) | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 2,661 | | | — | | | 2,661 | | | 3,530 | | | 6,191 | | |
| — | | | — | | | — | | | 4,746 | | | — | | | 4,746 | | | 3,618 | | | 8,364 | |
Other comprehensive income | |
| — | | | — | | | — | | | — | | | 1,556 | | | 1,556 | | | — | | | 1,556 | | |
| — | | | — | | | — | | | — | | | 1,790 | | | 1,790 | | | — | | | 1,790 | |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 4,217 | |
| 3,530 | |
| 7,747 | | | | — | | | — | | | — | | | — | | | — | |
| 6,536 | |
| 3,618 | |
| 10,154 | |
Balance, September 30, 2020 | | $ | 172 | | $ | (59,456) | | $ | 191,578 | | $ | 540,119 | | $ | (4,538) | | $ | 667,875 | | $ | 126,723 | | $ | 794,598 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Balance, June 30, 2019 | | $ | 172 | | $ | (50,125) | | $ | 185,112 | | $ | 555,806 | | $ | (1,282) | | $ | 689,683 | | $ | 128,858 | | $ | 818,541 | | |||||||||||||||||||||||||
Issuance of 2,000 shares of common stock upon exercise of stock options | | | — | | | — | | | 62 | | | — | | | — | | | 62 | | | — | | | 62 | | |||||||||||||||||||||||||
Purchase of 8,542 shares of common stock upon exercise of stock options | |
| — | | | (259) | | | — | | | — | | | — | | | (259) | | | — | | | (259) | | |||||||||||||||||||||||||
Stock-based compensation | |
| — | | | — | | | 1,272 | | | — | | | — | | | 1,272 | | | 275 | | | 1,547 | | |||||||||||||||||||||||||
Dividends declared on common stock ($0.17 per common share) | |
| — | | | — | | | — | | | (2,828) | | | — | | | (2,828) | | | (1,885) | | | (4,713) | | |||||||||||||||||||||||||
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (491) | | | (491) | | |||||||||||||||||||||||||
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Net income | |
| — | | | — | | | — | | | 1,385 | | | — | | | 1,385 | | | 3,459 | | | 4,844 | | |||||||||||||||||||||||||
Other comprehensive income | |
| — | | | — | | | — | | | — | | | (1,232) | | | (1,232) | | | — | | | (1,232) | | |||||||||||||||||||||||||
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
| 153 | |
| 3,459 | |
| 3,612 | | |||||||||||||||||||||||||
Balance, September 30, 2019 | | $ | 172 | | $ | (50,384) | | $ | 186,446 | | $ | 554,363 | | $ | (2,514) | | $ | 688,083 | | $ | 130,216 | | $ | 818,299 | | |||||||||||||||||||||||||
Balance, June 30, 2020 | | $ | 172 | | $ | (55,316) | | $ | 189,785 | | $ | 540,183 | | $ | (6,094) | | $ | 668,730 | | $ | 128,913 | | $ | 797,643 | |
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(Unaudited)
(In Thousands, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| Total |
| | |
| | | | ||
| | | | | Treasury | | Additional | | | | | Other | | ATNI | | Non- | | | | | |||||
| | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total | | ||||||||
| | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity |
| ||||||||
Balance, December 31, 2019 | | $ | 172 | | $ | (51,129) | | $ | 188,471 | | $ | 541,890 | | $ | (3,282) | | $ | 676,122 | | $ | 129,961 | | $ | 806,083 | |
Purchase of 161,500 shares of common stock | |
| — | | | (8,327) | | | — | | | — | | | — | | | (8,327) | | | — | | | (8,327) | |
Stock-based compensation | |
| — | | | — | | | 4,419 | | | — | | | — | | | 4,419 | | | 189 | | | 4,608 | |
Dividends declared on common stock ($0.51 per common share) | |
| — | | | — | | | — | | | (8,164) | | | — | | | (8,164) | | | (6,514) | | | (14,678) | |
Repurchase of non-controlling interests | | | — | | | — | | | (1,312) | | | — | | | — | | | (1,312) | | | (7,451) | | | (8,763) | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 6,393 | | | — | | | 6,393 | | | 10,538 | | | 16,931 | |
Other comprehensive loss | |
| — | | | — | | | — | | | — | | | (1,256) | | | (1,256) | | | — | | | (1,256) | |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 5,137 | |
| 10,538 | |
| 15,675 | |
Balance, September 30, 2020 | | $ | 172 | | $ | (59,456) | | $ | 191,578 | | $ | 540,119 | | $ | (4,538) | | $ | 667,875 | | $ | 126,723 | | $ | 794,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | $ | 172 | | $ | (48,547) | | $ | 181,778 | | $ | 563,593 | | $ | (1,609) | | $ | 695,387 | | $ | 127,937 | | $ | 823,324 | |
Issuance of 2,000 shares of common stock upon exercise of stock options | |
| — | | | — | | | 62 | | | — | | | — | | | 62 | | | — | | | 62 | |
Purchase of 28,393 shares of common stock | |
| — | | | (1,837) | | | — | | | — | | | — | | | (1,837) | | | — | | | (1,837) | |
Stock-based compensation | |
| — | | | — | | | 4,606 | | | — | | | — | | | 4,606 | | | 275 | | | 4,881 | |
Dividends declared on common stock ($0.51 per common share) | |
| — | | | — | | | — | | | (8,178) | | | — | | | (8,178) | | | (5,788) | | | (13,966) | |
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,353) | | | (1,353) | |
Investments made by minority shareholders in consolidated affiliates | | | — | | | — | | | — | | | — | | | — | | | — | | | 488 | | | 488 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | |
| — | | | — | | | — | | | (1,052) | | | — | | | (1,052) | | | 8,657 | | | 7,605 | |
Other comprehensive income | |
| — | | | — | | | — | | | — | | | (905) | | | (905) | | | — | | | (905) | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
| (1,957) | |
| 8,657 | |
| 6,700 | |
Balance, September 30, 2019 | | $ | 172 | | $ | (50,384) | | $ | 186,446 | | $ | 554,363 | | $ | (2,514) | | $ | 688,083 | | $ | 130,216 | | $ | 818,299 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| Total |
| | |
| | | ||
| | | | | Treasury | | Additional | | | | | Other | | ATNI | | Non- | | | | |||||
| | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total | ||||||||
| | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity | ||||||||
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 |
Dividends declared on common stock ($0.34 per common share) | |
| — | | | — | | | — | | | (5,416) | | | — | | | (5,416) | | | (2,488) | | | (7,904) |
Repurchase of non-controlling interests | | | — | | | — | | | (2,161) | | | — | | | — | | | (2,161) | | | (10,208) | | | (12,369) |
Investments made by minority shareholders in consolidated affiliates | | | — | | | — | | | — | | | — | | | — | | | — | | | 329 | | | 329 |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 4,723 | | | — | | | 4,723 | | | 2,842 | | | 7,565 |
Other comprehensive loss | |
| — | | | — | | | — | | | — | | | (350) | | | (350) | | | — | | | (350) |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 4,373 | |
| 2,842 | |
| 7,215 |
Balance, June 30, 2021 | | $ | 172 | | $ | (63,388) | | $ | 189,006 | | $ | 516,208 | | $ | (72) | | $ | 641,926 | | $ | 99,260 | | $ | 741,186 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2019 | | $ | 172 | | $ | (51,129) | | $ | 188,471 | | $ | 541,890 | | $ | (3,282) | | $ | 676,122 | | $ | 129,961 | | $ | 806,083 |
Issuance of restricted shares of common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Purchase of 80,746 shares of common stock | |
| — | | | (4,187) | | | — | | | — | | | — | | | (4,187) | | | — | | | (4,187) |
Stock-based compensation | |
| — | | | — | | | 2,614 | | | — | | | — | | | 2,614 | | | 107 | | | 2,721 |
Dividends declared on common stock ($0.34 per common share) | |
| — | | | — | | | — | | | (5,440) | | | — | | | (5,440) | | | (5,553) | | | (10,993) |
Repurchase of non-controlling interests | | | — | | | — | | | (1,300) | | | — | | | — | | | (1,300) | | | (2,611) | | | (3,911) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 3,733 | | | — | | | 3,733 | | | 7,009 | | | 10,742 |
Other comprehensive income | |
| — | | | — | | | — | | | — | | | (2,812) | | | (2,812) | | | — | | | (2,812) |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 921 | |
| 7,009 | |
| 7,930 |
Balance, June 30, 2020 | | $ | 172 | | $ | (55,316) | | $ | 189,785 | | $ | 540,183 | | $ | (6,094) | | $ | 668,730 | | $ | 128,913 | | $ | 797,643 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
8
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(Unaudited)
(In Thousands)
| | | | | | |
| Nine Months Ended September 30, | |||||
| 2020 |
| 2019 |
| ||
Cash flows from operating activities: | | | | | | |
Net income | $ | 16,931 | | $ | 7,605 | |
Adjustments to reconcile net income to net cash flows provided by operating activities: | | | | | | |
Depreciation and amortization | | 66,089 | |
| 64,870 | |
Provision for doubtful accounts | | 4,452 | |
| 3,796 | |
Amortization of debt discount and debt issuance costs | | 395 | |
| 420 | |
Stock-based compensation | | 4,608 | |
| 4,881 | |
Deferred income taxes | | (6,078) | |
| (6,287) | |
Loss on equity investments | | 3,360 | | | 2,131 | |
Loss on disposition of long-lived assets | | 60 | | | 321 | |
Unrealized loss on foreign currency | | 449 | | | 233 | |
Other non-cash activity | | — | | | 28 | |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | | |
Accounts receivable | | (12,189) | |
| (10,193) | |
Materials and supplies, prepayments, and other current assets | | (14,849) | |
| (5,507) | |
Prepaid income taxes | | 2,038 | |
| 5,158 | |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | 7,382 | |
| 6,324 | |
Accrued taxes | | (1,418) | |
| (19,047) | |
Other assets | | 1,057 | | | (2,041) | |
Other liabilities | | (696) | |
| 4,155 | |
Net cash provided by operating activities |
| 71,591 | |
| 56,847 | |
Cash flows from investing activities: | | | | | | |
Capital expenditures |
| (50,662) | |
| (49,486) | |
Purchase of spectrum, including deposits | | (20,396) | | | — | |
Purchases of strategic investments | | (2,768) | | | (10,285) | |
Proceeds from strategic investments | | 11,969 | | | — | |
Purchase of short-term investments | | (116) | | | (8,028) | |
Proceeds from sale of short-term investments | | — | | | 5,141 | |
Net cash used in investing activities |
| (61,973) | |
| (62,658) | |
Cash flows from financing activities: | | | | | | |
Dividends paid on common stock |
| (8,166) | |
| (8,160) | |
Distributions to non-controlling interests |
| (6,503) | |
| (5,760) | |
Payment of debt issuance costs |
| (1,096) | |
| (1,340) | |
Principal repayments of term loan |
| (2,814) | |
| (2,825) | |
Purchases of common stock – share based compensation |
| (1,733) | |
| (1,607) | |
Purchases of common stock – share buyback | | (6,589) | | | (162) | |
Repurchases of non-controlling interests | | (8,763) | | | (1,353) | |
Investments made by minority shareholders in consolidated affiliates |
| — | |
| 488 | |
Net cash used in financing activities |
| (35,664) | |
| (20,719) | |
Effect of foreign currency exchange rates on cash and cash equivalents |
| (87) | |
| (26) | |
Net change in cash, cash equivalents, and restricted cash |
| (26,133) | |
| (26,556) | |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 162,358 | |
| 192,907 | |
Total cash, cash equivalents, and restricted cash, end of period | $ | 136,225 | | $ | 166,351 | |
Noncash investing activity: | | | | | | |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 15,097 | | $ | 7,419 | |
| | | | | | |
| | | | | |
| Six Months Ended June 30, | ||||
| 2021 |
| 2020 | ||
Cash flows from operating activities: | | | | | |
Net income | $ | 7,565 | | $ | 10,742 |
Adjustments to reconcile net income to net cash flows provided by operating activities: | | | | | |
Depreciation and amortization | | 40,662 | |
| 44,509 |
Provision for doubtful accounts | | 2,299 | |
| 3,397 |
Amortization of debt discount and debt issuance costs | | 337 | |
| 260 |
Stock-based compensation | | 3,511 | |
| 2,721 |
Deferred income taxes | | (3,236) | |
| (3,204) |
(Gain) loss on equity investments | | (1,793) | | | 1,412 |
Loss on disposition of long-lived assets | | 861 | | | 64 |
Unrealized (gain) loss on foreign currency | | (81) | | | 780 |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | |
Accounts receivable | | 1,226 | |
| (14,475) |
Customer receivable | | (21,586) | | | — |
Materials and supplies, prepayments, and other current assets | | (73) | |
| (7,313) |
Prepaid income taxes | | — | |
| 399 |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | (1,745) | |
| 2,497 |
Accrued taxes | | (1,360) | |
| (1,838) |
Other assets | | 782 | | | 993 |
Other liabilities | | 91 | |
| (569) |
Net cash provided by operating activities |
| 27,460 | |
| 40,375 |
Cash flows from investing activities: | | | | | |
Capital expenditures |
| (35,424) | |
| (30,597) |
Reimbursable capital expenditures | | (6,508) | | | (1,368) |
Receipt of capital government grants | | 3,292 | | | — |
Divestiture of businesses, net of transferred cash of $0.9 million | | 18,597 | | | — |
Purchase of intangible assets; including deposits | | — | | | (20,000) |
Purchases of strategic investments | | (5,242) | | | (2,768) |
Net cash used in investing activities |
| (25,285) | |
| (54,733) |
Cash flows from financing activities: | | | | | |
Dividends paid on common stock |
| (5,411) | |
| (5,443) |
Distributions to non-controlling interests |
| (4,488) | |
| (5,541) |
Repayment of customer receivable credit facility | | (384) | | | — |
Payment of debt issuance costs |
| — | |
| (1,059) |
Principal repayments of term loan |
| (1,883) | |
| (1,876) |
Purchases of common stock – stock-based compensation |
| (1,713) | |
| (1,733) |
Purchases of common stock – share repurchase plan | | (2,219) | | | (2,449) |
Repurchases of non-controlling interests | | (12,699) | | | (3,911) |
Proceeds from customer receivable credit facility |
| 17,582 | |
| — |
Net cash used in financing activities |
| (11,215) | |
| (22,012) |
Effect of foreign currency exchange rates on cash and cash equivalents |
| — | |
| (118) |
Net change in cash, cash equivalents, and restricted cash |
| (9,040) | |
| (36,488) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 104,997 | |
| 162,358 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 95,957 | | $ | 125,870 |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 11,990 | | $ | 7,715 |
| | | | | |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
9
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND BUSINESS OPERATIONS
The Company isstrives to be a holding company that, directlyleading platform for the operation of, and through itsinvestment in, smaller and specialty market communications services and technology companies. The Company has a long track record of delivering critical infrastructure-based solutions to rural and historically underserved markets. The Company’s majority-owned operating subsidiaries ownsprovide facilities-based communications services, along with related information technology solutions, in the United States, Bermuda, and operates telecommunications businessesthe Caribbean. The Company also has non-controlling investments in North America, the Caribbean and Bermuda as well as a renewable energy company and several communications and technology companies, and it continues to consider opportunities to make controlling and minority investments in businesses that it believes have the potential for generating substantial and relatively steady cash flows over extended periods of time or have technologies or business in India. models that might prove valuable to the Company’s main operating subsidiaries or create significant longer term growth potential for the Company as a whole.
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. Over the past ten years, the Company has built a platform of resources and expertise to support its operating subsidiaries and to improve their quality of service, and customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. The Company has a number of shared service functions, including billing, network and engineering and customer service, and also employs personnel with specialized skills that provide greater economies of scale and expertise than would typically be available at the operating subsidiary level.
The Company was incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than half of its operations to stockholders in 1998. Since The Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally looks for those that time, it believes have the potential for generating steady excess cash flows over extended periods of time. In addition, the Company considers non-controlling investments in earlier stage businesses that it considers strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support the Company’s operating subsidiaries in new technology, product, and service development and offerings. The Company has engaged in many strategic acquisitions and investments to help grow used the cash generated from its operations, using the cash generated from its established operating units, and any asset sales, to re-invest in its existing businesses,, to make strategic investments in additional businesses, and to return cash to the Company’s investors. The Company has built,provides management, technical, financial, regulatory, and seeksmarketing services to maintain, resources to supportits subsidiaries and typically receives a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. For further information about the Company’s financial segments and geographical information about its operating subsidiariesrevenues and assets, see Note 13 to improve their customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. The Company looks for businesses that offer growth opportunities or potential strategic benefits, butrequire additional capital investment the Unaudited Condensed Consolidated Financial Statements included in order to this Report.
execute on their business plans. The Company holds controlling positions with respect to some of its investments and non-controlling positions in others. The Company’s investments in earlier stage businessesfrequently offer a product and service development component in addition to the prospect of generating returns on its invested capital.
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Through June 30, 2021, the Company hashad identified 3 operating segments to manage and review its operations and to facilitate investor presentations of its results. These 3 operating segments are as follows:
● | International Telecom. |
● | US Telecom. In the United States, primarily in the Southwest, the Company offers |
● | Renewable Energy. In India, the Company |
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The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Companyit reports its revenue and the markets it served as of Septemberduring the three months ended June 30, 2020:2021:
| | | | | | | |
Segment |
| Services |
| Markets |
| Tradenames | |
International Telecom |
| Mobility |
| Bermuda, Guyana, US Virgin Islands |
| One, GTT+, |
|
|
| Fixed |
| Bermuda, Cayman Islands, Guyana, US Virgin Islands |
|
|
|
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, GTT+, |
|
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT+, Viya |
|
US Telecom |
| Mobility |
| United States (rural markets) |
|
|
|
| | Fixed | | United States | | Commnet, Choice, Choice NTUA Wireless, Deploycom |
|
| | Carrier Services | | United States | | Commnet, Essextel |
|
|
| Managed Services |
| United States |
| Choice |
|
Renewable Energy (1) | | Solar | | India | | Vibrant Energy |
(1) | See Sale of Renewable Energy Operations for further details. |
The Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet its return on investment and other criteria. In addition, the Company considers non-controlling investments in earlier stage businesses that it considers strategically relevant, and which may offer long-term growth potential for the Company, either individually, or as research and development businesses that can support the Company’s operating subsidiaries in new product and service development and offerings. The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their revenues which is eliminated in consolidation. For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 1213 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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COVID-19
In March 2020, the World Health Organization declared a novel strain of coronavirus, now referred to as COVID-19, as a pandemic, and the virus has now spread globally to over 200 countries and territories, including the United States and other countries in which the Company has substantial operations. The Company is continuing to monitor and assess the effects of the ongoing COVID-19 pandemic on its commercial operations, the safety of its employees and their families, its sales force and customers and any potential impact on the Company’sits revenue in 2020.2021.
The preparation of the condensed consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates estimates, judgments and methodologies. The Company assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context with the information and estimates reasonably available to the Companyit and the unknown future impacts COVID-19 as of SeptemberJune 30, 20202021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, the carrying value of the Company’s goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.
The Company assessed the impacts of COVID-19 on theits consolidated financial statements as of and for the quarterthree and six months ended SeptemberJune 30, 2020,2021, in particular, the impacts on lines of revenues, operating expenses and cash flows. During the three and six months ended June 30, 2021, the International Telecom segment experienced an increase in its Mobility, Fixed and Carrier Services revenue as well ascertain pandemic-related travel and stay-at-home restrictions were lifted during the deferral and savings on other operating expenses and
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capital expenditures. Duringlatter half of the three months ended SeptemberJune 30, 2020, while2021 which allowed for the reopening of many retail stores in all of the Company’s international markets and an increase in tourism in certain markets. Expenses within the Company’s International Telecom segment experienced strengthened demand for both its mobile and fixed services, its carrier services revenue declinedincreased as a result of the increased demand for its products and services and as a reduction in roaming revenue due to pandemic-related travelresult of certain expenses, such as facility and stay-at-home restrictions as compared toutility costs, being incurred during the three and six months ended June 30, 2021 that were not incurred during the same periodperiods of 2019. Such restrictions also resulted in decreased mobile and carrier services revenues within its2020. Within the US Telecom segment, the Company experienced an increase in revenue during the three and six months ended SeptemberJune 30, 2020 as compared2021, for its rural broadband services to further support the same perioddemand, which has been increased by the impact of 2019. However, in responseCOVID-19, for remote working and connectivity. Similar to certain anticipated impacts, the Company was able to implement operating expense savings, particularly with respect to its International Telecom segment, the US Telecom segment recorded an increase in expenses associated with the increased demand for its products and services as well as the recording certain expenses that when coupled with Company-wide travel expense savingswere incurred during the three and capital expenditure deferrals, acted to offset muchsix months ended June 30, 2021 that were not incurred during the same periods of the revenue loss or additional credit loss allowances caused by anticipated customer non-payment activity in the quarter.2020.
As a result, the Company’s assessment did not indicate that there was a material adverse impact to the Company’sits consolidated financial statements as of and for the quarterthree and six months ended SeptemberJune 30, 2020.2021. However, the Company’s future assessments of the impacts of COVID-19 for the remainder of the year and into 2021or its ability to realize continued operational expense savings,2021, 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 the Company’s consolidated financial statements in future reporting periods. For example, the local economies of many of the Company’s Caribbean markets are tourism-dependent and thea decline in global travel activity resulting from reinstated COVID-19 restrictions may continue toadversely impact its revenue and cash flows for certain services in these marketsmarkets. Further, the Company may experience difficulty in procuring network or retail equipment, such as handsets for subscribers, if such COVID-19 restrictions are reinstated. Apart from possible government issued travel restrictions, the Company’s retail and enterprise customersCompany currently cannot assess how COVID-19 may be unable to payinfluence subscribers’ procurement behavior for services andor how that behavior will impact revenues in the Company’s international roaming revenue may decline as compared to last year. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from the Company management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent economic conditions normalize and more customary operating conditions resume.foreseeable future.
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
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and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on March 2, 2020, as amended by Amendment No. 1, to the 2019 Annual Report on Form 10-K filed with the SEC on April 29, 2020.2021.
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.
Presentation of Revenue
Effective January 1, 2020, the Company changed its presentation of revenue in the Condensed Consolidated Statement of Operations and in the Selected Segment Financial Information tables. This change is intended to better align the Company’s financial performance with the views of management and industry competitors, and to facilitate a more constructive dialogue with the investment community.
Specifically, the previously disclosed revenue categories of wireless and wireline revenue are being represented as mobility, fixedMobility, Fixed and carrier servicesCarrier Services revenue within the Company’s segment information and are included within communications services revenue within its Statements of Operations. Managed services revenue, which was previously a component of wireline revenue, along with revenue from the Company’s Renewable Energy
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operations, is now included in other revenue. Construction revenue is also included as a component of other revenue.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequently issued related updates (“ASU 2016-02”), which provide comprehensive lease accounting guidance. The standard requires entities to recognize lease assets and liabilities on the balance sheet as well as disclosurePresentation of key information about leasing arrangements. ASU 2016-02 became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted ASC 2016-02 on January 1, 2019 utilizing the optional transition method with a cumulative adjustment on the date of adoption and not adjusting prior periods. Refer to Note 4 of the Condensed Consolidated Financial Statements.Operating Expenses
In August 2017,Effective January 1, 2021, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The standard: (a) expands and refines hedge accounting for both financial and non-financial risk components, (b) aligns the recognition andCompany changed its presentation of the effects of hedging instruments and hedge itemsoperating expenses in the financial statements,Condensed Consolidated Statement of Operations by combining the previously disclosed Termination and (c) includes certain targeted improvementsAccess Fees with Engineering and Operations as the newly represented Cost of Services. 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 ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. There was not a material impact tobetter align the Company’s Consolidated Financial Statements upon adoption.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 June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. The Company adopted ASU 2016-13 using the modified retrospective approach on its January 1, 2020 effective date. Refer to Note 3 of the Condensed Consolidated Financial Statements in this Report.
On December 18, 2019, the FASB issued new guidance that simplifies the accounting for income taxes. Amendments include the removal of certain exceptions to the general principles of ASC 740, Income taxes. The Company adopted this guidance in 2021 using a prospective method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements; however, the impact in future periods will be dependent on the extent of future events and circumstances.
3. REVENUE RECOGNITION AND RECEIVABLES
Contract Assets and Liabilities
The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless 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 the
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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. Retail 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 mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities are recorded in advanced payments and deposits on the Company’s balance sheets.
In July 2019, and August 2020, the Company entered into a Network Build and Maintenance Agreement (the “FirstNet Agreement”) and First Amendment to that agreement with AT&T Mobility, LLC (“AT&T”), respectively, to build and subsequently entered into amendments in August 2020 and May 2021 (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 (“FirstNet”) as well as a commercial wireless network in or near the Company’s current operating area in the Southwestern United States (the “FirstNet Transaction”). The transactionFirstNet 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 receivables under this agreement are recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.
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The Company has certain wholesale 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 (in(amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | | | $ Change | | % Change | June 30, 2021 | | December 31, 2020 | | | $ Change | | % Change | ||||||
Contract asset – current | $ | 2,269 | | $ | 2,413 | | $ | (144) | | (6) | % | $ | 3,536 | | $ | 2,478 | | $ | 1,058 | | 43 | % |
Contract asset – noncurrent | | 699 | | | 905 | | | (206) | | (23) | % | | 916 | | | 910 | | | 6 | | 1 | % |
Contract liability – current | | (16,338) | | | (15,044) | | | (1,294) | | (9) | % | | (15,332) | | | (18,544) | | | 3,212 | | 17 | % |
Contract liability – noncurrent | | (2,486) | | | (5,450) | | | 2,964 | | 54 | % | | (2,125) | | | (2,193) | | | 68 | | 3 | % |
Net contract liability | $ | (15,856) | | $ | (17,176) | | $ | 1,320 | | 8 | % | $ | (13,005) | | $ | (17,349) | | $ | 4,344 | | 25 | % |
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 the FirstNet Transaction. During the ninesix months ended SeptemberJune 30, 2020,2021, the Company recognized revenue of $15.0$18.2 million related to its December 31, 20192020 contract liability. During the threeliability and nine months ended September 30, 2020, the Company recognized $0.5amortized $1.4 million and $1.9 million, respectively, of the December 31, 20192020 contract asset into revenue. The Company did 0t recognize any revenue in the ninesix months ended SeptemberJune 30, 20202021 related to performance obligations that were satisfied or partially satisfied in previous periods.
Contract Acquisition Costs
The SeptemberJune 30, 20202021 balance sheet includes current contract acquisition costs of $1.8$2.1 million in prepayments and other current assets and long term contract acquisition costs of $1.1$1.4 million in other assets. During the three and ninesix months ended SeptemberJune 30, 2021, the Company amortized $0.6 million and $1.2 million, respectively, of contract acquisition costs. During the three and six months ended June 30, 2020, the Company amortized $0.5 million and $1.5$1.0 million, respectively, of contract acquisition cost.costs.
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Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear retail wireless contracts, which include a promotional discount, and the Company’s construction and service contracts. The transaction price allocated to unsatisfied performance obligations was $321$249 million and $241$299 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The Company expects to satisfy the majorityapproximately 60% of the remaining performance obligations and recognize the transaction price as revenue within 24 months and the remainder thereafter.
The Company has certain retail, wholesale, and renewable energy 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 1213 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 and otherOther revenue. Communication Services revenue is further disaggregated into mobility, fixed, carrier services,Mobility, Fixed, Carrier Services, and otherOther services. Other revenue is further
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disaggregated into renewable energy, managed servicesRenewable Energy, Managed Services and constructionConstruction 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 adopted ASU 2016-13 on January 1, 2020. The standard requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses is based on all relevant information including historical information, current conditions, and reasonable and supportable forecasts that affect the collectability of the amounts. The Company adopted ASU 2016-13 using the modified retrospective approach, however, there was 0 impact of adoption on retained earnings.
The standard impacted the Company’s calculation of credit losses from trade receivables. Historically, the Company recorded credit losses subsequent to the initial revenue transaction. After adoption of ASU 2016-13, the Company will record 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. Our allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. There iswas no significant impact to the Company’s operating results for the current period due to the adoption of this standard.
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At SeptemberJune 30, 2021, the Company had gross accounts receivable of $86.6 million and an allowance for credit losses of $13.5 million. The receivable under the FirstNet Agreement totaled $32.4 million of which $4.1 million was current and $28.3 million was long-term. At December 31, 2020, the Company had gross accounts receivable of $55.7 million and an allowance for credit loss of $12.2 million. At January 1, 2020 the Company had gross accounts receivable of $48.6$67.1 million and an allowance for credit losses of $12.7$12.1 million. The receivable under the FirstNet Agreement totaled $10.8 million of which $1.2 million was current and $9.6 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:
| | | | | | | | | |
|
| Nine months ended September 30, 2020 |
| Six months ended June 30, 2021 | | Six months ended June 30, 2020 | |||
| | | | | | | | | |
Balance at January 1, 2020 |
| $ | 12,724 | ||||||
Balance at beginning of period |
| $ | 12,121 | | $ | 12,724 | |||
Current period provision for expected losses |
| | 4,452 |
| | 2,299 | | | 3,397 |
Write-offs charged against the allowance |
| | (5,434) |
| | (1,196) | | | (4,875) |
Recoveries collected | | | 466 | | | 267 | | | 354 |
Balance at September 30, 2020 | | $ | 12,208 | ||||||
Balance at end of period | | $ | 13,491 | | $ | 11,600 |
4. LEASES
The Company adopted ASU 2016-02 on January 1, 2019, utilizing the optional transition method with a cumulative adjustment on the date of adoption. Under this approach, the guidance was applied to leases that had commenced as of January 1, 2019 with a cumulative effect adjustment as of that date and prior periods were not adjusted. Upon adoption, the Company recognized an operating lease right-of-use (“ROU”) asset of $70.8 million, a short-term lease liability of $8.2 million, and a long-term lease liability of $61.2 million. The adoption had 0 impact on retained earnings or other components of equity.
The Company elected the package of practical expedients. Under the package of practical expedients, for existing leases, the Company does not reassess: i) whether the arrangement contains a lease; ii) lease classification and; iii) initial direct costs.
The Company has operating and financing leases for towers, land, corporate offices, retail facilities, vehicles, and data transport capacity. The leaseterms are generally between generally3 between three and ten10 years, some of which include additional renewal options.
Supplemental lease information
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three months ended June 30, 2021 | | Three months ended June 30, 2020 | | Six months ended June 30, 2021 | | Six months ended June 30, 2020 | ||||
Operating lease cost: | | | | | | | | | | | |
Operating lease cost | $ | 4,248 | | $ | 4,029 | | $ | 8,473 | | $ | 8,076 |
Short-term lease cost | | 729 | | | 729 | | | 1,137 | | | 1,271 |
Variable lease cost | | 1,016 | | | 1,540 | | | 2,080 | | | 2,343 |
Total operating lease cost | $ | 5,993 | | $ | 6,298 | | $ | 11,690 | | $ | 11,690 |
| | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | |
Amortization of right-of-use asset | $ | 615 | | $ | 522 | | $ | 1,190 | | $ | 1,094 |
Variable costs | | 197 | | | 186 | | | 392 | | | 458 |
Total finance lease cost | $ | 812 | | $ | 708 | | $ | 1,582 | | $ | 1,552 |
During the six month periods ended June 30, 2021 and 2020, the Company paid $7.6 million and $7.2 million, respectively, for operating lease liabilities. During the six months ended June 30, 2021 and 2020, the Company recorded $6.3 million and $1.7 million, respectively, of operating lease liabilities arising from ROU assets.
At June 30, 2021, finance leases with a cost of $26.7 million and accumulated amortization of $10.7 million were included in property, plant and equipment. During the six months ended June 30, 2021, the Company paid $0.5 million for finance lease liabilities and recorded $1.4 million of additional finance lease liabilities. At June 30, 2021, finance leases had a lease liability of $2.1 million, of which $0.4 million was current. At December 31, 2020, finance leases with a cost of $25.4 million and accumulated amortization of $9.5 million were included in property, plant and equipment.
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Supplemental lease information
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three months ended September 30, 2020 | | Three months ended September 30, 2019 | | Nine months ended September 30, 2020 | | Nine months ended September 30, 2019 | ||||
Operating lease cost: | | | | | | | | | | | |
Operating lease cost | $ | 4,152 | | $ | 3,627 | | $ | 12,228 | | $ | 11,294 |
Short-term lease cost | | 769 | | | 652 | | | 2,040 | | | 2,232 |
Variable lease cost | | 692 | | | 1,151 | | | 3,034 | | | 2,400 |
Total operating lease cost | $ | 5,613 | | $ | 5,430 | | $ | 17,302 | | $ | 15,926 |
| | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | |
Amortization of right-of-use asset | $ | 534 | | $ | 570 | | $ | 1,628 | | $ | 1,749 |
Variable costs | | 198 | | | 244 | | | 655 | | | 802 |
Total finance lease cost | $ | 732 | | $ | 814 | | $ | 2,283 | | $ | 2,551 |
During the nine months ended September 30, 2020 and 2019, the Company paid $9.1 million and $10.2 million, respectively, for operating lease liabilities. During the nine months ended September 30, 2020 and 2019, the Company recorded $5.7 million and $7.3 million, respectively, of operating lease liabilities arising from ROU assets.
At September 30, 2020, finance leases with a cost of $25.2 million and accumulated amortization of $9.0 million were included in property, plant and equipment. During the nine months ended September 30, 2020, the Company paid $0.6 million for finance lease liabilities and recorded $1.5 million of additional finance lease liabilities. At September 30, 2020, finance leases had a lease liability of $1.3 million of which, $0.3 million was current. At December 31, 2019, finance leases with a cost of $25.9 million and accumulated amortization of $9.4 million were included in property, plant and equipment.
The weighted average remaining lease terms and discount rates as of SeptemberJune 30, 20202021 and December 31, 20192020 are noted in the table below:
| | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | June 30, 2021 | | December 31, 2020 | ||||
Weighted-average remaining lease term | | | | | | | | | | |
Operating leases | | 6.0 years | | | 6.5 years | | 5.7 years | | | 5.9 years |
Financing leases | | 10.5 years | | | 11.7 years | | 10.5 years | | | 10.9 years |
| | | | | | | | | | |
Weighted-average discount rate | | | | | | | | | | |
Operating leases | | 5.0% | | | 5.0% | | 4.8% | | | 5.0% |
Financing leases | | 3.3% | | | n/a | | 4.3% | | | 3.3% |
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Maturities of lease liabilities as of SeptemberJune 30, 20202021 were as follows (in thousands):
| | | | | | | |
| Operating Leases | Operating Leases | | Financing Leases | |||
2020 (excluding the nine months ended September 30, 2020) | $ | 3,014 | |||||
2021 | | 15,761 | |||||
2021 (excluding the six months ended June 30, 2021) | $ | 8,184 | | $ | 251 | ||
2022 | | 14,170 | | 15,243 | | | 501 |
2023 | | 11,789 | | 12,846 | | | 501 |
2024 | | 10,466 | | 11,702 | | | 383 |
2025 | | 8,800 | | | 285 | ||
Thereafter | | 19,885 | | 14,599 | | | 522 |
Total lease payments | | 75,085 | | 71,374 | | | 2,443 |
Less imputed interest | | (10,640) | | (9,323) | | | (317) |
Total | $ | 64,445 | $ | 62,051 | | $ | 2,126 |
Maturities of lease liabilities as of December 31, 20192020 were as follows (in thousands):
| | | | | | | |
| Operating Leases | Operating Leases | | Financing Leases | |||
2020 | $ | 14,526 | |||||
2021 | | 13,714 | $ | 14,877 | | $ | 334 |
2022 | | 12,787 | | 14,202 | | | 333 |
2023 | | 10,713 | | 11,799 | | | 333 |
2024 | | 9,671 | | 10,633 | | | 211 |
2025 | | 7,816 | | | - | ||
Thereafter | | 18,354 | | 13,094 | | | - |
Total lease payments | | 79,765 | | 72,421 | | | 1,211 |
Less imputed interest | | (12,195) | | (10,097) | | | (82) |
Total | $ | 67,570 | $ | 62,324 | | $ | 1,129 |
As of SeptemberJune 30, 2020,2021, the Company did not have any material operating or finance leases that have not yet commenced.
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, 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,
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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
Acquisition of Alaska Communications
See Note 15 to the Unaudited Condensed Consolidated Financial Statements included in this Report for a description of the Company’s acquisition of Alaska Communications.
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.
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 and the assets and liabilities subject to the Vibrant Transaction were reported as held for sale at December 31, 2020. 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 six months ended June 30, 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 finalizing working capital adjustments and the purchase price escrow will be held in escrow for a period of 12 months after the
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closing to secure the Company’s indemnification obligations. During the six months ended June 20, 2021, the Company recorded additional losses of $0.7 million related the ongoing working capital assessment. 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.
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.
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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 SeptemberJune 30, 20202021 and December 31, 20192020 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |||
| | September 30, 2020 | | June 30, 2021 | ||||||||||||||||||||
| | Significant Other | | Significant Other | ||||||||||||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | Quoted Prices in | | Observable | | Unobservable | | | | |||||||
| | Active Markets | | Inputs | | Inputs | | | | Active Markets | | Inputs | | Inputs | | | | |||||||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||||||
Certificates of deposit | | $ | — | | $ | 380 | | $ | — | | $ | 380 | | $ | — | | $ | 380 | | $ | — | | $ | 380 |
Money market funds | | | 2,450 | | — | | | — | | | 2,450 | | | 3,134 | | — | | | — | | | 3,134 | ||
Short term investments | | | 403 | | — | | | — | | | 403 | |||||||||||||
Other investments | | | — | | — | | | 13,172 | | | 13,172 | | | — | | — | | | 2,016 | | | 2,016 | ||
Interest rate swap | | | — | | | (189) | | | — | | | (189) | | | — | | | (97) | | | — | | | (97) |
Total assets and liabilities measured at fair value | | $ | 2,853 | | $ | 191 | | $ | 13,172 | | $ | 16,216 | | $ | 3,134 | | $ | 283 | | $ | 2,016 | | $ | 5,433 |
| | | | | | | | | | | | | | | | | | | | | | | |||
| | December 31, 2019 | | | December 31, 2020 | ||||||||||||||||||||
| | Significant Other | | | Significant Other | ||||||||||||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | | Quoted Prices in | | Observable | | Unobservable | | | | |||||||
| | Active Markets | | Inputs | | Inputs | | | | | Active Markets | | Inputs | | Inputs | | | | |||||||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||||||
Certificates of deposit | | $ | — | | $ | 380 | | $ | — | | $ | 380 | | | $ | — | | $ | 380 | | $ | — | | $ | 380 |
Money market funds | | | 2,329 | | — | | | — | | | 2,329 | | | | 2,785 | | — | | | — | | | 2,785 | ||
Short term investments | | | 416 | | — | | | — | | | 416 | | |||||||||||||
Other investments | | | — | | — | | | 12,700 | | | 12,700 | | | | — | | — | | | 13,357 | | | 13,357 | ||
Interest rate swap | | | — | | | (56) | | | — | | | (56) | | | | — | | | (157) | | | — | | | (157) |
Total assets and liabilities measured at fair value | | $ | 2,745 | | $ | 324 | | $ | 12,700 | | $ | 15,769 | | | $ | 2,785 | | $ | 223 | | $ | 13,357 | | $ | 16,365 |
During the six months ended June 30, 2021, other investments measured using Level 3 inputs decreased $11.3 million. The decrease was the result of transferring $11.0 million out of Level 3 due to the conversion of a convertible debt instrument. At December 31, 2020, the Company accounted for a convertible debt instrument at fair value. During the six months ended June 30, 2021, that instrument was converted to equity and the Company began accounting for the investment under the cost method of accounting. Refer to Other Investments below. Also, during the six months ended June 30, 2021, the fair value of the remaining Level 3 investments decreased $0.3 million due to $0.5 million of cash distributions and $0.2 million of income recognized in the other income line of the Company’s statement of operations.
Certificate of Deposit
As of SeptemberJune 30, 20202021 and December 31, 2019,2020 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 SeptemberJune 30, 20202021 and December 31, 2019,2020, 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.
Short Term Investments and Commercial Paper
As of September 30, 2020 and December 31, 2019, these asset classes consisted of short term foreign and US corporate bonds, equity securities, and commercial paper. Corporate bonds and commercial paper are classified within Level 2 of the fair value hierarchy because the fair value is based on observable market data. Equity securities are classified within Level 1 because fair value is based on quoted market prices in active markets for identical assets. The Company held equity securities with a fair value of $0.1 million and $0.2 million at September 30, 2020 and December 31, 2019, respectively. Net income includes $0.1 million of losses for the nine months ended September 30, 2020. NaN gain or loss was recorded in the three and nine months ended September 30, 2019.
Other Investments
In the first quarter of 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument. The Company elected to fair value the investment upon acquisition. At September 30, 2020, the fair value of the investment was $10.8 million. During the three and nine months ended September 30, 2020,
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the Company recorded $0.1 million of expense and $0.6 million of income, respectively, from changes in the fair value of the investment. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate calculated based on the investment attributes and the probability of potential future scenarios occurring.
In the third quarter of 2019, the Company made a $14.4 million investment in a renewable energy partnership as a tax equity investor. TheIn 2020, the Company received an investment tax credit of $12.0 million in the three months ended September 30, 2020from its investment and will receive future cash distributions from the partnership’s operations. The Company elected the deferral method to account for the credit and elected the fair value option to account for the equity investment. The Company’s investment had a fair value of $2.4$2.0 million at SeptemberJune 30, 2020,2021, and $2.5 $2.3 million at December 31, 2019.2020. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate and future cash flows calculated based on the investment attributes.
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Also in 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument. The instrument converted into equity during the first quarter of 2021. Upon conversion the Company accounted for the investment under the cost method of accounting as the investment does not have a readily determinable fair value. Prior to conversion, the Company accounted for the investment under the fair value option using Level 3 inputs. During the six months ended June 30, 2021, the Company recorded a gain of $2.5 million on the conversion and invested an additional $3.0 million of cash, increasing its book value from $11.0 million at December 31, 2020 to $16.5 million at June 30, 2021.
The Company also holds investments in equity securities consisting of non-controlling investments in privately held companies. These investments, over which the Company does not have the ability to exercise significant influence, are without readily determinable fair values. The investments are measured at cost, less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. The carrying value of the investments was $1.3 million at September 30, 2020 and $2.1 million at June 30, 2021, unchanged from December 31, 2019. During the three months ended September 30, 2020 the Company recorded a loss of $0.8 million as the result of an observable price change in the investments.2020. These investments are included with other assets on the consolidated balance sheets.
Equity Method Investments
In the first quarter of 2020, the Company increased its ownership in one investment of a privately held company to approximately 24% of the outstanding voting equity through an additional $2.8 million investment. With this investment the Company obtained the ability to exercise significant influence over the investee and began accounting for the investment under the equity method of accounting including the recording of its share of the investee’s earnings or losses. The carrying value of the investment was $17.016.6 million and $15.5$17.9 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The value increaseddecreased $1.51.3 million from the December 31, 20192020 balance due to an additional investment of $2.8 million, $1.5$0.9 million of the Company’s share of investee losses, and currency gainslosses of $0.2$0.4 million. The investment is included with other assets on the consolidated balance sheets.
In the first quarter of 2021, the Company began to account for its former India solar operations under the equity method of accounting. Subsequent to the close of the Vibrant Transaction in January 2021, the value of the investment increased from $11.8 million to $12.9 million at June 30, 2021. The increase of $1.1 million was due to currency losses of $0.2 million, an additional investment of $1.6 million into its operations, and a distribution of $0.3 million to a minority investment partner.
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 and the customer receivable credit facility is estimated using Level 2 inputs. At SeptemberJune 30, 2021, the fair value of long-term debt and the customer receivable credit facility, including the current portion, was $88.6 million and its book value was $87.7 million. At December 31, 2020, the fair value of long-term debt, including the current portion, was $84.273.3 million and its book value was $83.7 million. At December 31, 2019, the fair value of long-term debt, including the current portion, was $86.9 million and its book value was $86.4$72.8 million.
7.8. LONG-TERM DEBT
On April 10, 2019, the Company entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (the “2019 CoBank Credit Facility”). The 2019 CoBank Credit Facility provides for a $200 million revolving credit facility that includes (i) up to (i) $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $16.0 million of performance and standby letters of credit have been issued and remain outstanding and undrawn as of SeptemberJune 30, 2020.2021. The 2019 CoBank Credit Facility matures on April 10, 2024.
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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) the LIBOR for an interest period of one month and (y) the 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, wethe Company must also pay a fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
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 the Company’sits 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 SeptemberJune 30, 2020,2021, the Company was in compliance with all of the financial covenants, had no0 outstanding borrowings and, net of the $16.0 million of outstanding performance letters of credit, had $184.0 million of availability under the 2019 CoBank Credit Facility. On July 20, 2021, and in connection with the Alaska Transaction, the Company drew $73.0 million from its 2019 CoBank Credit Facilityand subsequently repaid $10.0 million of that amount.
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a new credit facility to provide debt financing associated with the Alaska Transaction. See Note 15 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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$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. The delayed draw period will expire on December 31, 2021.
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 rate based on (i) the LIBOR plus 2.50%, (ii) a base rate plus 1.50% or (iii) a fixed annual interest rate to be quoted by CoBankCoBank. If the Company selects a variable interest rate option, the Company is required to enter an interest rate swap fixing the interest rate.
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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 SeptemberJune 30, 2020,2021, the Company had 0$17.2 million outstanding, borrowingsof which $2.3 million was current, and $57.4 million of availability under the Receivables Credit Facility.
The Company capitalized $0.9 million of fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.8 million were unamortized at June 30, 2021.
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
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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 the Company’s Viya subsidiaries and is guaranteed by the Company. 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 with a $75.0 million limit. The Company was not in compliance with the Net Leverage Ratio covenant of the Viya Debt agreement for the year ending December 31, 20192020 and received a waiver from the RTFC on February 26, 2020. 25, 2021.
The Company paid a fee of $0.9 million in 2016 to lock in 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 SeptemberJune 30, 2020,2021, $60.0 million of the Viya Debt remained outstanding and $0.5 million of the rate lock fee was unamortized.
One Communications Debt
The Company has an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to mature on May 22, 2022 and bears 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, guarantees,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). The Company was in compliance with its covenants as of December 31, 2019.
2020.
As a condition of the One Communications Debt, the Company was required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the term of the One Communications Debt. As such, the Company entered into an amortizing interest rate swap that has been designated as a cash flow hedge, which had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of SeptemberJune 30, 2020,2021, the swap had an unamortized notional amount of $7.6$6.8 million.
The Company capitalized $0.3 million of fees associated with the One Communications Debt which are being amortized over the life of the debt and are recorded as a reduction to the debt carrying amount.
As of SeptemberJune 30, 2020, $24.32021, $11.6 million of the One Communications Debt was outstanding and $0.1 million of the capitalized fees remained unamortized.
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8.9. GOVERNMENT GRANTS
Universal Service Fund
The Federal Universal Service Fund (“USF”) is a subsidy program managed by the Federal Communications Commission (“FCC”). USF funds are disbursed to telecommunication providers through 4 programs: the High Cost Program; Low Income Program (“Lifeline Program”); Schools and Libraries Program (“E-Rate Program”); and Rural Health Care Support Program. The Company participates in the High Cost Program, Lifeline Program, E-Rate Program, and Rural Health Care Support Program as further described below. All of these funding programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with all applicable requirements.
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During the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company recorded $4.1$4.3 million and $12.3$8.4 million, respectively, of revenue from the High Cost Program in its International Telecom segment.segment for its US Virgin Islands operations under the “Viya” name. During the three and ninesix month periods ended September 30, 2019, the Company recorded $4.1 million and $12.3 million, respectively, of revenue from the High Cost Program in its International Telecom segment. Also, during the three and nine month periods ended SeptemberJune 30, 2020, the Company recorded $0.3$4.1 million and $0.9$8.2 million, respectively, from the same program. 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 begin payment to the awardee in June 2021. Pursuant to the terms of the program, Viya’s USF support will be reduced, to two-thirds of the legacy total amount, or $10.9 million, during the first year following the finalization of the award and to one-third of the legacy total amount, or $5.5 million, during the second year. Thereafter, Viya will not receive High Cost Program support.
Also, during each of the three and six month periods ended June 30, 2021, the Company recorded $0.3 million and $0.6 million, respectively, of High Cost Program revenue in its US Telecom segment. During the three and ninesix month periods ended SeptemberJune 30, 2019,2020, the Company recorded $0.3 million and $0.9$0.6 million, respectively, of High Cost Program revenue in its US Telecom segment.from the same program. The Company is subject to certain operational, reporting and construction requirements as a result of this funding, and the Company believes that it is in compliance with all of these requirements.
In August 2018, the Company was awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction. TheUnder this program, the Company is required to provide fixed broadband and voice services to certain eligible areas in the United States. The CompanyStates and is subject to operational and reporting requirements under the program and the Company expects to incur additional capital expenditures to comply with these requirements. The Company determined the award is a revenue grant, and as a result the Company will record the funding as revenue upon receipt. DuringFor the three and ninesix month periods ended SeptemberJune 30, 2020,2021, the Company recorded $1.9$1.9 million and $5.7$3.8 million, respectively, of revenue from the Connect America Fund Phase II program. DuringFor the three and nine monthssix month periods ended SeptemberJune 30, 2019,2020, the Company recorded $1.9$1.9 million and $3.4$3.8 million, respectively, of revenue from the program, as funding began in the second quarter of 2019.same program.
The Company also receives construction grants to build network connectivity for eligible communities. The funding is used to reimburse construction costs and is distributed upon completion of a project. As of September 30,December 31, 2020, the Company hashad been awarded approximately $16.8 million of such grants. The Company was awarded $6.5 million of additional grants in the six months ended June 30, 2021. The Company has completed its construction obligations on $10.2 million of these projects and $13.1 million of such construction obligations remain with construction completion obligationsdeadlines beginning in June 2020. September 2021. Once these projects are constructed, the Company is obligated to provide service to the participants. The Company receives funds upon construction completion and is in various stages of constructing the networks.completion. The Company did 0t receive any funds during the nine months ended September 30, 2020. During 2019, the Company received $5.41.3 million of which $3.1 million was a reimbursement of capital expenditures and $2.3 million offset operating activities.during the six months ended June 30, 2021. The Company expects to meet all requirements associated with these grants.
The Company also receives funding to provide discounted telecommunication services to eligible customers under the E-Rate Program, Lifeline Program, and Rural Health Care Support Program. During the three and ninesix months ended SeptemberJune 30, 2020,2021, the Company recorded revenue of $2.21.8 million and $6.6$3.9 million, respectively, in the aggregate from these programs. During the three and ninesix months ended SeptemberJune 30, 2019,2020, the Company recorded revenue of $1.52.2 million and $4.7$4.4 million, respectively, in the aggregate from these programs. The Company is subject to certain
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operational and reporting requirements under the above mentioned programs and it believes that it is in compliance with all of these requirements.
CARES Act
As of December 31, 2020, the Company had received $16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). During the six months ended June 30, 2021, the Company received an additional $2.4 million of funding. In total the Company received $18.7 million of funding under this program. The funding was utilized to construct network infrastructure in the Company’s US Telecom segment. The construction was completed as of June 30, 2021 and $18.4 million of the funding was recorded as a reduction to property, plant and equipment and subsequent reduction to depreciation expense. The remaining $0.3 million was recorded as a reduction to operating expense in the six months ended June 30, 2021.
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. The Company received a bidding credit of $7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. The Company’s current estimate is that it will use $5.4$6.1 million to offset capital costs, consequently reducing future depreciation expense, and $2.0$1.3 million to offset the cost of supporting the network which will reduce future operating expense. Through SeptemberJune 30, 2020,2021, the Company hashad spent $5.1$6.1 million on capital expendituresexpenditures. During the three and hassix months ended June 30, 2021 the Company recorded $0.1$0.3 million and $0.6 million, respectively, in offsets to the cost of supporting the network. The credits are subject to certain requirements, including deploying service by January 2021 and meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. The Company currently expects to complybelieves it is in compliance with all applicable requirements related to these funds.
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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 bid on and was awardeda winning bidder for PALs located strategically throughout the United States and made an investmentat a total cost of approximately $20.4 million. 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.
RDOF
In the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”), pending the FCC’s conclusion of the award process, we expect to receive approximately $20.1 million over 10 years to provide broadband coverage to over 10,000 households. Once confirmed, the Company will be obligated to provide broadband and voice services to certain eligible areas in the United States.
25
9.10. RETIREMENT PLANS
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.
The Company recorded the net periodic benefit cost identified below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | Three months ended | ||||||||||||||||||||
|
| September 30, 2020 |
| September 30, 2019 | |
| June 30, 2021 |
| June 30, 2020 | ||||||||||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | ||||||||
Operating expense | | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | (164) | | $ | 32 | | $ | 447 | | $ | 37 | | | $ | 54 | | $ | 35 | | $ | 423 | | $ | 32 |
Non-operating expense | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest cost | | | 603 | | | 45 | | | 841 | | | 40 | | | | 572 | | | 41 | | | 879 | | | 45 |
Expected return on plan assets | |
| (414) | |
| — | | | (1,263) | |
| — | | |
| (687) | |
| — | | | (1,158) | |
| — |
Actuarial (gain)/ loss | | | (7) | | | (15) | | | 7 | | | (17) | | | | — | | | — | | | (7) | | | (15) |
Net periodic pension expense | | $ | 18 | | $ | 62 | | $ | 32 | | $ | 60 | | ||||||||||||
Net periodic pension expense (benefit) | | $ | (61) | | $ | 76 | | $ | 137 | | $ | 62 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended | | | Six months ended | | ||||||||||||||||||||
| | September 30, 2020 |
| September 30, 2019 | | | June 30, 2021 |
| June 30, 2020 | | ||||||||||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | ||||||||
Operating expense | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 682 | | $ | 96 | | $ | 1,342 | | $ | 111 | | | $ | 108 | | $ | 70 | | $ | 846 | | $ | 64 | |
Non-operating expense | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest cost | | | 2,361 | | | 135 | | | 2,524 | | | 120 | | | | 1,144 | | | 82 | | | 1,758 | | | 90 | |
Expected return on plan assets | |
| (2,730) | |
| — | |
| (3,790) | |
| — | | |
| (1,374) | |
| — | |
| (2,316) | |
| — | |
Actuarial (gain)/ loss | | | (21) | | | (45) | | | 22 | | | (51) | | | | — | | | — | | | (14) | | | (30) | |
Net periodic pension expense | | $ | 292 | | $ | 186 | | $ | 98 | | $ | 180 | | | $ | (122) | | $ | 152 | | $ | 274 | | $ | 124 | |
In the first quarter of 2020, the Company began the process of winding up one of its pension plans. At December 31, 20192020 this plan had assets of $15.1$15.6 million and a projected benefit obligation of $15.6 million.
The Company was not required to make contributions to its pension plans during the ninesix months ended SeptemberJune 30, 20202021 and 2019.2020. However, the Company periodically evaluates whether to make discretionary contributions. During the nine months ended September 30, 2020 and 2019, the Company contributed $0.7 million and $0.3 million, respectively, to its pension plans. The Company funds its postretirement benefit plans as claims are made.made and did not make contributions to its pension plans during the six months ended
June 30, 2021. During the six months ended June 30, 2020 the Company contributed $0.7 million to its pension benefit plans.
24
10.11. INCOME TAXES
The Company’s effective tax rate for the three months ended SeptemberJune 30, 2020 and 2019 was 1.5% and 27.5%, respectively.
On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, allows NOLs incurred in 2018, 2019,2021 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.was (88.2%) and (37.0%), respectively.
The effective tax rate for the three months ended SeptemberJune 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.
26
The effective tax rate for the three months ended June 30, 2020 was primarily impacted by the following items: (i) the remeasurement of a forecasted domestic loss at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in India where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), and (iii) discrete items including a $0.4$2.9 million benefit from the reversal of an unrecognized tax position due to statute of limitations expiration and a $0.5 million expense for interest on unrecognized tax positions, a $0.2 million expense to record a valuation allowance against an investment write-off which cannot be currently benefitted for tax, and a $0.6 million benefit (net) related to the utilization of losses at a higher tax rate as allowed by the CARES Act.
The effective tax rate for the three months ended September 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the US Virgin Islands and India where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) a $1.3 million deferred tax benefit related to an investment tax credit, and (ii) a $0.5 million net interest expense on unrecognized tax positions.
The Company’s effective tax rate for the ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 was (6.7%(19.7%) and 26.7%,(12.0%) respectively.
The effective tax rate for the ninesix months ended SeptemberJune 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.
The effective tax rate for the six months ended June 30, 2020 was primarily impacted by the following items: (i) the remeasurement of a forecasted domestic loss at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in India where the Companywe cannot benefit from those losses as required by ASC 740-270-30-36(a), and (iii) discrete items including a $2.9 million benefit from the reversal of an unrecognized tax position due to a statute of limitations expiration, a $1.4$1.0 million expense for interest on unrecognized tax positions, a $0.6$0.4 million expense to record a valuation allowance against an investment write-downswrite-down which cannot be benefitted for tax purposes, and a $1.0$0.3 million benefit (net) related to the utilizationremeasurement of existing losses and temporary differences at a higher tax rate due to carryback provisions as allowedprovided by the CARES Act.
The effective tax rate for the nine months ended September 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the US Virgin Islands and India where the Company cannot benefit from those losses as required by ASC 740-270-30 36(a), in addition to the following discrete items: (i) a $1.3 million deferred tax benefit related to an investment tax credit, and (ii) a $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
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 applicationapplications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgmentjudgments 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.
25
11.12. NET INCOME (LOSS) PER SHARE
For each of the three and six months ended SeptemberJune 30, 20202021 and 2019,2020, 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.
For each of the nine months ended September 30, 2020 and 2019, the calculations of basic and diluted weighted average shares of common stock outstanding do not include 5,000 and 38,564 shares, respectively, relating to stock options as the effects of those options were anti-dilutive.
2627
12.13. SEGMENT REPORTING
The Company has the following 3 reportable and operating segments: i) International Telecom, ii) US Telecom, and iii) Renewable Energy.
The following tables provide information for each operating segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | | | | |
| | |
| |
| | |
| | | | | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility | | $ | 21,406 | | $ | 2,432 | | $ | — | | $ | — | | $ | 23,838 | | $ | 22,754 | | $ | 2,407 | | $ | — | | $ | — | | $ | 25,161 |
Fixed | | | 57,364 | |
| 5,419 | |
| — | |
| — | |
| 62,783 | | | 59,126 | |
| 5,877 | |
| — | |
| — | |
| 65,003 |
Carrier Services | | | 1,851 | | | 19,852 | | | — | | | — | | | 21,703 | | | 2,523 | | | 20,038 | | | — | | | — | | | 22,561 |
Other | |
| 397 | | | — | | | — | | | — | | | 397 | |
| 239 | | | — | | | — | | | — | | | 239 |
Total Communication Services Revenue | |
| 81,018 | | | 27,703 | | | — | | | — | | | 108,721 | |
| 84,642 | | | 28,322 | | | — | | | — | | | 112,964 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 1,177 | | | — | | | 1,177 | |||||||||||||||
Managed Services | | | 1,447 | | | — | | | — | | | — | | | 1,447 | | | 1,576 | | | — | | | — | | | — | | | 1,576 |
Construction | | | — | | | 394 | | | — | | | — | | | 394 | | | — | | | 9,325 | | | — | | | — | | | 9,325 |
Total Other Revenue | | | 1,447 | | | 394 | | | 1,177 | | | — | | | 3,018 | | | 1,576 | | | 9,325 | | | — | | | — | | | 10,901 |
Total Revenue | | | 82,465 | | | 28,097 | | | 1,177 | | | — | | | 111,739 | | | 86,218 | | | 37,647 | | | — | | | — | | | 123,865 |
Depreciation and amortization | |
| 13,671 | |
| 5,729 | |
| 491 | |
| 1,689 | |
| 21,580 | |
| 13,790 | |
| 5,079 | |
| — | |
| 1,286 | |
| 20,155 |
Non-cash stock-based compensation | |
| 29 | |
| — | |
| 66 | |
| 1,792 | |
| 1,887 | |
| 10 | |
| — | |
| — | |
| 2,165 | |
| 2,175 |
Operating income (loss) | |
| 16,024 | |
| 2,218 | |
| (98) | |
| (8,587) | |
| 9,557 | |
| 14,643 | |
| (556) | |
| (771) | |
| (10,411) | |
| 2,905 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2020 | For the Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||
|
| | |
|
|
| | |
| | |
| | |
| | |
|
|
| | |
| | |
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility | | $ | 21,364 | | $ | 2,601 | | $ | — | | $ | — | | $ | 23,965 | | $ | 19,062 | | $ | 2,367 | | $ | — | | $ | — | | $ | 21,429 |
Fixed | | | 55,845 | |
| 4,304 | |
| — | |
| — | |
| 60,149 | | | 56,567 | |
| 4,937 | |
| — | |
| — | |
| 61,504 |
Carrier Services | | | 2,403 | | | 25,988 | | | — | | | — | | | 28,391 | | | 1,897 | | | 20,856 | | | — | | | — | | | 22,753 |
Other | |
| 335 | | | — | | | — | | | — | | | 335 | |
| 554 | | | — | | | — | | | — | | | 554 |
Total Communication Services Revenue | |
| 79,947 | | | 32,893 | | | — | | | — | | | 112,840 | |
| 78,080 | | | 28,160 | | | — | | | — | | | 106,240 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | | | — | | | 874 | | | — | | | 874 |
Managed Services | | | 1,338 | | | — | | | — | | | | | | 1,338 | | | 1,984 | | | — | | | — | | | | | | 1,984 |
Total Other Revenue | | | 1,338 | | | — | | | 1,438 | | | — | | | 2,776 | | | 1,984 | | | — | | | 874 | | | — | | | 2,858 |
Total Revenue | | | 81,285 | | | 32,893 | | | 1,438 | | | — | | | 115,616 | | | 80,064 | | | 28,160 | | | 874 | | | — | | | 109,098 |
Depreciation and amortization | |
| 14,089 | | | 5,770 | | | 1,016 | | | 1,728 | |
| 22,603 | |
| 14,132 | | | 5,717 | | | 486 | | | 1,656 | |
| 21,991 |
Non-cash stock-based compensation | |
| 285 | | | — | | | — | | | 1,263 | |
| 1,548 | |
| 28 | | | — | | | 131 | | | 1,402 | |
| 1,561 |
Operating income (loss) | |
| 10,867 | | | 7,912 | | | (714) | | | (7,817) | |
| 10,248 | |
| 14,617 | | | 1,826 | | | (620) | | | (8,799) | |
| 7,024 |
2728
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility | | $ | 60,604 | | $ | 7,203 | | $ | — | | $ | — | | $ | 67,807 | | $ | 44,575 | | $ | 5,267 | | $ | — | | $ | — | | $ | 49,842 |
Fixed | | | 172,420 | |
| 15,181 | |
| — | |
| — | |
| 187,601 | | | 117,873 | |
| 12,248 | |
| — | |
| — | |
| 130,121 |
Carrier Services | | | 5,392 | | | 60,779 | | | — | | | — | | | 66,171 | | | 4,406 | | | 38,774 | | | — | | | — | | | 43,180 |
Other | |
| 1,286 | | | — | | | — | | | — | | | 1,286 | |
| 456 | | | — | | | — | | | — | | | 456 |
Total Communication Services Revenue | |
| 239,702 | | | 83,163 | | | — | | | — | | | 322,865 | |
| 167,310 | | | 56,289 | | | — | | | — | | | 223,599 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 3,373 | | | — | | | 3,373 | | | — | | | — | | | 418 | | | — | | | 418 |
Managed Services | | | 5,111 | | | — | | | — | | | — | | | 5,111 | | | 2,726 | | | — | | | — | | | — | | | 2,726 |
Construction | |
| — | | | 394 | | | — | | | — | | | 394 | |
| — | | | 21,632 | | | — | | | — | | | 21,632 |
Total Other Revenue | | | 5,111 | | | 394 | | | 3,373 | | | — | | | 8,878 | | | 2,726 | | | 21,632 | | | 418 | | | — | | | 24,776 |
Total Revenue | | | 244,813 | | | 83,557 | | | 3,373 | | | — | | | 331,743 | | | 170,036 | | | 77,921 | | | 418 | | | — | | | 248,375 |
Depreciation and amortization | |
| 42,120 | | | 17,331 | | | 1,590 | | | 5,048 | |
| 66,089 | |
| 27,616 | | | 10,272 | | | 188 | | | 2,586 | |
| 40,662 |
Non-cash stock-based compensation | |
| 20 | | | — | | | 197 | | | 4,391 | |
| 4,608 | |
| 47 | | | — | | | 22 | | | 3,442 | |
| 3,511 |
Operating income (loss) | |
| 44,119 | | | 6,241 | | | (1,175) | | | (25,306) | |
| 23,879 | |
| 27,786 | | | (1,090) | | | (1,433) | | | (19,009) | |
| 6,254 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | | | | |
| | |
| |
| | |
| | | | | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility | | $ | 62,766 | | $ | 8,095 | | $ | — | | $ | — | | $ | 70,861 | | $ | 39,198 | | $ | 4,770 | | $ | — | | $ | — | | $ | 43,968 |
Fixed | | | 166,925 | |
| 9,885 | |
| — | |
| — | |
| 176,810 | | | 115,056 | |
| 9,762 | |
| — | |
| — | |
| 124,818 |
Carrier Services | | | 6,970 | | | 62,820 | | | — | | | — | | | 69,790 | | | 3,541 | | | 40,927 | | | — | | | — | | | 44,468 |
Other | |
| 1,012 | | | — | | | — | | | — | | | 1,012 | |
| 891 | | | — | | | — | | | — | | | 891 |
Total Communication Services Revenue | |
| 237,673 | | | 80,800 | | | — | | | — | | | 318,473 | |
| 158,686 | | | 55,459 | | | — | | | — | | | 214,145 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 4,376 | | | — | | | 4,376 | | | — | | | — | | | 2,196 | | | — | | | 2,196 |
Managed Services | | | 3,788 | | | — | | | — | | | | | | 3,788 | | | 3,663 | | | — | | | — | | | | | | 3,663 |
Total Other Revenue | | | 3,788 | | | — | | | 4,376 | | | — | | | 8,164 | | | 3,663 | | | — | | | 2,196 | | | — | | | 5,859 |
Total Revenue | | | 241,461 | | | 80,800 | | | 4,376 | | | — | | | 326,637 | | | 162,349 | | | 55,459 | | | 2,196 | | | — | | | 220,004 |
Depreciation and amortization | |
| 40,709 | | | 16,919 | | | 2,269 | | | 4,973 | |
| 64,870 | |
| 28,448 | | | 11,602 | | | 1,100 | | | 3,359 | |
| 44,509 |
Non-cash stock-based compensation | |
| 306 | | | — | | | — | | | 4,575 | |
| 4,881 | |
| (9) | | | — | | | 131 | | | 2,599 | |
| 2,721 |
Operating income (loss) | |
| 35,802 | | | 5,927 | | | (750) | | | (25,862) | |
| 15,117 | |
| 28,005 | | | 4,019 | | | (1,077) | | | (16,623) | |
| 14,324 |
(1) | Corporate and Other items refer to corporate overhead costs and consolidating adjustments |
2829
Selected balance sheet data for each of the Company’s segments as of SeptemberJune 30, 20202021 and December 31, 20192020 consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| |
|
| | |
| | |
| |
| | |
| |
|
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
September 30, 2020 | | | | | | | | | | | | | | | | |||||||||||||||
June 30, 2021 | | | | | | | | | | | | | | | | |||||||||||||||
Cash, Cash equivalents, and Investments | | $ | 67,701 | | $ | 25,177 | | $ | 22,376 | | $ | 20,302 | | $ | 135,556 | | $ | 48,301 | | $ | 26,041 | | $ | 5,350 | | $ | 15,193 | | $ | 94,885 |
Total current assets | | | 124,515 | | | 59,801 | | | 25,290 | | | 15,978 | | | 225,584 | | | 108,346 | | | 65,043 | | | 9,287 | | | 17,169 | | | 199,845 |
Fixed assets, net | | | 452,303 | | | 77,017 | | | 45,773 | | | 14,335 | | | 589,428 | | | 447,261 | | | 68,064 | | | — | | | 10,960 | | | 526,285 |
Goodwill | |
| 25,421 | |
| 35,270 | |
| — | |
| — | | | 60,691 | |
| 25,421 | |
| 35,269 | |
| — | |
| — | | | 60,690 |
Total assets | |
| 664,307 | |
| 233,288 | |
| 71,757 | |
| 144,062 | | | 1,113,414 | |
| 640,162 | |
| 308,514 | |
| 22,170 | |
| 95,728 | | | 1,066,574 |
Total current liabilities | | | 71,254 | | | 36,898 | | | 909 | | | 23,801 | | | 132,862 | | | 81,709 | | | 33,624 | | | 1,126 | | | 20,113 | | | 136,572 |
Total debt | | | 83,723 | | | — | | | — | | | — | | | 83,723 | | | 71,044 | | | 16,657 | | | — | | | — | | | 87,701 |
December 31, 2019 | | | | | | | | | | | | | | | | |||||||||||||||
December 31, 2020 | | | | | | | | | | | | | | | | |||||||||||||||
Cash, Cash equivalents, and Investments | | $ | 43,125 | | $ | 38,240 | | $ | 25,054 | | $ | 55,284 | | $ | 161,703 | | $ | 45,848 | | $ | 26,921 | | $ | 4,311 | | $ | 26,845 | | $ | 103,925 |
Total current assets | | | 91,497 | | | 54,207 | | | 27,534 | | | 55,485 | | | 228,723 | | | 107,315 | | | 65,806 | | | 39,057 | | | 27,887 | | | 240,065 |
Fixed assets, net | | | 466,523 | | | 69,184 | | | 48,421 | | | 21,453 | | | 605,581 | | | 449,888 | | | 73,717 | | | — | | | 12,857 | | | 536,462 |
Goodwill | |
| 25,421 | |
| 35,270 | |
| — | |
| — | | | 60,691 | |
| 25,421 | |
| 35,270 | |
| — | |
| — | | | 60,691 |
Total assets | |
| 647,228 | |
| 222,356 | |
| 76,723 | |
| 184,419 | | | 1,130,726 | |
| 642,834 | |
| 265,797 | |
| 39,045 | |
| 136,035 | | | 1,083,711 |
Total current liabilities | | | 77,644 | | | 24,905 | | | 2,745 | | | 14,375 | | | 119,669 | | | 80,875 | | | 43,200 | | | 1,038 | | | 22,815 | | | 147,928 |
Total debt | | | 86,426 | | | — | | | — | | | — | | | 86,426 | | | 72,823 | | | — | | | — | | | — | | | 72,823 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Expenditures | | Capital Expenditures | ||||||||||||||||||||||||||
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | International | | | US | | | Renewable | | | Corporate and | | | | | | International | | | US | | | Renewable | | | Corporate and | | | |
Nine months ended September 30, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated | |||||||||||||||
Six months ended June 30, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated | |||||||||||||||
2021 | | $ | 21,843 | | $ | 18,792 | | $ | — | | $ | 1,297 | | $ | 41,932 | |||||||||||||||
2020 | | $ | 28,439 | | $ | 17,254 | | $ | 2,116 | | $ | 2,853 | | $ | 50,662 | | | 19,929 | | | 8,883 | | | 1,634 | | | 1,519 | | | 31,965 |
2019 | | | 8,533 | | | 33,159 | | | 2,183 | | | 5,611 | | | 49,486 |
(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
13.14. 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. 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 proceedings currently pending will not have a material adverse effect on the Company’s financial position or results of operations.
In 1990, 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, the Government of Guyana has stated its intention to introduce additional competition into Guyana’s telecommunications sector. In connection therewith, the Company and GTT met on several occasions with officials of the Government of Guyana to discuss potential modifications 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 passed by the Guyana Parliament in 2016 that introduces material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of creating a more competitive market. At that time, the Company was issued a new
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license to provide domestic and international voice andas well as data services and mobile services in Guyana, and 2Guyana. NaN of itsthe Company’s competitors were issued service licenses as well. The terms and conditions of the licenses have not yet been made
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public. While the Company has requested details of its competitorscompetitors’ licenses, such information has not been made availablepublic by the Guyana Telecommunications Authority,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 licenselicense.
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 onfor the market as a whole, which impose costly additional regulatory fees and impact the Company’s operations, administrative reporting and service requirements.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. Under these circumstances, there can be no assurance that the Company’s discussions with the Government of Guyana will resume or be concluded, or that such discussions will satisfactorily address the Company’s contractual exclusivity rights. Although the Company believes that it would be entitled to damages or other compensation for any involuntary termination of its contractual exclusivity rights, it cannot guarantee that it would prevail in a proceeding to enforce its rights.
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 hadbeen given the opportunity to review any recommendationrecommendations made by the NFMU to the Minister.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 intends 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. GTT is seeking injunctive relief to stop what it perceives to be the illegal bypass activity and to obtain monetary damages. 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 werescheduled to proceed to trial in 2020. 2020. GTT expects to resume the litigation following the lifting of COVID-19 related restrictions and intends to prosecute these matters vigorously; however, the Company cannot accurately predict at this time when the consolidated suit will go to trial.
GTT is also involved in several legal claims regarding its tax filings with the Guyana Revenue Authority dating back to 1991 regarding the deductibility of intercompany advisory fees as well as other tax assessments. The Company maintains that any liability GTT might be found to have with respect to the disputed tax assessments, that the Guyana
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Revenue Authority has alleged totaltotaling $44.1 million, would be offset in part by the amounts necessary to ensure that GTT’s return on investment was no less
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than 15% per annum for the relevant periods. The Company believes that some adverse outcome is probable and has accordingly accrued $5.0 million as of SeptemberJune 30, 20202021 for these matters.
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 Company and other defendants, alleging breach of contract due to the Company’s failure to pay TTEC in connection with amounts alleged to be owed as reimbursement for cable repair costs. In May 2015, the Company defaulted in appearance in the matter and judgment was entered against the Company in the amount of approximately $2.8 million. In July 2021, the Company appeared in the High Court of Guyana to oppose the enforcement of the foreign judgment and intends to vigorously defend the matter. The Company believes that some adverse outcome is probable and has accordingly accrued $1.1 million as of June 30, 2021 for this matters.
14.15. SUBSEQUENT EVENTS
Changes in Guyana Telecommunications LegislationAcquisition of Alaska Communications
On July 22, 2021, the Company completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company, for approximately $340On October 5, 2020, million on cash, (the “Alaska Transaction”). Alaska Communications provides broadband telecommunication and managed information technology services to customers in the Prime MinisterState of Guyana formally implementedAlaska and beyond using its statewide and interstate telecommunications legislation previously passed bynetwork. The Company completed the Guyana Parliament in 2016 that introduces material changesacquisition to many features of Guyana’senter a new market with similar characteristics to its existing telecommunications regulatory regime with the intention of creating a more competitive market. See Note 13 for additional details.operations.
IncreaseIn conjunction with the Alaska Transaction, the Company 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 approximately $70 million in conjunction with the Alaska Transaction (the “Freedom 3 Investment”). The Freedom 3 Investment consists of common and preferred equity instruments in a subsidiary of the Company which holds the ownership of One Communications, Ltd.
In October 2020,Alaska Communications. The Company will account for the Freedom 3 Investment as mezzanine equity in its consolidated financial statements. The Company completedalso entered into a financing transaction drawing $220 million on a new credit facility to increase its equity ownership in One Communications, its subsidiary based in Bermuda andcomplete the Cayman Islands. Subsequent toAlaska Transaction. As a result of the private transaction, which involved the Company’s acquisition of equity from another shareholder for cash,Alaska Transaction, the Company owns approximately 70%52% of Onethe common equity of Alaska Communications and controls its operations and management. The Company incurred $2.4 million of transaction costs in conjunction with the Alaska Transaction, of which $1.5 million was incurred during the six months ended June 30, 2021. Beginning on July 22, 2021, the results of the Alaska Transaction will be included in the Company’s US Telecom segment.
Due to the limited time since the acquisition date, and the size and complexity of the Alaska Transaction, the accounting for the business combination is not yet complete. The Company is not able to provide the valuation of certain components of consideration transferred or provide the allocation of consideration paid to the assets acquired or liabilities assumed. Supplemental pro forma revenue and earnings of the combined company will be determined on the completion of the business combination accounting and allocation of consideration.
Alaska Financing
On July 22, 2021, Alaska Communications entered into a Credit Agreement with Fifth Third Bank, National Association, as Administrative Agent, and the lenders party thereto to provide debt financing in the form of a revolving facility in an aggregate amount at any one time outstanding not to exceed $35.0 million (the “Alaska Revolving Facility”) and an initial term loan facility in the aggregate amount not to exceed $210.0 million (the “Alaska Credit Facility”). In connection with the Alaska Transaction, Alaska Communications drew $220 million from the new Alaska Credit Facility in the amounts of $210.0 million under the term loan and $10.0 million under the Alaska Revolving Facility. The Alaska Credit Facility also provides for incremental term loans 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).
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The key terms and conditions of the Alaska Credit Facility include the following:
● | Amounts outstanding bear an interest rate of LIBOR, or a LIBOR replacement rate as applicable, plus a margin ranging from 3.00% to 4.00% based on Alaska Communications’ Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) or an alternate base rate may be selected at a margin that is 1% lower than the counterpart LIBOR margin; |
● | Principal payments 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, $1,312,500; and from the fourth quarter of 2024 through the third quarter of 2026, $2,625,000. The remaining unpaid balance is due on, and the final maturity date is, July 22, 2026; |
● | Alaska Communications is required to maintain financial ratios subsequent to the closing of the Alaska Transaction, as defined in the Alaska Credit Facility, including (a) a maximum Consolidated Net Total Leverage Ratio of 4.00:1.00, stepping down to 3.75:1.00 beginning with the second quarter of 2024; and (b) a minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.25:1.00; and |
● | 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. |
On July 20, 2021, the Company drew $73.0 million in proceeds from its 2019 CoBank Credit Facility to pay a portion of the purchase price of the Alaska Transaction. For more information on the 2019 CoBank Credit Facility, see Note 8 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations that follows is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, and our Annual Report on Form 10-K for the year ended December 31, 2019 (as amended by Amendment No. 1 to the 2019 Annual Report on Form 10-K 2020 filed with the SEC on April 29, 2020, the “2019March 1, 2021, (the “2020 Annual Report on Form 10-K”), and in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Overview
We strive to be a leading platform for the operation of, and investment in, smaller and specialty market communications services and technology companies. We arehave a holding company that, directlylong track record of delivering critical infrastructure-based solutions to rural and through ourhistorically underserved markets. Our majority-owned operating subsidiaries ownsprovide facilities-based communications services, along with related information technology solutions in the United States, Bermuda, and operates telecommunications businessesthe Caribbean. We also have non-controlling investments in North America, the Caribbean and Bermuda as well as a renewable energy company and several communications and technology companies and we continue to consider opportunities to make controlling and minority investments in businesses that we believe have the potential for generating substantial and relatively steady cash flows over extended periods of time or have technologies or business in India. models that might prove valuable to our main operating subsidiaries or create significant longer term growth potential for us as a whole.
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. Over the past 10 years, we have built a platform of
33
resources and expertise to support our operating subsidiaries and to improve their quality of service and customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. We have a number of shared service functions, including billing, network and engineering and customer service, and also employ personnel with specialized skills that provide greater economies of scale and expertise than would typically be available at the operating subsidiary level.
We were incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than a half of our operations to stockholders in 1998. SinceWe actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally look for those that time, we believe have engagedthe potential for generating steady excess cash flows over extended periods of time. In addition, we consider non-controlling investments in many strategic acquisitionsearlier stage businesses that we consider strategically relevant, and investments to help growwhich may offer long-term growth potential for us, either individually, or as research and development businesses that can support our operations usingoperating subsidiaries in new technology, product, and service development and offerings. We have used the cash generated from our established operating units, and any asset sales, to re-invest in our existing businesses, to make strategic investments in additional businesses, and to return cash to our investors. We have built,provide management, technical, financial, regulatory, and seekmarketing services to maintain, resources to supportour subsidiaries and typically receive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. For further information about our financial segments and geographical information about our operating subsidiariesrevenues and to improve their customer acquisition, retention,assets, see Notes 1 and satisfaction while maintaining optimal operating efficiencies. We look for businesses that offer growth opportunities or potential strategic benefits but require additional capital investment in order to execute on their business plans. We hold controlling positions with respect to some of our investments and non-controlling positions in others. Our investments in earlier stage businesses frequently offer a product and service development component in addition13 to the prospect of generating returns on our invested capital. For a discussion of the risks involvedUnaudited Condensed Consolidated Financial Statements included in our investment strategy, see “this Report.Risk Factors—We are actively evaluating investment, acquisition and other strategic opportunities, which may affect our long-term growth prospects.” in our 2019 Annual Report on Form 10-K.
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We review our operations inThrough June 30, 2021, we had identified three operating segments to facilitate bothmanage and review our internaloperations and to facilitate investor presentations of our results. These three operating segments are as follows:
● | International Telecom. |
● | US Telecom. In the United States, primarily in the Southwest, we offer |
● | Renewable Energy. In India, we |
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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 SeptemberJune 30, 2020:2021:
| | | | | | | |
Segment |
| Services |
| Markets |
| Tradenames | |
International Telecom |
| Mobility |
| Bermuda, Guyana, US Virgin Islands |
| One, GTT+, |
|
|
| Fixed |
| Bermuda, Cayman Islands, Guyana, US Virgin Islands |
|
|
|
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, GTT+, |
|
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT+, Viya |
|
US Telecom |
| Mobility |
| United States (rural markets) |
|
|
|
| | Fixed | | United States | | Commnet, Choice, Choice NTUA Wireless, Deploycom |
|
| | Carrier Services | | United States | | Commnet, Essextel |
|
|
| Managed Services |
| United States |
| Choice |
|
Renewable Energy (1) | | Solar | | India | | Vibrant Energy |
(1) | See Sale of Renewable Energy Operations for further details. |
We actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet our return on investment and other criteria. In addition, we consider non-controlling investments in earlier stage businesses that we consider strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support our operating subsidiaries in new product and service development and offerings. We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their revenues, which is eliminated in consolidation. For further information about our financial segments and geographical information about our operating revenues and assets see Notes 1 and 1213 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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COVID-19
In March 2020, the World Health Organization declared a novel strain of coronavirus, now referred to as COVID-19 as a pandemic, and the virus has now spread globally to over 200 countries and territories, including the United States and other countries in which we have substantial operations.
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 and any potential impact on our revenue in 2020.2021.
The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates, judgments and methodologies. 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 SeptemberJune 30, 20202021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.
We assessed the impacts of COVID-19 on our consolidated financial statements as of and for the quarterthree months ended SeptemberJune 30, 2020,2021, in particular, the impacts on lines of revenues, operating expenses as well as the deferral and savings on other operating expenses and capital expenditures. cash flows. During the three months ended SeptemberJune 30, 2020, while2021, our International Telecom segment experienced strengthened demand for bothan increase in its mobileMobility, Fixed and fixed services, its carrier servicesCarrier Services revenue declined as a result of a reduction in roaming revenue due tocertain pandemic-related travel and stay-at-home restrictions as compared towere lifted during the same periodlatter half of 2019. Such restrictions also resultedthe three months ended June 30, 2021, which allowed for the reopening of many retail stores in decreased mobileall of our international markets and carrier services revenuesan increase in tourism in certain markets. Expenses within our USInternational Telecom segment increased as a result of the increased demand for our products and services and as a result of certain expenses, such as facility and utility costs, being incurred during the three months ended SeptemberJune 30, 2020 as compared2021 that were not incurred during the three months ended June 30, 2020. Within our US Telecom segment, we experienced an increase in revenue for our rural broadband services to further support demand, which has been increased by the same periodimpact of 2019. However, in responseCOVID-19, for remote working and
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connectivity. Similar to certain anticipated impacts, we were able to implement operating expense savings, particularly with respect to ourthe International Telecom segment, the US Telecom segment recorded an increase in expenses associated with the increased demand for our products and services as well as the recording of certain expenses that when coupled with Company-wide travel expense savings and capital expenditure deferrals, acted to offset much ofwere incurred during the revenue loss or additional credit loss allowances caused by anticipated customer non-payment activity inthree months ended June 30, 2021 that were not incurred during the quarter.three months ended June 30, 2020.
As a result, our assessment did not indicate that there was a material adverse impact to our consolidated financial statements as of and for the quarterthree months ended SeptemberJune 30, 2020.2021. However, our future assessments of the impacts of COVID-19 for the remainder of 2021, which could be influenced by a number of factors, including the yearpossible reinstatement of certain COVID-19 travel-related and into 2021 or our ability to realize continued operational expense savings, as well as other factors,stay-at-home restrictions, could result in material adverse impacts to our consolidated financial statements in future reporting periods. For example, the local economies of many of our Caribbean markets are tourism-dependent and thea decline in global travel activity resulting from reinstated COVID-19 restrictions may continue toadversely impact our revenue and cash flows for certain services in these marketsmarkets. Further, we may experience difficulty in procuring network or retail equipment, such as handsets for our retail and enterprise customerssubscribers, if such COVID-19 restrictions are reinstated. Apart from possible government issued travel restrictions, we currently cannot assess how COVID-19 may be unable to payinfluence our subscribers’ procurement behavior for our services andor how that behavior will impact our international roaming revenue may decline as compared to last year. The extent to whichrevenues in the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations, cash flows, and liquidity may differ from our management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent economic conditions normalize and more customary operating conditions resume.
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Presentation of Revenueforeseeable future.
Effective January 1, 2020, we changed our presentationAcquisition of revenue in the Condensed Consolidated Statement of Operations and in the Selected Segment Financial Information tables. This change is intended to better align our financial performance with the views of management and industry competitors, and to facilitate a more constructive dialogue with the investment community.Alaska Communications
Specifically,On July 22, 2021, we completed the previously disclosed revenue categoriesacquisition of wirelessAlaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company, for approximately $340 million on cash, (the “Alaska Transaction”). As a result of the Alaska Transaction, we now own approximately 52% of common equity of Alaska Communications. In connection with the Alaska Transaction, Alaska Communications drew $220 million from a new Alaska credit facility and wireline revenue are being represented as mobility, fixedwe drew $73.0 million in proceeds from our 2019 CoBank Credit Facility to pay a portion of the purchase price of the merger. For more information on the new Alaska credit facility or the 2019 CoBank Credit Facility, see Note 15 and carrier services revenue within our segment information and are included within communications services revenue within ourNote 8, respectively, to the Unaudited Condensed Consolidated Financial Statements of Operations. Managed services revenue, which was previously a component of wireline revenue, is now included in other revenue along with revenue fromthis Report. Beginning on July 22, 2021, the results of the Alaska Transaction will be included in our US Telecom segment.
Sale of Renewable Energy Operations
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 operations.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, and August 2020, we entered into a Network Build and Maintenance Agreement (the “FirstNet Agreement”) and First Amendment to that agreement with AT&T Mobility, LLC (“AT&T”), respectively, to build that we amended in August 2020 and May 2021 (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”) as well as a commercial wireless network in or near our current operating area in the Southwestern United States (the “FirstNet Transaction”). 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. We expect to recognize construction revenue of approximately $80 million to $85 million through 20212022 that will be mainly offset by construction costs as sites are completed. Revenues from construction are expected to have minimal impact on operating income. The network build portion of the FirstNet Agreement has continued during the COVID-19 pandemic but the overall timing of the build schedule has been delayed. Subject to ongoing delays caused by COVID-19 related restrictions, we currently expect construction revenues to continue through 2021.into the first half of 2022.
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
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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 beganare currently receiving revenue from the FirstNet Transaction in the third quarter of 2019 and expect overall operating income contributions from the FirstNet Transaction to have a relatively steady impact from 2020 onwards.going forward.
For more information about the risks to our business with respect to our FirstNet Agreement, see “Risks Related to our US Telecom Segment – we may not be able to timely and effectively meet our obligations to AT&T related to our partnership with the First Responder Network Authority” in Part I, Item 1A of our 2019 Annual Report Form 10-K.
See Sources of Cash below for a discussion regarding our March 26, 2020 credit agreement providing the ability to finance the assets built under the FirstNet Agreement.
Universal Service Fund
The Federal Universal Service Fund (“USF”) is a subsidy program managed by the Federal Communications Commission (“FCC”). USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; Low Income Program (“Lifeline Program”); Schools and Libraries Program (“E-Rate Program”); and Rural Health Care Support Program. We participate in the High Cost Program, Lifeline Program, E-Rate Program, and Rural Health
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Care Support Program as further described below. All of these funding programs are subject to certain operational and reporting compliance requirements. We believe that we are in compliance with all applicable requirements.
During the three and ninesix month periods ended SeptemberJune 30, 2020,2021, we recorded $4.1$4.3 million and $12.3$8.4 million, respectively, of revenue from the High Cost Program in our International Telecom segment.segment for our US Virgin Islands operations under the “Viya” name. During the three and ninesix month periods ended SeptemberJune 30, 2019,2020, we recorded $4.1 million and $12.3$8.2 million, respectively, of revenue from the same program. In 2018, the FCC initiated a proceeding to reform the High Cost Program in our International Telecom segment. the US Virgin Islands and Puerto Rico in which it proposed to allocate USF funding of up to $18.7 million per year (inclusive of the $16.4 million per year currently allocated to Viya) for 10 years to supplant the $16.4 million that Viya currently receives per year. While Viya applied for Connect USVI Fund support allocated for the US Virgin Islands, on November 16, 2020, the FCC announced that Viya was not the recipient of the award. The support was authorized in June 2021. Pursuant to the terms of the program, Viya’s USF support will be reduced, to two-thirds of the legacy total amount, or $10.9 million, during the first year following the finalization of the award and to one-third of the legacy total amount, or $5.5 million, during the second year. Thereafter, Viya will not receive High Cost Program support.
Also, during each of the three and ninesix month periods ended SeptemberJune 30, 2020,2021, we recorded $0.3 million and $0.9$0.6 million, respectively, of High Cost Program revenue in our US Telecom segment. During the three and ninesix month periods ended SeptemberJune 30, 2019,2020, we recorded $0.3 million and $0.9$0.6 million, of High Cost Program revenue in our US Telecom segment.respectively, from the same program. We are subject to certain operational, reporting and construction requirements as a result of this funding, and we believe that we are in compliance with all of these requirements.
In August 2018, we were awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction. The funding began in the second quarter of 2019 andUnder this program, we are required to provide fixed broadband and voice services to certain eligible areas in the United States. WeStates and are subject to operational and reporting requirements under the program and we expect to incur additional capital expenditures to comply with these requirements. We determined the award is a revenue grant, and as a result we will record the funding as revenue upon receipt. DuringFor the three and ninesix month periods ended SeptemberJune 30, 2020,2021, we recorded $1.9 million and $5.7$3.8 million, respectively, from the Connect America Fund Phase II program. DuringFor the three and nine monthssix month periods ended SeptemberJune 30, 2019,2020, we recorded $1.9 million and $3.4$3.8 million of revenue from the program, respectively, as funding began in the second quarter of 2019.same program.
We also receive construction grants to build network connectivity for eligible communities. The funding is used to reimburse construction costs and is distributed upon completion of a project. As of September 30,December 31, 2020, we have been awarded approximately $16.8 million of such grants. We were awarded $6.5 million of additional grants in the six months ended June 30, 2021. We have completed our construction obligations on $10.2 million of these projects and $13.1 million of such construction obligations remain with construction completion obligationsdeadlines beginning in June 2020. September 2021. Once these projects are constructed, we are obligated to provide service to the participants. We receive funds upon
37
construction completion and are in various stages of constructing the networks.completion. We did not receive any fundsreceived $1.3 million during the ninesix months ended SeptemberJune 30, 2020. During 2019, we received $5.4 million, of which $3.1 million was a reimbursement of capital expenditures and $2.3 million offset operating activities.2021. We expect to meet all requirements associated with these grants.
We also receive funding to provide discounted telecommunication services to eligible customers under the E-Rate Program, Lifeline Program, and Rural Health Care Support Program. During the three and ninesix months ended SeptemberJune 30, 2020,2021, we recorded revenue of $2.2$1.8 million and $6.6$3.9 million, respectively, in the aggregate from these programs. During the three and ninesix months ended SeptemberJune 30, 2019,2020, we recorded revenue of $1.5$2.2 million and $4.7$4.4 million, respectively, in the aggregate from these programs. Weprograms we are subject to certain operational and reporting requirements under the above mentioned programs and we believe that we are in compliance with all of these requirements.
CARES Act
As of December 31, 2020, we have received $16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). During the six months ended June 30, 2021, we received an additional $2.4 million of funding. In total we received $18.7 of funding under this program. The funding was utilized to construct network infrastructure in our US Telecom segment. The construction was completed as of June 30, 2021 and $18.4 million of the funding was recorded as a reduction to property, plant and equipment and a subsequent reduction to depreciation expense. The remaining $0.3 million was recorded as a reduction to operating expense in the six months ended June 30, 2021.
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. We received a bidding credit of $7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. Our current estimate is that we will use $5.4$6.1 million to offset capital costs, and, consequently reducereducing future depreciation expense, and $2.0$1.3 million to offset the cost of supporting the network which will reduce future operating expense. Through SeptemberJune 30, 2020,2021, we have spent $5.1$6.1 million on capital expendituresexpenditures. During the three and havesix months ended June 30, 2021 we recorded $0.1$0.3 million and $0.6 million, respectively, in offsets to the cost of supporting the network. The credits are subject to certain requirements, including deploying service by January 2021 and meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. We currently expect to complybelieve we are in compliance with all applicable requirements related to these funds.
CBRS Auction
35
In SeptemberDuring the third quarter of 2020, we secured approximately 1,500 licenses as part ofparticipated in the FCC’s Citizens Broadband Radio Service auction.(CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These licensesPALs are licensed on a county-by-county basis and are awarded for an initial ten year period and are subjecta 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 connection with the awarded licenses, we will have to meeting a substantial performance requirement by the end of the initial term.achieve certain CBRS spectrum build out obligations. We currently expect to comply with all applicable requirements related to these licenses.
RDOF
In the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”), pending the FCC’s conclusion of the award process, we expect to receive approximately $20.1 million over 10 years to provide broadband coverage to over 10,000 households. Once confirmed, we will be obligated to provide broadband and voice services to certain eligible areas in the United States.
38
Selected Segment Financial Information
The following represents selected segment information for the three months ended SeptemberJune 30, 20202021 and 20192020 (in thousands):
| | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2020 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 21,406 | | $ | 2,432 | | $ | — | | $ | — | | $ | 23,838 |
Fixed | |
| 57,364 | |
| 5,419 | |
| — | |
| — | |
| 62,783 |
Carrier Services | | | 1,851 | | | 19,852 | | | — | | | — | | | 21,703 |
Other | |
| 397 | |
| — | |
| — | |
| — | |
| 397 |
Total Communication Services Revenue | | | 81,018 | | | 27,703 | | | — | | | — | | | 108,721 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 1,177 | | | — | | | 1,177 |
Managed Services | | | 1,447 | | | — | | | — | | | — | | | 1,447 |
Construction | | | — | | | 394 | | | — | | | — | | | 394 |
Total Other Revenue | | | 1,447 | ��� | | 394 | | | 1,177 | | | — | | | 3,018 |
Total Revenue | | | 82,465 | | | 28,097 | | | 1,177 | | | — | | | 111,739 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 16,024 | |
| 2,218 | |
| (98) | |
| (8,587) | |
| 9,557 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | | ||
| | International | | US | | Renewable | | Corporate and | | | | | International | | US | | Renewable | | Corporate and | | | | ||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility | | $ | 21,364 | | $ | 2,601 | | $ | — | | $ | — | | $ | 23,965 | | $ | 22,754 | | $ | 2,407 | | $ | — | | $ | — | | $ | 25,161 |
Fixed | |
| 55,845 | |
| 4,304 | |
| — | |
| — | |
| 60,149 | |
| 59,126 | |
| 5,877 | |
| — | |
| — | |
| 65,003 |
Carrier Services | | | 2,403 | | | 25,988 | | | — | | | — | | | 28,391 | | | 2,523 | | | 20,038 | | | — | | | — | | | 22,561 |
Other | |
| 335 | |
| — | |
| — | |
| — | |
| 335 | |
| 239 | |
| — | |
| — | |
| — | |
| 239 |
Total Communication Services Revenue | | | 79,947 | | | 32,893 | | | — | | | — | | | 112,840 | | | 84,642 | | | 28,322 | | | — | | | — | | | 112,964 |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 1,438 | | | — | | | 1,438 | |||||||||||||||
Construction | | | — | | | — | | | — | | | — | | | — | |||||||||||||||
Managed Services | | | 1,338 | | | — | | | — | | | — | | | 1,338 | | | 1,576 | | | — | | | — | | | — | | | 1,576 |
Construction | | | — | | | 9,325 | | | — | | | — | | | 9,325 | |||||||||||||||
Total Other Revenue | | | 1,338 | | | — | | | 1,438 | | | — | | | 2,776 | | | 1,576 | | | 9,325 | | | — | | | — | | | 10,901 |
Total Revenue | | | 81,285 | | | 32,893 | | | 1,438 | | | — | | | 115,616 | | | 86,218 | | | 37,647 | | | — | | | — | | | 123,865 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | |
| 10,867 | |
| 7,912 | |
| (714) | |
| (7,817) | |
| 10,248 | |
| 14,643 | |
| (556) | |
| (771) | |
| (10,411) | |
| 2,905 |
| | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2020 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 19,062 | | $ | 2,367 | | $ | — | | $ | — | | $ | 21,429 |
Fixed | |
| 56,567 | |
| 4,937 | |
| — | |
| — | |
| 61,504 |
Carrier Services | | | 1,897 | | | 20,856 | | | — | | | — | | | 22,753 |
Other | |
| 554 | |
| — | |
| — | |
| — | |
| 554 |
Total Communication Services Revenue | | | 78,080 | | | 28,160 | | | — | | | — | | | 106,240 |
Other | | | | | | | | | | | | | | | |
Construction | | | — | | | — | | | — | | | — | | | — |
Renewable Energy | | | — | | | — | | | 874 | | | — | | | 874 |
Managed Services | | | 1,984 | | | — | | | — | | | — | | | 1,984 |
Total Other Revenue | | | 1,984 | | | — | | | 874 | | | — | | | 2,858 |
Total Revenue | | | 80,064 | | | 28,160 | | | 874 | | | — | | | 109,098 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 14,617 | |
| 1,826 | |
| (620) | |
| (8,799) | |
| 7,024 |
3639
(1) Reconciling items refer to corporate overhead costs and consolidating adjustments
A quarter-to-dateyear-to-date comparison of our segment results is as follows:
International Telecom. RevenuesRevenue within our International Telecom segment increased $1.2$6.1 million, or 1.5%7.6%, to $82.5 $86.2 million from $81.3$80.1 million for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively, due to increases in fixed broadband revenues partially offset by lower carrier services revenues related to reduced roaming revenues as a result of an increase in both Fixed and Mobility subscribers as well as an increase in the impactaverage revenue per subscriber within all of our international markets. In addition, certain international 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.restrictions were lifted during the latter half of the three months ended June 30, 2021.
Operating expenses within our International Telecom segment decreasedincreased by $3.9$6.1 million, or 5.5%9.3%, to $66.5$71.6 million from $70.4 million$65.5 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The decreaseincrease was primarily the result of a reductionan increase in contract labor, site maintenancedirect costs incurred in connection with the increase in this segment’s revenue, and facility utilities as a result ofcertain costs being incurred during the three months ended June 30, 2021 that were not incurred during the three months ended June 30, 2020 due to the impact of COVID-19 restrictions. The three month period ended June 30, 2021 also includes additional legal and the result of cost efficiency initiatives.regulatory costs.
As a result, our International Telecom segment’s operating income increased $5.1 million, or 46.8%, to $16.0 million from $10.9remained consistent at $14.6 million for the three months ended SeptemberJune 30, 20202021 and 2019, respectively.2020.
US Telecom. Revenue within our US Telecom segment decreasedincreased by $4.8$9.4 million, or 14.6%33.3%, to $28.1$37.6 million from $32.9$28.2 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, primarilydue to a decrease in carrier services revenue as a result of restructured contracts with carriers.an increase in construction revenue from the FirstNet Transaction and an increase in Fixed revenues, including broadband services, partially offset by reductions in Carrier Services revenue.
Operating expenses within our US Telecom segment increased $0.9$11.8 million, or 3.6%44.7%, to $25.9$38.2 million from $25.0$26.4 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, as a result of additional expenses, such as transport and construction costs and other expenses being incurred in connection with the FirstNet Transaction, costs associated with the CARES Act-funded build-out of rural broadband operations, costs to further fund our private network business and certain costs being incurred during the operating coststhree months ended June 30, 2021 that were not incurred during the three months ended June 30, 2020 as a result of our in-building mobility business.the impact of COVID-19 restrictions.
As a result of the above, our US Telecom segment’s operating income decreased $5.7$2.4 million or 72.2%, to $2.2a loss of $0.6 million from $7.9income of $1.8 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Renewable Energy. Revenue within our Renewable Energy segment decreased $0.2 million,Through 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 14.3%, to $1.2 million from $1.4 million for the three months ended September 30, 2020 and 2019, respectively, primarily due to the impact of COVID-19 and reduced professional fees.
Operatingincur operating expenses within our Renewable Energy segment decreased by $0.8 million, or 38.1%, to $1.3 million from $2.1 million forduring the three months ended SeptemberJune 30, 2020 and 2019 due to decreased site maintenance expenses.
As a result of the above, our Renewable Energy segment’s operating income increased by $0.6 million to a loss of $0.1 million compared to a loss of $0.7 million for2021. For the three months ended SeptemberJune 30, 2020, we generated revenue, incurred operating expenses and 2019,reported an operating loss of $0.9 million, $1.5 million and $0.6 million, respectively.
3740
The following represents a year over year discussion and analysis of our results of operations for the three months ended SeptemberJune 30, 20202021 and 20192020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Amount of | | Percent |
| | Three Months Ended | | Amount of | | Percent |
| ||||||||||
| | September 30, | | Increase | | Increase |
| | June 30, | | Increase | | Increase |
| ||||||||||
| | 2020 | | 2019 | | (Decrease) | | (Decrease) |
| | 2021 | | 2020 | | (Decrease) | | (Decrease) |
| ||||||
REVENUE: |
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
| |
|
|
| |
Communication services | | $ | 108,721 | | $ | 112,840 | | $ | (4,119) |
| (3.7) | % | | $ | 112,964 | | $ | 106,240 | | $ | 6,724 |
| 6.3 | % |
Other | |
| 3,018 | |
| 2,776 | |
| 242 |
| 8.7 | | |
| 10,901 | |
| 2,858 | |
| 8,043 |
| 281.4 | |
Total revenue | |
| 111,739 | |
| 115,616 | |
| (3,877) |
| (3.4) | | |
| 123,865 | |
| 109,098 | |
| 14,767 |
| 13.5 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | | | | | | | | | | | | | |
Termination and access fees | |
| 26,979 | |
| 27,622 | |
| (643) |
| (2.3) | | ||||||||||||
Construction costs | | | 390 | | | — | | | 390 | | 100.0 | | ||||||||||||
Engineering and operations | |
| 18,127 | |
| 20,095 | |
| (1,968) |
| (9.8) | | ||||||||||||
Sales, marketing and customer services | |
| 9,344 | |
| 9,785 | |
| (441) |
| (4.5) | | ||||||||||||
General and administrative | |
| 25,735 | |
| 25,110 | |
| 625 |
| 2.5 | | ||||||||||||
Cost of services | |
| 48,479 | |
| 45,837 | |
| 2,642 |
| 5.8 | | ||||||||||||
Cost of construction revenue | | | 9,535 | | | — | | | 9,535 | | 100.0 | | ||||||||||||
Selling, general and administrative | |
| 40,652 | |
| 34,125 | |
| 6,527 |
| 19.1 | | ||||||||||||
Transaction-related charges | |
| 31 | |
| 21 | |
| 10 |
| 47.6 | | |
| 1,396 | |
| 72 | |
| 1,324 |
| 1,838.9 | |
Depreciation and amortization | |
| 21,580 | |
| 22,603 | |
| (1,023) |
| (4.5) | | |
| 20,155 | |
| 21,991 | |
| (1,836) |
| (8.3) | |
(Gain) Loss on disposition of long-lived assets | | | (4) | | | 132 | | | (136) |
| (103.0) | | ||||||||||||
Loss on disposition of long-lived assets | | | 743 | | | 49 | | | 694 |
| 1,416.3 | | ||||||||||||
Total operating expenses | |
| 102,182 | |
| 105,368 | |
| (3,186) |
| (3.0) | | |
| 120,960 | |
| 102,074 | |
| 18,886 |
| 18.5 | |
Income from operations | |
| 9,557 | |
| 10,248 | |
| (691) |
| (6.7) | | |
| 2,905 | |
| 7,024 | |
| (4,119) |
| (58.6) | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | |
| 118 | |
| 414 | |
| (296) |
| (71.5) | | |
| 46 | |
| 66 | |
| (20) |
| (30.3) | |
Interest expense | | | (1,361) | | | (1,298) | | | 60 |
| 4.9 | | | | (1,137) | | | (1,574) | | | 437 |
| (27.8) | |
Other income (expense) | |
| (2,031) | |
| (2,686) | |
| (655) |
| (24.4) | | |
| (66) | |
| 590 | |
| (656) |
| (111.2) | |
Other expense, net | |
| (3,274) | |
| (3,570) | |
| (296) |
| (8.3) | | ||||||||||||
Other income (expense), net | |
| (1,157) | |
| (918) | |
| (239) |
| 26.0 | | ||||||||||||
INCOME BEFORE INCOME TAXES | |
| 6,283 | |
| 6,678 | |
| (395) |
| (5.9) | | |
| 1,748 | |
| 6,106 | |
| (4,358) |
| (71.4) | |
Income tax expense | |
| 92 | |
| 1,834 | |
| (1,742) |
| (95.0) | | |
| (1,542) | |
| (2,258) | |
| 716 |
| (31.7) | |
NET INCOME | |
| 6,191 | |
| 4,844 | |
| 1,347 |
| 27.8 | | |
| 3,290 | |
| 8,364 | |
| (5,074) |
| (60.7) | |
Net income attributable to non-controlling interests, net of tax: | |
| (3,530) | |
| (3,459) | |
| (71) |
| (2.1) | | |
| (1,271) | |
| (3,618) | |
| 2,347 |
| (64.9) | |
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | 2,661 | | $ | 1,385 | | $ | 1,276 |
| 92.1 | % | | $ | 2,019 | | $ | 4,746 | | $ | (2,727) |
| (57.5) | % |
Communications services revenue
Mobility revenue. Our mobilityMobility 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 andas well as through the sale of related equipment, such as handsets and other accessories, to our retail subscribers.
Mobility revenue decreasedincreased by $0.2 $3.8 million, or 0.8%17.8%, to $23.8$25.2 million for the three months ended SeptemberJune 30, 20202021 from $24.0$21.4 million for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease in mobilityMobility revenue, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, |
● | US Telecom. Mobility revenue within our US Telecom |
3841
We expect that mobilityMobility revenue within both our InternationalUS Telecom and USInternational Telecom segments may increase as a result of an increase in subscribers if certain COVID-19 travel related restrictions continue to declinebe lifted. Mobility revenue within our US Telecom segment may also increase as a result of our expanding early-stage private network business. However, such growth in both segments may be partially offset if the COVID-19 related travel restrictions continue for an extended period of time or become more severe resultingare reinstated so as to result in significant business interruptions and retail store closures.
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.
Fixed communications revenue. Fixed communications revenue is primarily generated by internet, voice, and video service revenues provided to retail and enterprise customers over our wireline networks. Fixed revenue within our US Telecom segment also includes revenue from the Connect America Fund Phase II program award.
Within our International Telecom segment, Fixed communications revenue includes funding under the FCC’s High Cost Program in the US Virgin Islands. Fixed communications revenue increased by $2.7 million,$3.5 million, or 4.5%5.7%, to $62.8$65.0 million from $60.1$61.5 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The net increase in fixedFixed communications revenue, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, |
● | US Telecom. Fixed communications revenue within our US Telecom segment increased by |
We expect that fixedFixed communications revenue within our International Telecom segment may declineincrease as a result of an increase in subscribers in order to further enable remote working and in connection with certain new contracts with oil and gas providers in Guyana. However, the response, such as long delays in the return of tourism activity, to the COVID-19 pandemic, which could result in significant business interruptions that might impact our customers’ ability to paydemand for our services. Fixed revenuevideo services may also decline in many of our international markets as a result of a decline in video revenues due to subscribers using alternative methods to receive video content. Any growth may be offset if COVID-19 travel related restrictions continue in some of our markets.
We expect that fixed revenue within theWithin our US Telecom segment, may also declineany declines in Fixed communications revenue that could be incurred as a result of our customers’ inability to pay for our services if the COVID-19 related travel restrictions continue for an extended periodimpact of time or become more severe. However, those declinesCOVID-19 may be partially offset by the fixedstable nature of our federal support contracts, such as the Connect America Fund Phase II program award, which are expected to provide steady and predictable revenues.
Apart from possible government issued travel restrictions, we currently cannot assess how the impact of reinstated COVID-19 restrictions may influence our subscribers’ procurement behavior for our services or how that behavior will affect our revenues in the foreseeable future.
Carrier Services revenue. Carrier servicesServices revenue is generated by both our International Telecom and US Telecom segments. Within our International Telecom segment, carrier servicesCarrier 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 servicesCarrier 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 carriers. Carrier Services revenue
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Carrier services revenue decreased by $6.7$0.2 million, or 23.6%0.9%, to $21.7 $22.6 million from $28.4$22.8 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The decrease, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, |
● | US Telecom. Carrier |
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primarily as a result of the 2020 restructuring of certain carrier |
Within our International Telecom segment, we expect that carrier servicesCarrier Services revenue may continue to declineincrease if the COVID-19 relatedtourism returns to pre-pandemic levels. Apart from possible government issued travel restrictions, continuewe currently cannot assess how the impact of COVID-19 may influence our subscribers’ procurement behavior for an extended period of timeour services or become more severe.
how that behavior will affect our revenues in the foreseeable future. Also within our International Telecom segment, we expect that carrier servicesCarrier Services revenue from our international long-distancelong-distance business in Guyana will continue to decrease as consumers seek to use alternative technology services to place long-distance calls. In addition, such revenue may decline as the result of the implementation, by the Government of Guyana, of recently-passed legislation which terminates our right to be the exclusive provider of domestic fixedFixed and international long-distance service in Guyana. While the loss of our exclusive rights may cause an immediate reduction inour carrier servicesCarrier Services revenue, the complete impact of the new legislation to our operations will not be fully known until the Government of Guyana makemakes 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 communications revenue from broadband services to consumers and enterprises in Guyana, increased Mobility communications revenue from an increase in regulated local calling rates in Guyana or possible economic growth within that country. See Note 1314 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Within our US Telecom segment, we expect Carrier Services revenue to decrease as we progress through the construction phase of the FirstNet Transaction and from the impact of continued reduced contractual rates and imposed revenue caps. We believe that maintaining roaming and other Carrier Services 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.
The most significant competitive factor we face within our US Telecom segment is the extent to which our carrier customers in our wholesale mobilityMobility business choose to roam on our networks and lease our tower space and transport (“backhaul”) 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.
During the construction phase of the FirstNet Transaction, we expect carrier services revenue to remain consistent and then decrease over time as the result of continued reduced contractual rates and imposed revenue caps. We believe that maintaining roaming and other carrier services 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.
Other communications services revenue. Other communications services revenue includes miscellaneous services that ourthe operations within our International Telecom segment provide to retail subscribers. Other communications revenues increasedservices revenue decreased to $0.4$0.2 million from $0.3$0.6 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Other revenue
Renewable energy revenue. Renewable energy revenue includesThrough the completion of the Vibrant Transaction on January 27, 2021, we distributed generation ofsolar power through Power Purchase Agreements (“PPAs”) from our solar plantsto commercial and industrial customers under the Vibrant name in India. Our PPAs, which are typically priced at or below local retail electricity rates and allowAccordingly, we did not generate revenue within our customers to secure electricity at predictable and stable prices over the duration of their long-term contracts, provide us with high-quality contracted cash flows.
Renewable energy revenue decreased by $0.2 million, or 14.3%, to $1.2 million from $1.4 million forEnergy segment during the three months ended SeptemberJune
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30, 2021. For the three months ended June 30, 2020, and 2019, respectively, primarily due to pandemic-related delays and restrictions.
We believe that our renewable energy revenue may decline in future periods if COVID-19 related restrictions require the reduction or limited usage by our customersoperations generated $0.9 million of their facilities thereby reducing demand for the generation of power from our commercial customers for the duration of such restrictions. Thereafter we believe our renewable energy revenue should stabilize as we continue to operate our solar plants in accordance with our long term PPAs.revenue.
Managed servicesServices revenue. Managed servicesServices revenue is generated primarily inwithin our International Telecom segment and includes network, application, infrastructure, and hosting services.
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Managed servicesServices revenue increaseddecreased by $0.1$0.4 million, or 7.7%20.0%, to $1.4$1.6 million from $1.3$2.0 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, primarily as a result of an increasethe impact of COVID-19 which resulted in a decrease in equipment sales and consulting services and equipment sales.services.
We expect that managed servicesManaged Services revenue may declineincrease if the COVID-19 related travel restrictions continue for an extended period of time or become more severe resulting in significant business interruptions to our customers.be lifted.
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 SeptemberJune 30, 2020,2021, we recognized $0.4$9.3 million of construction revenue for ourrevenue. As of June 30, 2021, 40% of the cell sites related to the FirstNet Agreement were completed and we expect that an additional 25% of the sites will be completed by the end of 2021. We expect the remaining sites to be completed during the first two sites under this agreement and expect such revenue to total $80 million to $85 million through the project’s expected completion in late 2021.half of 2022.
Operating expenses
Termination and access fee expenses.Cost of services. Termination and access fee expensesCost of services are charges that we incur for voice and data transport circuits (in particular, the circuits between our mobilityMobility sites and our switches),switches, internet capacity, video programming costs, other access fees we pay to terminate our calls, telecommunication spectrum fees and direct costs associated withwithin our managed servicesManaged Services and technology businessbusiness. Cost of services also include expenses associated with developing, operating, upgrading and supporting our renewable energy operations. Terminationtelecommunications networks, including the salaries and access fees also includebenefits paid to employees directly involved in the development and operation of those businesses, as well as bad debt reserves and the cost of handsets and customer resale equipment incurred by our retail businesses.
Termination and access fees decreasedCost of services increased by $0.6$2.6 million, or 2.3%5.8%, to $27.0 $48.5 million from $27.6$45.8 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The net decreaseincrease in termination and access fees,cost of services, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, |
We expect that termination and access fee expenses may increase within all of our segments due to an expected increase in roaming and other termination costs when the COVID-19 related travel restrictions are lifted. Within the US Telecom segment, our performance under the FirstNet Transaction is also anticipated to contribute to an increase in termination and access fee expenses during the construction phase which is expected to conclude in late 2021.
Construction costs. Construction costs include the expenses incurred in generating the construction revenue associated with our FirstNet Agreement. Construction costs, all of which are incurred within our US Telecom segment, were $0.4 million during the three months ended September 30, 2020.
Engineering and operations expenses. Engineering and operations expenses include the expenses associated with developing, operating, upgrading and supporting our telecommunications networks and renewable energy operations, including the salaries and benefits paid to employees directly involved in the development and operation of those businesses.
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Engineering and operations expenses decreased by $2.0 million, or 9.8%, to $18.1 million from $20.1 million for the three months ended September 30, 2020 and 2019, respectively. The net decrease in engineering and operations expenses, within our segments, consisted of the following:
`
We expect that engineering and operations expenses may increase when the COVID-19 related restrictions are lifted. We expect engineering and operating expenses to continue to increase in our US Telecom segment during the construction phase of the FirstNet Transaction which we expect to continue through 2021.
Sales and marketing expenses. Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns.
Sales and marketing expenses decreased by $0.5 million, or 4.5%, to $9.3 million from $9.8 million for the three months ended September 30, 2020 and 2019, respectively. The net decrease in sales and marketing expenses, within our segments, consisted of the following:
● | US Telecom. |
We expect that sales and marketing expensescost of services may increase whenwithin our International and US Telecom segments due to an expected increase in roaming and other termination costs if COVID-19 related travel restrictions arecontinue to be lifted. Within ourthe US Telecom segment, saleswe expect an increase in cost of services due to the anticipated expansion of our private network business, expenses associated with our recent funding award under the CARES Act and marketing expenses may also continue to increase as a result of our performance under the expansionFirstNet Transaction during the construction phase which is expected to be completed during the first half of our in-building mobility business.2022.
GeneralCost 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 and was $9.5 million during the three months ended June 30, 2021. As of June 30, 2021, 40% of the cell sites related to the FirstNet
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Agreement were completed, and we expect that an additional 25% of sites will be completed by the end of 2021. We expect the remaining sites to be completed during the first half of 2022.
Selling, general and administrative expenses. GeneralSelling, 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. General and administrative expenses also includeresources as well as internal costs associated with our performance of due-diligence in connectionand integration related costs associated with acquisition activities.
GeneralSelling, general and administrative expenses increased by $0.6$6.5 million, or 2.5%19.1%, to $25.7$40.7 million from $25.1 $34.1 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The net increase in selling, general and administrative expenses, within our segments, consisted of the following:
● | International |
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|
● | US Telecom. |
● | Renewable |
● | Corporate Overhead. |
GeneralWithin our International Telecom segment, we expect that selling, general and administrative expenses within all of our segments may increase as theif COVID-19 related travel restrictions arecontinue to be lifted. Within ourthe US Telecom segment, we expect an increase due to the anticipated expansion of our early-stage private network business, expenses associated with our recent funding award under the CARES Act and as a result of our performance under the FirstNet Transaction, during its construction phase, which is expected to be completed during the first half of 2022. Our Corporate Overhead segment may also expect to incur additional general and administrativeexperience an increase in these expenses to support our in-building mobility networkexpanding operations. In addition, we expect general and administrative expenses within our corporate overhead to increase as we work to further enhance our network security.
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 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 $1.4 million and a nominal amount of transaction relatedtransaction-related charges during the three months ended SeptemberJune 30, 2021 and 2020, and 2019.respectively. The transaction-related charges incurred during 2021 were primarily related to the Alaska Transaction.
Depreciation and amortization expenses. Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment and on certain intangible assets.
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Depreciation and amortization expenses decreased by $1.0$1.8 million, or 4.5%8.3%, to $21.6$20.2 million from $22.6$22.0 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The net decrease in depreciation and amortization expenses, within our segments, consisted primarily of the following:
● | International Telecom. Depreciation and amortization expenses decreased within our International Telecom segment by |
● | US Telecom. Depreciation and amortization |
● | Renewable Energy. |
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● | Corporate Overhead. Depreciation and amortization expenses |
We expect depreciation and amortization expense to increase in our International Telecom, US Telecom and Corporate Overhead segments as we acquire tangible assets to expand or upgrade our telecommunications networks and expand our solar power generating assets.networks.
Loss on disposition of long-lived assets. During the three months ended SeptemberJune 30, 2019,2021, we recorded a loss on the disposition of long-lived assets of $0.7 million, primarily related to the Vibrant Transaction.
During the three months ended June 30, 2020, we recorded a loss on the disposition of long-lived assets of $0.1 million on the disposition of long-lived assets as a result of the disposal of miscellaneouslong lived assets within our US mobility and renewable energyRenewable Energy operations.
Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short termshort-term investment balances.
Interest income decreased $0.3 million, or 71.5%, to $0.1 milliona nominal amount from $0.4$0.1 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, as a result of a reduction in the balances of our cash, cash equivalents and short-term investments resulting in reduced returns in addition to reducedas well as our return rates.on those balances.
Interest expense. We incur interest expense on the Viya Debt and the One Communications Debt (each as defined below), as well as commitment fees, letter of credit fees and the amortization of debt issuance costs on our 2019 CoBank Credit Facility. Beginning on March 26, 2020,Facility (as defined below). During the three months ended June 30, 2021, we also began incurringincurred interest expense related to the amortization of debt issuance costs, onborrowings under the Receivables Credit Facility (as defined below). and incurred interest expense on those borrowings as well as the amortization of debt issuance costs.
Interest expense increased by $0.1 million, or 4.9%,decreased to $1.4$1.1 million from $1.3$1.6 million for the three months ended SeptemberJune 30, 2021 and 2020, and September 30, 2019, respectively, primarily as a result of the amortization of debt issuance costs onadditional interest expense being incurred for new borrowings under the Receivables Credit Facility.Facility was offset by reduced debt balances within our International Telecommunications segment.
We expect that interest expense tomay increase in future periods as a result of future borrowings under the Receivables Credit Facility.
Other expenses.income (expense). Other expensesincome (expense) represents miscellaneous non-operational income earned and expenses incurred.
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For the three months ended SeptemberJune 30, 2020,2021, other expensesincome (expense) was $2.0 an expense of $0.1 million which was primarily related to losses from our non-controlling equity investments.investments and on foreign currency transactions. These losses were partially offset by miscellaneous income generated during the quarter.
For the three months ended SeptemberJune 30, 2019,2020, other expensesincome (expense) was $2.7income of $0.6 million which was primarily related to a $2.1$0.4 million write down of a previously acquiredincome from non-controlling equity investmentinvestments and $0.8$0.5 million of income related to certain employee benefit plans. This income was partially offset by $0.3 million relating to a net loss on foreign currency transactions. These expenses were partially offset by $0.1 million of income recognized in connection with some of our employee benefit plans.
Income taxes.Our effective tax rate for the three months ended SeptemberJune 30, 2020 and 2019 was 1.5% and 27.5%, respectively.
On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, allows NOLs incurred in 2018, 2019,2021 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.was (88.2%) and (37.0%), respectively.
The effective tax rate for the three months ended SeptemberJune 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 $0.5 million expense for interest on unrecognized tax positions.
The effective tax rate for the three months ended June 30, 2020 was primarily impacted by the following items: (i) the remeasurement of a forecasted domestic loss at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), and (iii) discrete items including a $0.4$2.9 million benefit from the reversal of an unrecognized tax position due to statute of limitations expiration and $0.5 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 one-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 application 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.
Net income attributable to non-controlling interests, net of tax. Net income attributable to non-controlling interests, net of tax reflected an allocation of income of $1.3 million and $3.6 million generated by our less than wholly owned subsidiaries for the three months ended June 30, 2021 and 2020, respectively, a decrease of $2.3 million, or 64.9%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
● | International Telecom. Net income attributable to non-controlling interests, net of tax decreased by $0.7 million, or 28.0%, to $1.8 million from $2.5 million for the three months ended June 30, 2021 and 2020, respectively, primarily as a result of an increase in our ownership in certain less than wholly owned profitable subsidiaries as well as a decrease in profitability in other less than wholly owned subsidiaries. |
● | US Telecom. Net income attributable to non-controlling interests, net of tax decreased by $1.7 million to an allocation of losses of $0.6 million from an allocation of income of $1.1 million for the three months ended June 30, 2021 and 2020, respectively, primarily as a result of decreased profitability at certain less than wholly owned subsidiaries within our US Mobility retail operations and an allocation of certain costs associated with the Alaska Transaction to the minority shareholder of that subsidiary. |
Net income attributable to ATN International, Inc. stockholders. Net income attributable to ATN International, Inc. stockholders was $2.0 million and $4.7 million for the three months ended June 30, 2021 and 2020, respectively.
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On a per diluted share basis, net income (loss) was $0.13 and $0.30 per diluted share for the three months ended June 30, 2021 and 2020, respectively.
Selected Segment Financial Information
The following represents selected segment information for the six months ended June 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2021 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 44,575 | | $ | 5,267 | | $ | — | | $ | — | | $ | 49,842 |
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 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 418 | | | — | | | 418 |
Managed Services | | | 2,726 | | | — | | | — | | | — | | | 2,726 |
Construction | | | — | | | 21,632 | | | — | | | — | | | 21,632 |
Total Other Revenue | | | 2,726 | | | 21,632 | | | 418 | | | — | | | 24,776 |
Total Revenue | | | 170,036 | | | 77,921 | | | 418 | | | — | | | 248,375 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 27,786 | |
| (1,090) | |
| (1,433) | |
| (19,009) | |
| 6,254 |
| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2020 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 39,198 | | $ | 4,770 | | $ | — | | $ | — | | $ | 43,968 |
Fixed | |
| 115,056 | |
| 9,762 | |
| — | |
| — | |
| 124,818 |
Carrier Services | | | 3,541 | | | 40,927 | | | — | | | — | | | 44,468 |
Other | |
| 891 | |
| — | |
| — | |
| — | |
| 891 |
Total Communication Services Revenue | | | 158,686 | | | 55,459 | | | — | | | — | | | 214,145 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 2,196 | | | — | | | 2,196 |
Managed Services | | | 3,663 | | | — | | | — | | | — | | | 3,663 |
Total Other Revenue | | | 3,663 | | | — | | | 2,196 | | | — | | | 5,859 |
Total Revenue | | | 162,349 | | | 55,459 | | | 2,196 | | | — | | | 220,004 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 28,005 | | | 4,019 | | | (1,077) | | | (16,623) | | | 14,324 |
(1) Reconciling items refer to corporate overhead costs and consolidating adjustments
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A year-to-date comparison of our segment results is as follows:
International Telecom. Revenues within our International Telecom segment increased $7.7 million, or 4.7%, to $170.0 million from $162.3 million for the six months ended June 30, 2021 and 2020, respectively, as a result of an increase in Fixed and Mobility subscribers and average revenue per subscriber within all of our international markets. In addition, certain international 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 during the latter half of the six months ended June 30, 2021.
Operating expenses within our International Telecom segment increased by $7.9 million, or 5.9%, to $142.2 million from $134.3 million for the six months ended June 30, 2021 and 2020, respectively. The increase was primarily the result of an increase in direct costs incurred in connection with the increase in this segment’s revenue, increased legal and regulatory costs and certain costs being incurred during the six months ended June 30, 2021 that were not incurred during the six months ended June 30, 2020 as a result of the impact of COVID-19 restrictions.
As a result, our International Telecom segment’s operating income decreased $0.2 million, expenseor 0.7%, to record$27.8 million from $28.0 million.
US Telecom. Revenue within our US Telecom segment increased by $22.4 million, or 40.4%, to $77.9 million from $55.5 million for the six months ended June 30, 2021 and 2020, respectively, primarily as a valuation allowance againstresult of an investment write-off which cannot be currently benefittedincrease in construction revenue from the FirstNet Transaction and an increase in Fixed revenues, including broadband services, partially offset by reductions in Carrier Services revenue.
Operating expenses within our US Telecom segment increased by $27.5 million, or 53.4%, to $79.0 million from $51.5 million for tax,the six months ended June 30, 2021 and 2020, respectively, as a $0.6 benefit (net) related toresult of construction costs and other expenses being incurred in connection with the utilization of losses at a higher tax rate as allowed byFirstNet Transaction, costs associated with the CARES Act.Act-funded build-out of rural broadband operations, costs to further fund our private network business and certain costs being incurred during the six months ended June 30, 2021 that were not incurred during the six months ended June 30, 2020 as a result of the impact of COVID-19 restrictions. The three month period ended June 30, 2021 also includes additional legal and regulatory costs.
As a result of the above, our US Telecom segment’s operating income decreased $5.1 million to a loss of $1.1 million from income of $4.0 million for the six months ended June 30, 2021 and 2020, respectively.
Renewable Energy. Through 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, 2020, we generated revenue, incurred operating expenses and reported an operating loss of $2.2 million, $3.3 million and $1.1 million, respectively.
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The following represents a year over year discussion and analysis of our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | |
| | Six Months Ended | | Amount of | | Percent |
| |||||
| | June 30, | | Increase | | Increase |
| |||||
| | 2021 | | 2020 | | (Decrease) | | (Decrease) |
| |||
|
| | | | | | | | | | | |
REVENUE: | | |
|
| |
|
| |
|
|
| |
Communication services | | $ | 223,599 | | $ | 214,145 | | $ | 9,454 |
| 4.4 | % |
Other | |
| 24,776 | |
| 5,859 | |
| 18,917 |
| 322.9 | |
Total revenue | | | 248,375 | | | 220,004 | | | 28,371 |
| 12.9 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Cost of services | | | 97,986 | | | 92,439 | | | 5,547 |
| 6.0 | |
Cost of construction revenue | | | 22,142 | | | — | | | 22,142 | | 100.0 | |
Selling, general and administrative | | | 78,344 | | | 68,552 | | | 9,792 |
| 14.3 | |
Transaction-related charges | | | 2,126 | | | 116 | | | 2,010 |
| 1,732.8 | |
Depreciation and amortization | | | 40,662 | | | 44,509 | | | (3,847) |
| (8.6) | |
Loss on disposition of long-lived assets | | | 861 | | | 64 | | | 797 |
| 1,245.3 | |
Total operating expenses | | | 242,121 | | | 205,680 | | | 36,441 |
| 17.7 | |
Income from operations | | | 6,254 | | | 14,324 | | | (8,070) |
| (56.3) | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
Interest income | | | 40 | | | 309 | | | (269) |
| (87.1) | |
Interest expense | | | (2,285) | | | (2,730) | | | 445 |
| (16.3) | |
Other expense | | | 2,309 | | | (2,310) | | | 4,619 |
| (200.0) | |
Other expense, net | | | 64 | | | (4,731) | | | 4,795 |
| (101.4) | |
INCOME BEFORE INCOME TAXES | |
| 6,318 | |
| 9,593 | |
| (3,275) |
| (34.1) | |
Income tax expense | |
| (1,247) | |
| (1,149) | |
| (98) |
| 8.5 | |
NET INCOME | |
| 7,565 | |
| 10,742 | |
| (3,177) |
| (29.6) | |
Net income attributable to non-controlling interests, net of tax: | |
| (2,842) | |
| (7,009) | |
| 4,167 |
| (59.5) | |
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | 4,723 | | $ | 3,733 | | $ | 990 |
| 26.5 | % |
Communications services revenue
Mobility revenue. Mobility revenue increased by $5.8 million, or 13.2%, to $49.8 million for the six months ended June 30, 2021 from $44.0 million for the six months ended June 30, 2020. The increase in Mobility revenue, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, Mobility revenue increased by $5.4 million, or 13.8%, to $44.6 million for the six months ended June 30, 2021 from $39.2 million for the six months ended June 30, 2020 as a result of an increase in subscribers and the average revenue per subscriber due to the impact that COVID-19 related travel and stay-at-home restrictions had during the six months ended June 30, 2020. |
● | US Telecom. Mobility revenue within our US Telecom segment increased by $0.5 million, or 10.4%, to $5.3 million from $4.8 million for the six months ended June 30, 2021 and 2020 as a result of an increase in retail subscribers and revenue generated by our early stage private network business. These increases were offset by a decrease in the average revenue per subscriber. |
Fixed communications revenue. Fixed communications revenue increased by $5.3 million, or 4.2%, to $130.1 million from $124.8 million for the six months ended June 30, 2021 and 2020, respectively. The increase in Fixed communications revenue, within our segments, consisted of the following:
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● | International Telecom. Within our International Telecom segment, Fixed communications revenue increased by $2.8 million, or 2.4%, to $117.9 million from $115.1 million, for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of an increase in Fixed broadband services in order to enable remote working during the COVID-19 pandemic. This increase was partially offset by a decrease in revenue from certain enterprise customers, such as hotels, which continued to be impacted by the effects of COVID-19 related travel and stay-at-home restrictions. |
● | US Telecom. Fixed communications revenue within our US Telecom segment increased by $2.4 million, or 24.5%, to $12.2 million from $9.8 million for the six months ended June 30, 2021 and 2020, respectively. This increase was related to an increase in usage for both enterprise and residential subscribers to support remote working and better connectivity during the COVID-19 pandemic partially offset by a reduction in the average revenue per user. |
Carrier Services revenue. Carrier Services revenue decreased by $1.3 million, or 2.9%, to $43.2 million from $44.5 million for the six months ended June 30, 2021 and 2020, respectively. The decrease, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, Carrier Services revenue increased by $0.9 million, or 25.7%, to $4.4 million from $3.5 million for the six months ended June 30, 2021 and 2020, respectively, as a result of increased roaming revenues due to increased tourism within most of our International Telecom markets. |
● | US Telecom. Carrier Services revenue within our US Telecom segment decreased by $2.1 million, or 5.1%, to $38.8 million from $40.9 million, for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of the 2020 restructuring of certain carrier contracts. |
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 decreased to $0.5 million from $0.9 million for the six months ended June 30, 2021 and 2020, respectively.
Other revenue
Renewable energy revenue. Renewable energy revenue decreased by $1.8 million to $0.4 million from $2.2 million for the six months ended June 30, 2021 and 2020, respectively, as a result of the impact of the Vibrant Transaction.
Managed Services revenue. Managed Services revenue decreased by $1.0 million, or 27.0%, to $2.7 million from $3.7 million for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of the impact of COVID-19 which resulted in a decrease in equipment sales and consulting services.
Construction revenue. During the six months ended June 30, 2021, we recognized $21.6 million of construction revenue. As of June 30, 2021, 40% of the cell sites related to the FirstNet Agreement were complete with an expected and we expect that an additional 25% of the sites will be completed by the end of 2021. We expect the remaining sites to be completed during the first half of 2022.
Operating expenses
Cost of services. Cost of services 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 and technology business. Cost of services also include expenses associated with developing, operating, upgrading and supporting our telecommunications networks, including the salaries and benefits paid to employees directly involved in
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the development and operation of those businesses, as well as bad debt reserves and the cost of handsets and customer resale equipment incurred by our retail businesses.
Cost of services increased by $5.5 million, or 6.0%, to $98.0 million from $92.4 million for the six months ended June 30, 2021 and 2020, respectively. The net increase in cost of services, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, cost of services increased by $3.1 million, or 4.8%, to $67.7million from $64.6 million, for the six months ended June 30, 2021 and 2020, respectively. This increase was primarily related to the increase in the demand for our products as well as expenses, such as facility and utility costs, incurred during the six months ended June 30, 2021 that were not incurred during the six months ended June 30, 2020 as a result of the impact of COVID-19. |
● | US Telecom. Cost of services within our US Telecom segment increased by $3.1 million, or 11.2%, to $30.7 million from $27.6 million for the six months ended June 30, 2021 and 2020, respectively, as a result of an increase in data transport costs in connection with the FirstNet Transaction partially offset by decreases in our wholesale long-distance voice services businesses. |
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 and was $22.1 million during the six months ended June 30, 2021. As of June 30, 2021, 40% of the cell sites related to the FirstNet Agreement were completed, and we expect that an additional 25% of sites will be completed by the end of 2021. We expect the remaining sites to be completed during the first half of 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by $9.8 million, or 14.3%, to $78.3 million from $68.6 million for the six months ended June 30, 2021 and 2020, 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 $5.7 million, or 13.8%, to $47.0 million from $41.3 million for the six months ended June 30, 2021 and 2020, respectively. This increase was incurred within certain international markets primarily as a result of an increase in legal and regulatory related fees, including a $1.1 million accrual for certain legal matters, as well as expenses incurred during the six months ended June 30, 2021 that were not incurred during the six months ended June 30, 2020 as a result of the impact of COVID-19. |
● | US Telecom. Selling, general and administrative expenses increased within our US Telecom segment by $3.6 million, or 29.3%, to $15.9 million from $12.3 million, for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of increased spending within our expanding early stage private network business and within our Mobility retail operations. |
● | Renewable Energy. Selling, general and administrative expenses within our Renewable Energy segment decreased $1.5 million to $0.4 million from $1.9 million for the six months ended June 30, 2021 and 2020, respectively, as a result of the Vibrant Transaction. |
● | Corporate Overhead. Selling, general and administrative expenses within our corporate overhead increased by $2.0 million, or 15.4%, to $15.0 million from $13.1 million, for the six months ended June 30, 2021 and 2020, respectively, primarily related to increased non-cash equity compensation expense from the timing of the underlying annual grants, an increase in legal expenses and integration costs associated with the completion of the Alaska Transaction that were incurred during 2021. |
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 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.
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We incurred $2.1 million and a nominal amount of transaction-related charges during the six months ended June 30, 2021 and 2020, respectively. The transaction-related charges incurred during 2021 were primarily related to the Alaska Transaction.
Depreciation and amortization expenses. Depreciation and amortization expenses decreased by $3.8 million, or 8.5%, to $40.7 million from $44.5 million for the six months ended June 30, 2021 and 2020, respectively. The net decrease in depreciation and amortization expenses, within our segments, consisted primarily of the following:
● | International Telecom. Depreciation and amortization expenses decreased within our International Telecom segment by $0.8 million, or 2.8%, to $27.6 million from $28.4 million, for the six months ended June 30, 2021 and 2020, respectively. This decrease was a result of certain assets becoming fully depreciated in recent periods partially offset by recent upgrades and expansions to this segment’s network assets. |
● | US Telecom. Depreciation and amortization expenses decreased within our US Telecom segment by $1.3 million, or 11.2%, to $10.3 million from $11.6 million, for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of certain assets becoming fully depreciated in recent periods partially offset by capital expenditures within our US Mobility and early-stage private network business. |
● | Renewable Energy. Depreciation and amortization expenses within our Renewable Energy segment decreased by $0.9 million to $0.2 million from $1.1 million for the six months ended June 30, 2021 and 2020, respectively, as a result of the Vibrant Transaction. |
● | Corporate Overhead. Depreciation and amortization expenses decreased within our corporate overhead by $0.8 million, or 23.5%, to $2.6 million from $3.4 million, for the six months ended June 30, 2021 and 2020, respectively, primarily as a result of certain assets becoming fully depreciated in recent periods. |
Loss on disposition of long-lived assets. 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.
During the six months ended June 30, 2020, we recorded a loss on the disposition of long-lived assets of $0.1 million primarily as a result of the disposal of miscellaneous assets within our US mobility and renewable energy operations.
Interest income. Interest income decreased to a nominal amount from $0.3 million for the six months ended June 30, 2021 and 2020, respectively, as a result of a reduction in the balances of our cash, cash equivalents and short-term investments as well as our return on those balances.
Interest expense. Interest expense decreased to $2.3 million from $2.7 million for the six months ended June 30, 2021 and 2020, respectively, as additional interest expense being incurred for new borrowings under the Receivables Credit Facility was offset by reduced debt balances within our International Telecommunications segment.
Other income (expense). Other income (expense) represents miscellaneous non-operational income earned and expenses incurred.
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 non-controlling investments partially offset by a net loss on foreign currency transactions.
For the six months ended June 30, 2020, other expenses was an expense of $2.3 million which was primarily related to $1.4 million of losses related to non-controlling investments and $1.3 million related to net losses on foreign currency transactions. These expenses were partially offset by $0.4 million of income related to certain employee benefit plans.
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Income taxes.Our effective tax rate for the six months ended June 30, 2021 and 2020 was (19.7%) and (12.0%) respectively.
The effective tax rate for the threesix months ended SeptemberJune 30, 20192021 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.
The effective tax rate for the six months ended June 30, 2020 was primarily impacted by the following items: (i) the remeasurement of a forecasted domestic loss at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the US Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), in additionand (iii) discrete items including a $2.9 million benefit from the reversal of an unrecognized tax position due to the following discrete items: (i) a $1.3statute of limitations expiration, a $1.0 million deferred tax benefit related to an investment tax credit, and (ii) a $0.5 million netexpense for interest expense on unrecognized tax positions.positions, a $0.4 million expense to record a valuation allowance against an investment write-down which cannot be benefitted for tax purposes, and a $0.3 million benefit (net) related to the remeasurement of existing losses and temporary differences at a higher tax rate due to carryback provisions as provided by the CARES Act.
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 one-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 judgment 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 non-controlling interests, net of tax. Net income attributable to non-controlling interests, net of tax reflected an allocation of $3.5 million of income generated by our less than wholly owned subsidiaries for each of the three months ended September 30, 2020 and 2019. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
Net income attributable to ATN International, Inc. stockholders. Net income attributable to ATN International, Inc. stockholders was $2.7$2.8 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively.
On a per diluted share basis, net income was $0.17 and $0.09 per diluted share for the three months ended September 30, 2020 and 2019, respectively.
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Selected Segment Financial Information
The following represents selected segment information for the nine months ended September 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 60,604 | | $ | 7,203 | | $ | — | | $ | — | | $ | 67,807 |
Fixed | |
| 172,420 | |
| 15,181 | |
| — | |
| — | |
| 187,601 |
Carrier Services | | | 5,392 | | | 60,779 | | | — | | | — | | | 66,171 |
Other | |
| 1,286 | |
| — | |
| — | |
| — | |
| 1,286 |
Total Communication Services Revenue | | | 239,702 | | | 83,163 | | | — | | | — | | | 322,865 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 3,373 | | | — | | | 3,373 |
Managed Services | | | 5,111 | | | — | | | — | | | — | | | 5,111 |
Construction | | | — | | | 394 | | | — | | | — | | | 394 |
Total Other Revenue | | | 5,111 | | | 394 | | | 3,373 | | | — | | | 8,878 |
Total Revenue | | | 244,813 | | | 83,557 | | | 3,373 | | | — | | | 331,743 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 44,119 | |
| 6,241 | |
| (1,175) | |
| (25,306) | |
| 23,879 |
| | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 62,766 | | $ | 8,095 | | $ | — | | $ | — | | $ | 70,861 |
Fixed | |
| 166,925 | |
| 9,885 | |
| — | |
| — | |
| 176,810 |
Carrier Services | | | 6,970 | | | 62,820 | | | — | | | — | | | 69,790 |
Other | |
| 1,012 | |
| — | |
| — | |
| — | |
| 1,012 |
Total Communication Services Revenue | | | 237,673 | | | 80,800 | | | — | | | — | | | 318,473 |
Other | | | | | | | | | | | | | | | �� |
Renewable Energy | | | — | | | — | | | 4,376 | | | — | | | 4,376 |
Managed Services | | | 3,788 | | | — | | | — | | | — | | | 3,788 |
Total Other Revenue | | | 3,788 | | | — | | | 4,376 | | | — | | | 8,164 |
Total Revenue | | | 241,461 | | | 80,800 | | | 4,376 | | | — | | | 326,637 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 35,802 | |
| 5,927 | |
| (750) | |
| (25,862) | |
| 15,117 |
A year-to-date comparison of our segment results is as follows:
International Telecom. Revenues within our International Telecom segment increased $3.3 million, or 1.4%, to $244.8 million from $241.5 million for the nine months ended September 30, 2020 and 2019, respectively, as a result of an increase in broadband services in many of our international telecom markets which more than offset the impact of the
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reduction in carrier services and mobility services (including handset sale revenues) due to COVID-19 related travel and stay-at-home restrictions.
Operating expenses within our International Telecom segment decreased by $5.0 million, or 2.4%, to $200.7 million from $205.7 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease was primarily the result of the impact of COVID-19 and other cost reduction measures which reduced roaming, advertising, contract labor and facility costs throughout all of our markets within this segment.
As a result, our International Telecom segment’s operating income increased $8.3 million, or 23.2%, to $44.1 million from $35.8 million for the nine months ended September 30, 2020 and 2019, respectively.
US Telecom. Revenue within our US Telecom segment increased by $2.8 million, or 3.5%, to $83.6 million from $80.8 million for the nine months ended September 30, 2020 and 2019, respectively, primarily as a result of an increase in fixed revenues including broadband services and funding from the Connect America Fund Phase II program as well as construction revenue from the FirstNet Transaction.
Operating expenses within our US Telecom segment increased $2.5 million, or 3.3%, to $77.4 million from $74.9 million for the nine months ended September 30, 2020 and 2019, respectively, as a result of additional expenses being incurred in connection with the FirstNet Transaction partially offset by the impact of COVID-19.
As a result of the above, our US Telecom segment’s operating income increased $0.3 million, or 5.1%, to $6.2 million from $5.9 million for the nine months ended September 30, 2020 and 2019, respectively.
Renewable Energy. Revenue within our Renewable Energy segment decreased $1.0 million, or 22.7%, to $3.4 million from $4.4 million for the nine months ended September 30, 2020 and 2019, respectively, primarily as a result of a decrease in production as a result of the impact of COVID-19.
Operating expenses within our Renewable Energy segment decreased by $0.6 million, or 11.5%, to $4.6 million from $5.2 million for the nine months ended September 30, 2020 and 2019 due to increased site maintenance expenses.
As a result of the above, our Renewable Energy segment’s operating loss increased by $0.4 million, or 50.0%, to a loss of $1.2 million compared to a loss of $0.8 million for the nine months ended September 30, 2020 and 2019, respectively.
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The following represents a year over year discussion and analysis of our results of operations for the nine months ended September 30, 2020 and 2019 (in thousands):
| | | | | | | | | | | | |
| | Nine Months Ended | | Amount of | | Percent |
| |||||
| | September 30, | | Increase | | Increase |
| |||||
| | 2020 | | 2019 | | (Decrease) | | (Decrease) |
| |||
|
| | | | | | | | | | | |
REVENUE: | | |
|
| |
|
| |
|
|
| |
Communication services | | $ | 322,865 | | $ | 318,473 | | $ | 4,392 |
| 1.4 | % |
Other | |
| 8,878 | |
| 8,164 | |
| 714 |
| 8.7 | |
Total revenue | | | 331,743 | | | 326,637 | | | 5,106 |
| 1.6 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Termination and access fees | | | 83,562 | | | 83,440 | | | 122 |
| 0.1 | |
Construction costs | | | 390 | | | — | | | 390 | | 100.0 | |
Engineering and operations | | | 53,983 | | | 58,234 | | | (4,251) |
| (7.3) | |
Sales, marketing and customer services | | | 28,220 | | | 29,048 | | | (828) |
| (2.9) | |
General and administrative | | | 75,413 | | | 75,518 | | | (105) |
| (0.1) | |
Transaction-related charges | | | 147 | | | 89 | | | 58 |
| 65.2 | |
Depreciation and amortization | | | 66,089 | | | 64,870 | | | 1,219 |
| 1.9 | |
Loss on disposition of long-lived assets | | | 60 | | | 321 | | | (261) |
| (81.3) | |
Total operating expenses | | | 307,864 | | | 311,520 | | | (3,656) |
| (1.2) | |
Income from operations | | | 23,879 | | | 15,117 | | | 8,762 |
| 58.0 | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
Interest income | | | 427 | | | 1,860 | | | (1,433) |
| (77.0) | |
Interest expense | | | (4,091) | | | (3,843) | | | (248) |
| (6.5) | |
Other expense | | | (4,341) | | | (2,755) | | | (1,586) |
| (57.6) | |
Other expense, net | | | (8,005) | | | (4,738) | | | (3,267) |
| (69.0) | |
INCOME BEFORE INCOME TAXES | |
| 15,874 | |
| 10,379 | |
| 5,495 |
| 52.9 | |
Income tax expense | |
| (1,057) | |
| 2,774 | |
| (3,831) |
| (138.1) | |
NET INCOME | |
| 16,931 | |
| 7,605 | |
| 9,326 |
| 122.6 | |
Net income attributable to non-controlling interests, net of tax: | |
| (10,538) | |
| (8,657) | |
| (1,881) |
| (21.7) | |
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | 6,393 | | $ | (1,052) | | $ | 7,445 |
| 707.7 | % |
Communications services
Mobility revenue. Mobility revenue decreased by $3.1 million, or 4.4%, to $67.8 million for the nine months ended September 30, 2020 from $70.9 million for the nine months ended September 30, 2019. The decrease in mobility revenue, within our segments, consisted of the following:
Fixed communications revenue. Fixed communications revenue increased by $10.8 million, or 6.1%, to $187.6 million from $176.8 million for the nine months ended September 30, 2020 and 2019, respectively. The net increase in fixed communications revenue, within our segments, consisted of the following:
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Carrier Services revenue. Carrier services revenue decreased by $3.6 million, or 5.2%, to $66.2 million from $69.8 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease, within our segments, consisted of the following:
Other communications services revenue. Other communications services revenue increased to $1.3 million from $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.
Other revenue
Renewable energy revenue. Renewable energy revenue decreased by $1.0 million, or 22.7%, to $3.4 million from $4.4 million for the nine months ended September 30, 2020 and 2019, respectively, primarily as a result of a decreases in production as a result of the impact of COVID-19.
Managed services revenue. Managed services revenue increased by 1.3 million, or 34.2%, to $5.1 million from $3.8 million for the nine months ended September 30, 2020 and 2019, respectively, primarily as a result of an increase in consulting services and equipment sales.
Construction revenue. During the nine months ended September 30, 2020, we recognized $0.4 million of construction revenue in connection with the FirstNet Transaction.
Operating expenses
Termination and access fee expenses.Termination and access fees increased by $0.2 million, or 0.2%, to $83.6 million from $83.4 million for the nine months ended September 30, 2020 and 2019, respectively. The net increase in termination and access fees, within our segments, consisted of the following:
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Construction costs. Construction costs, all of which are incurred within our US Telecom segment, were $0.4 million during the nine months ended September 30, 2020 and were incurred in connection with the FirstNet Transaction.
Engineering and operations expenses. Engineering and operations expenses decreased by $4.2 million, or 7.3%, to $54.0 million from $58.2 million for the nine months ended September 30, 2020 and 2019, respectively. The net decrease in engineering and operations expenses, within our segments, consisted of the following:
Sales and marketing expenses. Sales and marketing expenses decreased by $0.8 million, or 2.9%, to $28.2 million from $29.0 million for the nine months ended September 30, 2020 and 2019, respectively. The net decrease in net sales and marketing expenses, within our segments, consisted of the following:
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General and administrative expenses.General and administrative expenses decreased by $0.1 million, or 0.1%, to $75.4 million from $75.5 million for the nine months ended September 30, 2020 and 2019, respectively. The net decrease in general and administrative expenses, within our segments, consisted of the following:
Transaction-related charges. We incurred $0.1 million of transaction-related charges during each of the nine months ended September 30, 2020 and 2019.
Depreciation and amortization expenses. Depreciation and amortization expenses increased by $1.2 million, or 1.9%, to $66.1 million from $64.9 million for the nine months ended September 30, 2020 and 2019, respectively. The net increase in depreciation and amortization expenses, within our segments, consisted primarily of the following:
Loss on disposition of long-lived assets. During the nine months ended September 30, 2020 and 2019, we recorded a loss on the disposition of long-lived assets of $0.1 million and $0.3 million, respectively, primarily as a result of the disposal of miscellaneous assets within our US mobility and renewable energy operations.
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Interest income. Interest income decreased $1.5 million to $0.4 million from $1.9 million for the nine months ended September 30, 2020 and 2019, respectively, as a result of a reduction in the balances of our cash, cash equivalents and short-term investments as well as our return on those balances.
Interest expense. Interest expense increased by $0.3 million, or 6.5%, to $4.1 million from $3.8 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, primarily as a result of the amortization of debt issuance costs related to the Receivables Credit Facility.
Other expenses.For the nine months ended September 30, 2020, other expenses was $4.3 million which was primarily related to $3.4 million of losses related to non-controlling investments and $1.2 million relating to net losses on foreign currency transactions.
For the nine months ended September 30, 2019, other expense was $2.8 million which was primarily related to a $2.1 million write down of a non-controlling equity investment and $0.8 million relating to a net loss on foreign currency transactions.
Income taxes.Our effective tax rate for the nine months ended September 30, 2020 and 2019 was (6.7%) and 26.7%, respectively.
The effective tax rate for the nine months ended September 30, 2020 was primarily impacted by the following items: (i) the remeasurement of a forecasted domestic loss at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in India where we cannot benefit from those losses as required by ASC 740-270-30-36(a) and, (iii) discrete items including a $2.9 million benefit from the reversal of an unrecognized tax position due to statute expiration, a $1.4 million expense for interest on unrecognized tax positions, a $0.6 million expense to record a valuation allowance against investment write-downs which cannot be benefitted for tax purposes, and a $1.0 million benefit (net) related to the utilization of losses at a higher rate as allowed by the CARES Act.
The effective tax rate for the nine months ended September 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the US Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) a $1.3 million deferred tax benefit related to an investment tax credit, and (ii) a $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
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 one-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 judgment 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 non-controlling interests, net of tax.Net income attributable to non-controlling interests, net of tax reflected an allocation of $10.5 million and $8.7 million of income generated by our less than wholly owned subsidiaries for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively, an increasea decrease of $1.9 million,$4.2 million, or 21.7%59.5%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
● | International Telecom. Net income attributable to non-controlling interests, net of tax |
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● | US Telecom. Net income attributable to non-controlling interests, net of tax |
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was income of $6.4$4.7 million and a loss of $1.1$3.7 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
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On a per diluted share basis, net income (loss) was income of $0.40$0.30 and a loss of $0.07$0.23 per diluted share for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Regulatory and Tax Issues
We are involved in a number of 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 1314 to the Unaudited Condensed Consolidated Financial Statements included 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 year or 2019.following years. Based on our forecasted income for 2020,2021, 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 SeptemberJune 30, 2020.2021.
CARES Act
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Certain provisions of the CARES Act impact our income tax provision computations.
Liquidity and Capital Resources
Historically, we have met our operational liquidity needs through a combination of cash-on-hand and internally generated funds and have funded capital expenditures and acquisitions with a combination of internally generated funds, cash-on-hand, 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 facility 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, 2021, we had approximately $96.0 million in cash, cash equivalents and restricted cash. Of this amount, $40.1 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. In addition, we had approximately $87.7 million of debt, net of unamortized deferred financing costs, as of June 30, 2021. 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. Historically, weWe 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.
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 and our international renewable energy businessesbusiness or acquire new businesses and telecommunications licenses in the United States, the Caribbean and elsewhere. Such acquisitions may require
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elsewhere. Such acquisitions, including acquisitionsTable of renewable energy assets, may require Contents
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 accomplished 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.
As of September 30, 2020, we had approximately $136.2 million in cash, cash equivalents and restricted cash. Of this amount, $61.0 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. In addition, we had approximately $83.7 million of debt, net of unamortized deferred financing costs, as of September 30, 2020. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns.
Cash used in investing activities. Cash used in investing activities was $62.0$25.3 million and $62.7$54.7 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The net decrease in cash used for investing activities of $0.7$29.4 million was primarily related to $18.6 million and $3.3 million in cash received during the six months ended June 30, 2021 from the Vibrant Transaction and government grants, respectively, partially offset by increases in cash used for capital expenditures and strategic investments of $10.0 million and $2.5 million, respectively. In addition, the six months ended June 30, 2020 cash usage of $20.4includes $20.0 million for the acquisition of telecommunications licenses, partially offset by a $19.5 million reduction in cash used for strategic investments, a $2.8 million reduction in cash used for short-term investments and a $1.2 million reduction in capital expenditures.licenses.
Cash used in financing activities. Cash used in financing activities was $35.7$11.2 million and $20.7$22.0 million during the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively. The increasedecrease in cash used for financing activities of $15.0$10.8 million was primarily related to a $0.7 million increase in the distributions made to minority shareholders, a $7.4 million increase incash received for borrowings and cash used for principal repayments under the Receivables Credit Facility of $17.6 million and $0.4 million, respectively, within the six months ended June 30, 2021. Cash used for debt issuance costs and for distributions to acquire non-controlling interests in our less than wholly owned subsidiarieseach declined by $1.1 million during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 and a $6.4 million increase in cash used for the repurchase of our common stock under the 2016 Repurchase Plan.Plan (as defined below) decreased by $0.2 million. Partially offsetting these amounts was an $8.8 million increase in cash used to acquire non-controlling interests in One Communications (our subsidiary in Bermuda and the Cayman Islands.
Working Capital. Historically, we have internally funded our working capital needs. Pursuant to the FirstNet Agreement, which we entered into during July 2019, AT&T has the option to repay construction costs, with interest, over an eight yeareight-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.
For the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we spent approximately $50.7$41.9 million and $49.5$32.0 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
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| | | International | | | US | | | Renewable | | | Corporate and | | | | | | International | | | US | | | Renewable | | | Corporate and | | | |
Nine months ended September 30, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated | |||||||||||||||
Six months ended June 30, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated | |||||||||||||||
2021 | | $ | 21,843 | | $ | 18,792 | | $ | — | | $ | 1,297 | | $ | 41,932 | |||||||||||||||
2020 | | $ | 28,439 | | $ | 17,254 | | $ | 2,116 | | $ | 2,853 | | $ | 50,662 | | | 19,929 | | | 8,883 | | | 1,634 | | | 1,519 | | | 31,965 |
2019 | | | 8,533 | | | 33,159 | | | 2,183 | | | 5,611 | | | 49,486 |
(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
We are continuing to invest in our telecommunication networks along with our operating and business support systems in many of our markets. Such investments include the upgrade and expansion of both our mobilityMobility and fixedFixed telecommunications networks as well as our service delivery platforms. WeFor 2021, we expect full year 2020International Telecom capital expenditures to be lower than the originally forecasted amounts within the 2019 Annual Report on Form 10-K as a result of the COVID-19 pandemic. We expect full year 2020 capital expenditures in International Telecomapproximately $45 million to be between $35 million and $40$55 million. In the US Telecom segment, we expect full year 2020 capital expenditures to be approximately $30$45 million as we continue to build sites and backhaul to support the FirstNet Transaction.$50 million, excluding Alaska Communications Systems for 2021.
We expect to fund our current capital expenditures primarily from our current cash balances, and cash generated from operations but may secure additional financing to support renewable energy capital expenditures in India.and our existing credit facilities including the Receivables Credit Facility.
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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 whichand to date has been to indefinitely reinvest the
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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.
Dividends. We use cash-on-hand to make dividend payments to our stockholders when declared by our Board of Directors. For the three months ended SeptemberJune 30, 2020,2021, our Board of Directors declared $2.7 million of dividends to our stockholders which includes a $0.17 per share dividend declared on September 17, 2020June 10, 2021 and paid on OctoberJuly 9, 2020.2021. We have declared quarterly dividends for the last 8890 fiscal quarters.
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 $4.1$1.7 million and $6.6$2.2 million of our common stock under the 2016 Repurchase Plan during the three months and ninesix months ended SeptemberJune 30, 2020,2021, respectively. We repurchased $0.2$0.8 million and $2.4 million of our common stock under the 2016 Repurchase Plan during the three months and ninesix months ended SeptemberJune 30, 2019.2020, respectively. As of SeptemberJune 30, 2020,2021, we have $30.9$28.7 million authorized and available for share repurchases under the 2016 Repurchase Plan.
Sources of Cash
Total liquidity. As of September 30, 2020, we had approximately $136.2 million in cash, cash equivalents and restricted cash which represents a decrease of $26.2 million from the December 31, 2019 balance of $162.4 million. The decrease is primarily attributable to $50.7 million used for capital expenditures, $20.4 million used to acquire telecommunications licenses, $8.8 million to repurchase certain non-controlling ownership interests ,$8.2 million used for dividends paid on our common stock, $6.6 million used for the repurchase of our common stock as a part of the 2016 Repurchase Plan, $6.5 million used for distributions to our minority shareholders, $2.8 million used for strategic investments, $2.8 million used to repay principal on our debt, $1.7 million used for the repurchase of our common stock from employees in order to satisfy their tax obligations and $1.1 million used to complete the Receivables Credit Facility. These amounts were partially offset by cash provided by our operations of $71.6 million, which included $10.1 million used for construction costs associated with the FirstNet Agreement, and $12.0 million in tax refunds.
Cash provided by operations. Cash provided by operating activities was $71.6$27.5 million for the ninesix months ended SeptemberJune 30, 20202021 as compared to $56.8$40.4 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increasedecrease of $13.0 million was primarily related to a $9.3 milliondecrease in operating income and an increase in net income andworking capital primarily as a $4.5 million change in working capital.part of the FirstNet construction project.
Credit facility. On April 10, 2019, we entered into the 2019 Credit Facility,a credit facility, with CoBank, ACB and a syndicate of other lenders.lenders (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 $16.0 million of performance letters of credit have been issued and remain outstanding and undrawn as of SeptemberJune 30, 2020.2021. 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) the LIBOR for an interest period of one month and (y) the 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 fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
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
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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.
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 “Accordion”). Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant.
As of SeptemberJune 30, 2020,2021, we were in compliance with all of the financial covenants, had no outstanding borrowings and, net of the $16.0 million of outstanding performance letters of credit, and had $184.0 million of availability under the
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2019 CoBank Credit Facility. On July 20, 2021, and in connection with the Alaska Transaction, the Company drew $73.0 million from its 2019 CoBank Credit Facility (see Acquisition of Alaska Communications System Group, Inc.) and subsequently repaid $10.0 million of that amount.
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a new credit facility to provide debt financing associated with the Alaska Transaction. See Note 15 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into 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$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. The delayed draw period will expire on December 31, 2021.
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 rate based on (i) the LIBOR plus 2.50%, (ii) a base rate plus 1.50% or (iii) a fixed annual interest rate to be quoted by CoBankCoBank. If we select a variable interest rate option, we are required to enter an interest rate swap fixing the interest rate.
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 SeptemberJune 30, 2020,2021, we had no$17.2 million outstanding, borrowingsof which $2.3 million was current, and $57.4 million of availability under the Receivables Credit Facility.
We capitalized $0.9 million of fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.8 million were unamortized at June 30, 2021.
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 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, we funded the restoration of Viya’s network, following Hurricanes Irma and Maria in 2017, through an intercompany loan arrangement with a $75.0 million limit. We were not in compliance with the Net Leverage Ratio covenant of the Viya Debt agreement for the year ending December 31, 20192020 and received a waiver from the RTFC on February 26, 2020. 25, 2021.
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.
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As of SeptemberJune 30, 2020,2021, $60.0 million of the Viya Debt remained outstanding and $0.5 million of the rate lock fee was unamortized.
One Communications Debt
We have an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to mature on May 22, 2022 and bears 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). We were in compliance with our covenants as of December 31, 2019
2020.
As a condition of the One Communications Debt, we were required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the term of the One Communications Debt. As such, we entered into an amortizing interest rate swap that has been designated as a cash flow hedge, which had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of SeptemberJune 30, 2020,2021, the swap had an unamortized notional amount of $7.6$6.8 million.
We capitalized $0.3 million of fees associated with the One Communications Debt which are being amortized over the life of the debt and are recorded as a reduction to the debt carrying amount.
As of SeptemberJune 30, 2020, $24.32021, $11.6 million of the One Communications Debt was outstanding and $0.1 million of the capitalized fees remained unamortized.
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.
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, the 2019 CoBank Credit Facility contains a financial covenant that imposes a maximum ratio of indebtedness to EBITDA. As of SeptemberJune 30, 2020,2021, we were in compliance with all of the financial covenants of the 2019 CoBank Credit Facility.
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, our financial performance, the state of the capital markets and our compliance with SEC requirements for the offering of securities. On May 12, 2020, we filed a “universal” shelf registration statement with the SEC, which automatically became effective upon filing. This filing registered 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 Indian Rupee and 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
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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
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process is reported in other income within our income statement. During the three and six months ended SeptemberJune 30, 2020 and 2019,2021, we recorded a nominal amount $0.3 million and $0.8$0.4 million, respectively, in losses on foreign currency transactions. During the ninethree and six months ended SeptemberJune 30, 2020, and 2019, we recorded $1.2$0.3 million and $1.1$1.3 million, respectively, ofin losses on foreign currency transactions. With the completion of the Vibrant Transaction, we have limited exposure to the Indian Rupee. We will continue to assess the impact of our exposure to both the Indian Rupee and the Guyana Dollar.
Inflation
We do not believe that inflation has had a significant impact on our consolidated operations in any of the periods presented in this Report.
We have based our discussion and analysis of our financial condition and results of operations on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on our operating experience and on various conditions existing in the market and we believe them to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
See Note 2 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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 Indian Rupee and 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.
Employee Benefit Plan.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 SeptemberJune 30, 2020,2021, we had $16.8$4.8 million of 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 10% increase in the interest rates on our variable rate debt would have an immaterial impact on our Financial Statements. We may have additional exposure to fluctuations in interest rates if we again borrow amounts under our revolver loan within our 2019 CoBank Credit Facility.
Item 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and 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 SeptemberJune 30, 2020.2021. 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”), means 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 in the SEC’s 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
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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
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cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2020,2021, 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. There were no changes in our internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 20202021 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 1314 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
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 20192020 Annual Report on Form 10-K, as amended by Amendment No. 1 to our 2019 Annual Report on Form 10-K filed with the SEC on April 29, 2020.10-K. The risks described herein and in our 20192020 Annual Report on Form 10-K, as amended, are not the only risks facing our Company. Additional risks and 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.
Risks Relating to Our Alaska Communications Business
We may have difficulties integrating the operations and business of Alaska Communications with our own.
The Alaska Transaction is the largest and most significant acquisition we have undertaken for a number of years. The complexities of the integration and expansion of Alaska Communications’ operations are not yet known. We have devoted and will continue to devote a significant amount of time and attention to integrating these operations with our existing operations teams. Among the challenges we face in Guyanadoing so are subjectthe need to significant politicalintegrate a large number of new employees and regulatory risk.integrating and aligning numerous business and work processes, including information technology and cyber security systems. If we have other difficulties with the transition process, it could harm our reputation and have a material adverse effect on our business, financial condition or results of operations.
We may not be able to realize the growth or synergies we expect from the Alaska Transaction.
We have announced that we plan to grow the Alaska Communications business by building additional anchor tenant and fiber projects and taking advantage of government funding opportunities to strategically grow its network. In addition, we have announced that we expect synergies resulting from the transaction to be approximately $2.0 million over the next 18 months. There can be no assurance as to whether, when or on what terms we will be able to invest in, acquire or build any assets, fiber projects, or additional business or participate in any government funding programs to strategically grow the Alaska Communications business, or to recognize anticipated synergies, and, accordingly, to realize the perceived benefits of the Alaska Transaction.
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The successful operation and growth of our businesses depends on economic conditions in Alaska.
Since 1991, our subsidiary Guyana TelephoneThe vast majority of Alaska Communications’ customers and Telegraph, operations are located in Alaska. Due to this geographical concentration, the successful operation and growth of the Alaska Communications businesses depends on economic conditions in Alaska. The Alaska economy, in turn, depends upon many factors, including:
Ltd. (“GTT”)
● | the strength of the natural resources industries, particularly oil production and prices of crude oil; |
● | the strength of the Alaska tourism industry; |
● | the level of government and military spending; and |
● | the continued growth of service industries. |
The population of Alaska, which has operateddeclined marginally every year since 2016, is approximately 730,000 with Anchorage, Fairbanks and Juneau serving as the primary population and economic centers in Guyana pursuant tothe state.
It is estimated that one-third of Alaska’s economy is dependent on federal spending, one-third on natural resources, in particular the production of crude oil, and the remaining one-third on other activities such as tourism, mining, timber, seafood, international air cargo and miscellaneous support services.
Alaska’s economy is dependent on investment by oil companies, and state tax revenues correlate with the price of oil as the state assesses a licensetax based on the value of the oil that transits the pipeline from the GovernmentNorth Slope. British Petroleum, one of Guyanathe world’s major oil companies, is exiting Alaska and its Alaska operations and holdings are being taken over by a much smaller local company. The impact of this change on the state’s economy is uncertain.
Overall economic impacts from a sustained lower price of crude oil or any other matters that impact population decline or other economic impacts, if maintained over time, could have a material adverse effect on Alaska Communications’ results of operations and cash flow, and our ability to be the exclusive provider of domestic fixedrealize plans for growth in Alaska.
The telecommunications industry in Alaska is competitive and internationalcreates pressure on our pricing and customer retention efforts.
Alaska is a new market for us, with strong competitors that make it difficult for us to attract and retain customers, which could result in lower revenue and cash flow from operating activities. Our principal facilities-based competitor for voice and databroadband services is GCI, which is also the dominant cable television provider in Alaska. In the business and wholesale market, GCI holds a dominant position through its extensive fiber optic, microwave and satellite based middle mile network as well as its undersea fiber cable network, where it owns and operates two of the four existing undersea fiber optic cables connecting Alaska to the contiguous states. In the consumer market, GCI bundles its cable video services with voice, broadband and mobile wireless services. That license fromBecause the Government of Guyana included an initial term ending in December 2010, which was renewable at our sole option for an additional 20-year term. In November 2009,video and mobile wireless services we notified the Government of Guyana of our electionoffer are limited, we are unable to renew our exclusive license for an additional 20-year term expiring in 2030. On December 15, 2010, we received correspondence from the Government of Guyana indicating that our license had been renewed until such time that new legislation was enactedoffer competing bundles. GCI continues to expand competition withinits statewide reach, including with funding by federal subsidies that give it a substantial competitive advantage in the sector.market.
Since 2001,
With a long history of operating in Alaska, AT&T also has a terrestrial long-haul network in Alaska where the Government of Guyana has stated its intention to introduce additional competition into Guyana’s telecommunications sector. In connection therewith,focus is on serving certain national customers. AT&T’s primary mass market focus in Alaska is providing mobile wireless services.
As we and GTT met with officials ofcompete more extensively in the Government of Guyana on several occasions to discuss potential modifications 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 passed by the Guyana Parliament in 2016 that introduces material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of creating a more competitive market. At that time, we were issued a new license to provide domestic and international voice and data services and mobile services in Guyana, and two of our competitors were issued service licenses as well. While we have requested details of our competitors’ licenses, such information has not been made public by the Guyana Telecommunications Authority, andAlaska market, we are not yet ablelikely to ascertain whether the licenses issued to our competitors permit 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 effectface increased and new telecommunications regulations called for by the telecommunications legislation. The regulations include new requirements on the market as a wholecompetition, both local and our operations, administrative reporting and service requirements.national. There can be no assurance that these regulationswe will be able to successfully compete against larger or more established competitors, and the failure to compete effectively may adversely impact our ability to meet our growth and revenue plans may adversely impact our results of operations.
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a Credit Agreement with Fifth Third Bank, National Association, as Administrative Agent, and the lenders party thereto to provide debt financing in the form of a revolving facility in an aggregate amount at any one time outstanding not to exceed $35.0 million and an initial term loan facility in
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the aggregate amount not to exceed $210.0 million (the “Alaska Credit Facility”). In connection with the Alaska Transaction, Alaska Communications drew $220 million from the new Alaska Credit Facility in the amounts of $210.0 million under the term loan and $10.0 million under the Alaska Revolving Facility. Pursuant to the Alaska Credit Facility, principal payments are due quarterly commencing in the fourth quarter of 2023 and Alaska Communications is required to maintain financial ratios including a maximum Consolidated Net Total Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio (each as defined in the Alaska Credit Facility). While the Alaska Credit Facility is non-recourse to us, is guaranteed by the parent company to Alaska Communications and is secured by substantially all of the personal property and certain material real property owned by Alaska Communications, its parent company and its wholly-owned subsidiaries.
The Alaska Credit Facility provides for events of default customary for credit facilities of this type, including non-payment defaults on other debt, misrepresentation, breach of covenants, representations and warranties, change of control, and insolvency and bankruptcy. We are also subject to credit risk related to our counterparties on the swaps and to interest rate fluctuations on interest generated by our debt in excess of the notional term loans referenced above. Any failure to comply with the restrictions of the Alaska Credit Facility or any subsequent financing agreements may result in an event of default. Such default may allow our creditors to accelerate the repayment of the related debt and may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applies. In addition, these creditors may be effectively implemented,able to terminate any commitments they had made to provide us with further funds.
The Rural Health Care program in Alaska is being audited by USAC, and we may be subject to forfeiture or fine.
Alaska Communications participates in the Universal Service Administration’s (“USAC”) Rural Health Care program and received inquiries and requests for information from USAC, which administers the program, in connection with both current funding requests and, beginning with a letter dated June 2, 2017 from USAC’s auditors, prior period support payments. After Alaska Communications responded to the initial request for information about support payments prior to 2017, USAC’s auditors asked Alaska Communications to comment on some preliminary audit findings, and it responded with a letter dated December 21, 2018. On February 24, 2020, Alaska Communications received a draft audit report from USAC that they will be administeredalleges 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 engaged in dialogue with USAC’s auditors and looks forward to resolving all of USAC’s concerns.
Alaska Communications also received a fairLetter of Inquiry on March 18, 2018, from the FCC Enforcement Bureau requesting historical information regarding its participation in the FCC’s Rural Health Care program. In response, Alaska Communications produced voluminous records throughout 2018 and transparent manner. We believe our existing, exclusive licenseinto the first quarter of 2019. On November 5, 2019 and January 22, 2021 Alaska Communications received additional letters from the FCC Enforcement Bureau requesting additional information, to which it responded. To date, the FCC’s Enforcement Bureau has not asserted any claims or alleged any rule violations. Alaska Communications continues to be valid unless and until such time as we enter into an alternative arrangementwork constructively with the Government, however,FCC’s Enforcement Bureau to provide it the information it is seeking.
Similar audits of other companies have resulted in the FCC recouping certain previously awarded support funds, which could have a material adverse effect on our business, financial position, results of operations, and liquidity. At this time, we cannot predict the outcome of the USAC audit or the FCC Enforcement Bureau’s inquiry or the impact it may have on our business, financial condition, results of operations or liquidity.
Any change in federal or state funding could materially and adversely impact Alaska Communications’ financial position and results of operations.
Alaska Communications historically received federal high cost universal service payment revenues to support its wireline operations in high cost areas. In 2011, the FCC released a Transformation Order that established a new framework for high cost universal service support for price capped carriers that replaced existing support mechanisms that provide support to carriers that serve high-cost areas with new Connect America Fund (“CAF”) support mechanisms and service obligations that are focused on broadband Internet access services.
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The FCC released its CAF Phase II order, specific to Alaska Communications as the only price capped carrier in Alaska, on October 31, 2016, pursuant to which Alaska Communications receives approximately [$19.7] million annually in order to meet certain buildout requirements in Alaska over a 10 year period. Funding under these circumstances, therethe new program generally requires Alaska Communications to provide broadband service to unserved locations throughout the designated coverage area by the end of a specified build-out period, and meet interim milestone build-out obligations. As a result, while Alaska Communications currently expects its High Cost Program support revenue to be relatively unchanged for the next five years, it also expects that the FCC will enact substantial changes regarding our High Cost Program support funding after 2025.
There can be no assurance that Alaska Communications will meet its CAF Phase II obligations utilizing the delivery of broadband Internet access using a fixed wireless platform in a capital-efficient manner or at all, and there is uncertainty regarding the future level of revenue as well as the future obligations tied to this funding. If Alaska Communications fails to meet its obligations under the CAF Phase II order, or requires substantial additional capital expenditures in order to meet the obligations under the timeline required, its revenue, results of operations and liquidity may be materially adversely impacted.
Labor costs and the terms of Alaska Communications’ principal collective bargaining agreement can negatively impact its ability to remain competitive, which could cause our discussionsfinancial performance to suffer.
Labor costs are a significant component of Alaska Communications’ expenses and, as of December 31, 2020, approximately 54% of its workforce is represented by the International Brotherhood of Electrical Workers (“IBEW”). The collective bargaining agreement (“CBA”) between Alaska Communications and the IBEW, which is effective through December 31, 2023, governs the terms and conditions of employment for all IBEW represented employees working for Alaska Communications and has significant economic impacts on it as the CBA relates to wage and benefit costs and work rules. We believe Alaska Communications’ labor costs are higher than our competitors who employ a non-unionized workforce because Alaska Communications is required by the CBA to contribute to the IBEW Health and Welfare Trust and the Alaska Electrical Pension Fund (“AEPF”) for benefit programs, including defined benefit pension plans and health benefit plans, that are not reflective of the competitive marketplace. Furthermore, work rules under the existing agreement limit Alaska Communications’ ability to efficiently manage its workforce and make the incremental cost of work performed outside normal work hours high. In addition, Alaska Communications may make strategic and operational decisions that require the consent of the IBEW. The IBEW may not provide consent when needed to execute upon strategic new initiatives or cost saving measures, it may require additional wages, benefits or other consideration be paid in return for its consent, or it may call for a work stoppage against Alaska Communications. Any deterioration in the relationship with the GovernmentIBEW would have a negative impact on its operations and on our ability to achieve our plans for growth in Alaska.
Alaska Communications may incur substantial and unexpected liabilities arising out of Guyanaits pension plans.
Alaska Communications is required by the CBA to contribute to the AEPF for benefit programs, including defined benefit pension plans and health benefit plans. Alaska Communications also maintains pension benefits for substantially all of its Alaska-based employees. The AEPF is a multi-employer pension plan to which Alaska Communications makes fixed, per employee, contributions through the CBA, which covers the IBEW represented workforce, and a special agreement, which covers most of its non-represented workforce. Because contribution requirements are fixed, Alaska Communications cannot easily adjust annual plan contributions to address its own financial circumstances. Currently, this plan is not fully funded, which means Alaska Communications may be subject to increased contribution obligations, penalties, and ultimately, it could incur a contingent withdrawal liability should it choose to withdraw from the AEPF for economic reasons. Alaska Communications’ contingent withdrawal liability is an amount based on its pro-rata share among AEPF participants of the value of the funding shortfall. This contingent liability becomes due and payable if Alaska Communications terminates its participation in the AEPF. Moreover, if another participant in the AEPF goes bankrupt, Alaska Communications would become liable for a pro-rata share of the bankrupt participant’s vested, but unpaid, liability for accrued benefits for that participant’s employees. This could result in a substantial unexpected contribution requirement and making such a contribution
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could have a material adverse effect on Alaska Communications’ cash position and other financial results. These sources of potential liability are difficult to predict.
These plans and activities have and will resumegenerate substantial cash requirements for Alaska Communications, and these requirements may increase beyond our expectations in future years based on changing market conditions could result in substantial liabilities on our balance sheet. The difference between projected plan obligations and assets, or the funded status of the plans, is a significant factor in determining the net periodic benefit costs of these pension plans and the ongoing funding requirements of those plans. Changes in interest rates, mortality rates, health care costs, early retirement rates, returns on investment and the market value of plan assets can affect the funded status of our defined benefit pension and cause volatility in the net periodic benefit cost and future funding requirements of the plans. In the future, we may be concluded,required to make additional contributions to our defined benefit plan. Plan liabilities may impair our liquidity, have an unfavorable impact on our ability to obtain financing and place us at a competitive disadvantage compared to some of our competitors who do not have such liabilities and cash requirements.
Given the complexity of pension-related matters we may not, in every instance, be in full compliance with applicable requirements.
The lack of liquidity of our privately held investments may adversely affect our business.
Our subsidiaries and affiliates are typically private companies whose securities are not traded in any public market. In the past, we have partnered with other equity investors as well, and may have majority or minority holdings in certain investments. Investment agreements for both our majority and minority held subsidiaries often contain investor rights and obligations, such as rights of first refusal, co-sale, and "drag along" provisions related to liquidity events and transfers that may force us to sell or exit our holdings at times or on terms that are not optimal or limit our ability to sell or exit our holdings when we would like to. The illiquidity of our investments may make it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises to satisfy the repurchase of such investments from our other equity investors in the event such company desires, or in the case of our Alaska Transaction, may be required to repurchase such securities pursuant to contractual arrangements. Such illiquidity could also cause us to miss other investment opportunities. There can also be no assurance that the Company’s investments will appreciate in value or that it will have the opportunity to divest such discussions will satisfactorily addressinvestments at acceptable prices or within the timeline envisaged because of market conditions. If any of the above circumstances arise, it could result in impairments to such investments, and could have a material adverse impact on our contractual exclusivity rights. Although we believe that we would be entitled to damages or other compensation for any involuntary termination of our contractual exclusivity rights, we cannot guarantee that we would prevail in a proceeding to enforce our rights.earnings, cash flow and financial condition.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 $30.9$28.7 million available to be repurchased under that plan as of SeptemberJune 30, 2020.2021.
The following table reflects the repurchases by us of our common stock during the quarter ended SeptemberJune 30, 2020:2021:
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| | | | | | | (c) | | Approximate |
| | | | | | | (c) | | Approximate | ||
| | | | (b) | | Total Number of | | Dollar Value) of |
| | | | (b) | | Total Number of | | Dollar Value) of | ||||
| | (a) | | Average | | Shares Purchased | | Shares that May |
| | (a) | | Average | | Shares Purchased | | Shares that May | ||||
| | Total Number | | Price | | as Part of Publicly | | be Purchased |
| | Total Number | | Price | | as Part of Publicly | | be Purchased | ||||
| | of Shares | | Paid per | | Announced Plans | | Under the Plans or |
| | of Shares | | Paid per | | Announced Plans | | Under the Plans or | ||||
Period | | Purchased | | Share | | or Programs | | Programs |
| | Purchased | | Share | | or Programs | | Programs | ||||
July 1, 2020 — July 31, 2020 |
| — | | $ | — | | — | | $ | 35,078,237 | | ||||||||||
August 1, 2020 — August 31, 2020 |
| — | | | — | | — | | | 35,078,237 | | ||||||||||
September 1, 2020 — September 30, 2020 |
| 80,754 | | | 51.27 | | 80,754 | | | 30,938,016 | | ||||||||||
April 1, 2021 — April 30, 2021 |
| 10,594 | (1) | $ | 45.94 | | 9,800 | | $ | 29,948,001 | |||||||||||
May 1, 2021 — May 31, 2021 |
| 3,073 | | | 45.96 | | 3,073 | | | 29,806,778 | |||||||||||
June 1, 2021 — June 30, 2021 |
| 23,761 | | | 45.76 | | 23,761 | | | 28,719,383 |
(1) | Includes 794 shares purchased on April 30, 2021 from our executive officers and other employees who tendered these shares to us to satisfy their tax withholding obligations incurred in connection with the vesting of restricted stock awards at such date. These shares were not purchased under the 2016 Repurchase Plan discussed above. The price paid per share was the closing price per share of our common stock on the Nasdaq Stock Market on the date those shares were purchased. |
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Item 6. Exhibits:
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10.1# | | ||||
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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.
# Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission.
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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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