UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20232024
OR
| |
☐ | 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 $.01 per share | ATNI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large accelerated filer ◻ | | Accelerated filer ⌧ |
| | |
Non-accelerated filer ◻ | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ⌧
As of May 10, 2023,2024, the registrant had outstanding 15,738,57615,317,229 shares of its common stock ($.01 par value).
ATN INTERNATIONAL, INC.
FORM 10-Q
Quarter Ended March 31, 20232024
| | |
3 | ||
| | |
4 | ||
| | |
4 | ||
| | |
| Condensed Consolidated Balance Sheets at March 31, | 4 |
| | |
| 5 | |
| | |
| 6 | |
| | |
| 7 | |
| | |
| 8 | |
| | |
| Notes to Unaudited Condensed Consolidated Financial Statements |
|
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
| | |
57 | ||
| | |
58 | ||
| | |
58 | ||
| | |
58 | ||
| | |
58 | ||
| | |
| ||
| | |
| ||
| | |
| ||
| | |
| ||
| | |
CERTIFICATIONS | |
2
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations, including our expectations regarding the benefits of our acquisition of Alaska Communications;operations; the impact of federal support program revenues; expectations regarding future revenue, operating income, EBITDA and capital expenditures; expectations regarding our ability to refinance our existing debt and/or obtain additional financing on or before the maturity of our 2019 CoBank Credit Facility; the competitive environment in our key markets, demand for our services and industry trends; our expectations regarding construction progress under our agreement as part of the FirstNet Transaction and the effect such progress will have on our financial results; expectations regarding litigation; our liquidity; and management’s plans and strategy for the future. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) our ability to successfully transition our U.S. Telecom business away from wholesale wireless to other carrier and consumer-based services; (2) our ability to replace and remove all ZTE equipment in our U.S. network, as required by the FCC in a timely and cost-effective manner; (3) the general performance of our operations, including operating margins, revenues, capital expenditures, and the retention of and future growth of our subscriber base and average revenue per user; (4)ARPU; (2) our ability to realizereplace and remove all prohibited mobile telecommunications equipment in our U.S. network on the timeframe and at the cost synergies and expansion plans for our newly acquired Alaska Communications business; (5)approved by the FCC; (3) our ability to satisfy the needs and demands of our major carrier customers; (4) government funding program availability and regulation of our businesses, which may impact our revenue, operating costs, and telecommunications licenses; (5) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (6) our ability to efficiently and cost-effectively upgrade our networks and ITinformation technology platforms to address rapid and significant technological changes in the telecommunications industry; (7) government fundingcontinued access to capital and subsidy program availability and regulation of our businesses, which may impact our revenue, expansion plans and operating costs;credit markets on terms we deem favorable; (8) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (9) economic,our ability to continue to cost-effectively service our debt to levels needed to fund our business given rising interest rates; (10) our estimated plan with respect to material construction projects and the effect such progress will have on our financial results; (11) increased risk of political, geopolitical and other risks and opportunities facing our operations, including those resulting from the pandemic, geopolitical tensions, including the invasionpersistence of Ukraine,high inflation and from inflation,other macroeconomic headwinds including increased costs and supply chain disruptions; (10)(12) the loss of, or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (11)(13) our ability to find investment or acquisition or disposition opportunities that fit our strategic goals; (12)(14) the occurrence of weather events and natural catastrophes and our ability to secure the appropriate level of insurance coverage for ourthese assets; (13)and (15) increased competition; (14) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (15) our continued access to capital and credit markets, including our ability to extend or refinance our current credit facility; 16) our ability to successfully recognize the expected benefits of our acquisition of Sacred Wind Enterprises. competition. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” in each of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the SEC on March 15, 2023,2024, and the other reports we file from time to time with the SEC. The Company undertakes no obligation and havehas no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.
In this Report, the words “the Company,” “we,” “our,” “ours,” “us” and “ATN” refer to ATN International, Inc. and its subsidiaries. This Report contains trademarks, service marks and trade names that are the property of, or licensed by, ATN and its subsidiaries.
References to dollars ($) refer to US dollars unless otherwise specifically indicated.
3
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
| | | | | | | | | | | | |
| | March 31, | | December 31, | | March 31, | | December 31, | ||||
|
| 2023 |
| 2022 |
| 2024 |
| 2023 | ||||
ASSETS | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 56,016 | | $ | 54,660 | | $ | 56,467 | | $ | 49,225 |
Restricted cash | |
| 4,961 | |
| 5,068 | |
| 12,751 | |
| 12,942 |
Short-term investments | |
| 300 | |
| 300 | |
| 300 | |
| 300 |
Accounts receivable, net of allowances for credit losses of $16.0 million and $15.2 million, respectively | |
| 84,483 | |
| 86,816 | ||||||
Accounts receivable, net of allowances for credit losses of $16.9 million and $16.4 million, respectively | |
| 138,456 | |
| 138,616 | ||||||
Customer receivable | | | 6,083 | | | 5,803 | | | 7,506 | | | 7,249 |
Inventory, materials and supplies | |
| 18,485 | |
| 17,902 | |
| 16,207 | |
| 19,133 |
Prepayments and other current assets | |
| 61,224 | |
| 59,139 | |
| 58,040 | |
| 53,807 |
Total current assets | |
| 231,552 | |
| 229,688 | |
| 289,727 | |
| 281,272 |
Fixed Assets: | | | | | | | ||||||
Property, plant and equipment | |
| 2,001,455 | |
| 1,977,978 | ||||||
Less accumulated depreciation | |
| (945,092) | |
| (922,024) | ||||||
Net fixed assets | |
| 1,056,363 | |
| 1,055,954 | ||||||
| | | | | | | ||||||
Fixed Assets, net | |
| 1,071,482 | |
| 1,080,659 | ||||||
Telecommunication licenses, net | |
| 113,698 | |
| 113,698 | |
| 113,319 | |
| 113,319 |
Goodwill | |
| 40,104 | |
| 40,104 | |
| 40,104 | |
| 40,104 |
Intangible assets, net | |
| 28,823 | |
| 31,992 | |
| 17,685 | |
| 19,585 |
Operating lease right-of-use assets | |
| 101,953 | |
| 108,702 | |
| 97,735 | |
| 99,335 |
Customer receivable - long term | | | 45,681 | | | 46,706 | | | 45,165 | | | 45,676 |
Other assets | |
| 81,841 | |
| 81,025 | |
| 103,937 | |
| 103,764 |
Total assets | | $ | 1,700,015 | | $ | 1,707,869 | | $ | 1,779,154 | | $ | 1,783,714 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 11,537 | | $ | 6,173 | | $ | 20,476 | | $ | 24,290 |
Current portion of customer receivable credit facility | | | 6,574 | | | 6,073 | | | 7,569 | | | 7,110 |
Accounts payable and accrued liabilities | |
| 118,240 | |
| 155,224 | |
| 161,418 | |
| 182,069 |
Dividends payable | |
| 3,323 | |
| 3,310 | |
| 3,757 | |
| 3,701 |
Accrued taxes | |
| 13,611 | |
| 7,335 | |
| 11,642 | |
| 10,876 |
Current portion of lease liabilities | | | 13,785 | | | 15,457 | | | 15,674 | | | 15,164 |
Advance payments and deposits | |
| 38,314 | |
| 39,608 | |
| 53,081 | |
| 49,984 |
Total current liabilities | |
| 205,384 | |
| 233,180 | |
| 273,617 | |
| 293,194 |
Deferred income taxes | |
| 26,697 | |
| 28,650 | |
| 18,123 | |
| 19,775 |
Lease liabilities, excluding current portion | | | 78,360 | | | 83,319 | | | 74,856 | | | 76,936 |
Deferred revenue, long-term | | | 61,611 | | | 64,035 | ||||||
Other liabilities | |
| 137,148 | |
| 138,420 | |
| 76,387 | |
| 74,531 |
Customer receivable credit facility, net of current portion | | | 41,533 | | | 39,275 | | | 40,408 | | | 38,943 |
Long-term debt, excluding current portion | |
| 453,144 | |
| 415,727 | |
| 520,815 | |
| 492,580 |
Total liabilities | |
| 942,266 | |
| 938,571 | |
| 1,065,817 | |
| 1,059,994 |
Redeemable noncontrolling interests: | | | | | | | | | | | | |
Preferred redeemable noncontrolling interests | | | 56,197 | | | 55,152 | | | 61,442 | | | 60,094 |
Common redeemable noncontrolling interests | | | 37,026 | | | 37,317 | | | 23,179 | | | 25,823 |
Total redeemable noncontrolling interests | | | 93,223 | | | 92,469 | | | 84,621 | | | 85,917 |
ATN International, Inc. Stockholders’ Equity: | | | | | | | | | | | | |
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding | |
| — | |
| — | |
| — | |
| — |
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,679,616 and 17,584,057 shares issued, respectively, 15,787,337 and 15,763,341 shares outstanding, respectively | |
| 173 | |
| 173 | ||||||
Treasury stock, at cost; 1,892,279 and 1,820,716 shares, respectively | |
| (76,665) | |
| (73,825) | ||||||
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,845,445 and 17,702,476 shares issued, respectively, 15,501,510 and 15,421,481 shares outstanding, respectively | |
| 173 | |
| 173 | ||||||
Treasury stock, at cost; 2,343,935 and 2,280,995 shares, respectively | |
| (92,463) | |
| (90,447) | ||||||
Additional paid-in capital | |
| 200,015 | |
| 198,449 | |
| 207,551 | |
| 205,797 |
Retained earnings | |
| 437,030 | |
| 449,806 | |
| 405,031 | |
| 417,282 |
Accumulated other comprehensive income | |
| 6,690 | |
| 6,210 | |
| 9,700 | |
| 8,268 |
Total ATN International, Inc. stockholders’ equity | |
| 567,243 | |
| 580,813 | |
| 529,992 | |
| 541,073 |
Noncontrolling interests | |
| 97,283 | |
| 96,016 | |
| 98,724 | |
| 96,730 |
Total equity | |
| 664,526 | |
| 676,829 | |
| 628,716 | |
| 637,803 |
Total liabilities, redeemable noncontrolling interests and equity | | $ | 1,700,015 | | $ | 1,707,869 | | $ | 1,779,154 | | $ | 1,783,714 |
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 MONTHS ENDED MARCH 31, 20232024 AND 20223
(Unaudited)
(In Thousands, Except Per Share Data)
| | | | | | | | | | | | |
| | Three months ended March 31, | | Three months ended March 31, | ||||||||
|
| 2023 |
| 2022 |
| 2024 |
| 2023 | ||||
REVENUE: | | | | | | | | | | | | |
Communication services | | $ | 181,308 | | $ | 166,543 | | $ | 181,268 | | $ | 181,308 |
Construction | | | 590 | | | 1,987 | | | 1,586 | | | 590 |
Other | |
| 3,876 | |
| 3,489 | |
| 3,940 | |
| 3,876 |
Total revenue | |
| 185,774 | |
| 172,019 | |
| 186,794 | |
| 185,774 |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Cost of communication services and other | |
| 79,040 | |
| 73,011 | |
| 80,390 | |
| 79,040 |
Cost of construction revenue | | | 588 | | | 2,033 | | | 1,570 | | | 588 |
Selling, general and administrative | |
| 61,348 | |
| 54,882 | |
| 61,315 | |
| 61,348 |
Stock-based compensation | | | 1,778 | | | 1,461 | | | 1,909 | | | 1,778 |
Transaction-related charges | |
| 13 | |
| 554 | |
| 19 | |
| 13 |
Restructuring expenses | | | 2,887 | | | — | | | 1,190 | | | 2,887 |
Depreciation and amortization | |
| 36,404 | |
| 33,292 | |
| 34,340 | |
| 36,404 |
Amortization of intangibles from acquisitions | | | 3,247 | | | 3,258 | | | 1,980 | | | 3,247 |
(Gain) Loss on disposition of long-lived assets | | | (167) | | | 3,420 | ||||||
Gain on disposition of assets | | | (493) | | | (167) | ||||||
Total operating expenses | |
| 185,138 | |
| 171,911 | |
| 182,220 | |
| 185,138 |
Income from operations | |
| 636 | |
| 108 | |
| 4,574 | |
| 636 |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
Interest income | | | 182 | | | 51 | | | 445 | | | 182 |
Interest expense | |
| (8,807) | |
| (3,363) | |
| (11,520) | |
| (8,807) |
Other income | |
| 194 | |
| 4,199 | |
| 172 | |
| 194 |
Other income (expense) | |
| (8,431) | |
| 887 | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | |
| (7,795) | |
| 995 | ||||||
Income tax (benefit) expense | |
| (740) | |
| 2,952 | ||||||
Other (expense) | |
| (10,903) | |
| (8,431) | ||||||
LOSS BEFORE INCOME TAXES | |
| (6,329) | |
| (7,795) | ||||||
Income tax expense (benefit) | |
| 1,619 | |
| (740) | ||||||
NET LOSS | |
| (7,055) | |
| (1,957) | |
| (7,948) | |
| (7,055) |
Net loss attributable to noncontrolling interests, net of tax benefit of $(0.6) million and $(0.5) million respectively | |
| 1,170 | |
| 1,009 | ||||||
Net loss attributable to noncontrolling interests, net of tax (benefit) expense of $0.3 million and $(0.6) million respectively | |
| 1,633 | |
| 1,170 | ||||||
NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (5,885) | | $ | (948) | | $ | (6,315) | | $ | (5,885) |
NET LOSS PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | | | |
Basic | | $ | (0.44) | | $ | (0.13) | | $ | (0.50) | | $ | (0.44) |
Diluted | | $ | (0.44) | | $ | (0.13) | | $ | (0.50) | | $ | (0.44) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | |
Basic | |
| 15,768 | |
| 15,708 | |
| 15,437 | |
| 15,768 |
Diluted | |
| 15,768 | |
| 15,708 | |
| 15,437 | |
| 15,768 |
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK | | $ | 0.21 | | $ | 0.17 | | $ | 0.24 | | $ | 0.21 |
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 MONTHS ENDED MARCH 31, 20232024 AND 20222023
(Unaudited)
(In Thousands)
| | | | | |
| Three months ended | ||||
| 2023 |
| 2022 | ||
Net loss | $ | (7,055) | | $ | (1,957) |
Other comprehensive income: | | | | | |
Foreign currency translation adjustment |
| 111 | |
| 256 |
Reclassification of loss on pension settlement | | 369 | | | — |
Unrealized gain on derivatives | | — | | | 166 |
Other comprehensive income, net of tax |
| 480 | |
| 422 |
Comprehensive loss |
| (6,575) | |
| (1,535) |
Less: Comprehensive loss attributable to noncontrolling interests |
| 1,170 | |
| 1,009 |
Comprehensive loss attributable to ATN International, Inc. | $ | (5,405) | | $ | (526) |
| | | | | |
| Three months ended | ||||
| 2024 |
| 2023 | ||
Net loss | $ | (7,948) | | $ | (7,055) |
Other comprehensive income: | | | | | |
Foreign currency translation adjustment net of tax expense of $0 and $0 million |
| — | |
| 111 |
Reclassification of loss on pension settlement, net of $0 and $0 million of tax | | — | | | 369 |
Unrealized gain on derivatives net of tax expense of $0.5 million and $0 | | 1,432 | | | — |
Other comprehensive income (loss), net of tax |
| 1,432 | |
| 480 |
Comprehensive loss |
| (6,516) | |
| (6,575) |
Less: Comprehensive (income) loss attributable to noncontrolling interests |
| 1,633 | |
| 1,170 |
Comprehensive loss attributable to ATN International, Inc. | $ | (4,883) | | $ | (5,405) |
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 MARCH 31, 20232024 AND 20222023
(Unaudited)
(In Thousands, Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Equity | Total Equity | ||||||||||||||||||||||||||||||
| | | | 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, December 31, 2022 | $ | 173 | $ | (73,825) | $ | 198,449 | $ | 449,806 | $ | 6,210 | $ | 580,813 | $ | 96,016 | $ | 676,829 | ||||||||||||||||
Purchase of 71,563 shares of common stock |
| — | | (2,840) | | — | | — | | — | | (2,840) | | — | | (2,840) | ||||||||||||||||
Balance, December 31, 2023 | $ | 173 | $ | (90,447) | $ | 205,797 | $ | 417,282 | $ | 8,268 | $ | 541,073 | $ | 96,730 | $ | 637,803 | ||||||||||||||||
Purchase of 62,940 shares of common stock |
| — | | (2,016) | | — | | — | | — | | (2,016) | | — | | (2,016) | ||||||||||||||||
Stock-based compensation |
| — | | — | | 1,634 | | — | | — | | 1,634 | | 144 | | 1,778 |
| — | | — | | 1,754 | | — | | — | | 1,754 | | 155 | | 1,909 |
Dividends declared on common stock ($0.21 per common share) | | — | | — | | — | | (3,315) | | — | | (3,315) | | — | | (3,315) | ||||||||||||||||
Repurchase of noncontrolling interests |
| — | | — | | (68) | | — | | — | | (68) | | (527) | | (595) | ||||||||||||||||
Deemed dividend - redeemable preferred units | | — | | — | | — | | (1,045) | | — | | (1,045) | | — | | (1,045) | ||||||||||||||||
Dividends declared on common stock ($0.24 per common share) | | — | | — | | — | | (3,720) | | — | | (3,720) | | (40) | | (3,760) | ||||||||||||||||
Accrued dividend - redeemable preferred units | | — | | — | | — | | (1,348) | | — | | (1,348) | | — | | (1,348) | ||||||||||||||||
Deemed dividend - redeemable common units | | — | | — | | — | | (2,531) | | — | | (2,531) | | 2,820 | | 289 | | — | | — | | — | | (868) | | — | | (868) | | 3,512 | | 2,644 |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss |
| — | | — | | — | | (5,885) | | — | | (5,885) | | (1,170) | | (7,055) |
| — | | — | | — | | (6,315) | | — | | (6,315) | | (1,633) | | (7,948) |
Other comprehensive income |
| — | | — | | — | | — | | 480 | | 480 | | — | | 480 |
| — | | — | | — | | — | | 1,432 | | 1,432 | | — | | 1,432 |
Total comprehensive income (loss) | | — | | — | | — | | (5,885) | | 480 |
| (5,405) |
| (1,170) |
| (6,575) | | — | | — | | — | | (6,315) | | 1,432 |
| (4,883) |
| (1,633) |
| (6,516) |
Balance, March 31, 2023 | $ | 173 | $ | (76,665) | $ | 200,015 | $ | 437,030 | $ | 6,690 | $ | 567,243 | $ | 97,283 | $ | 664,526 | ||||||||||||||||
Balance, March 31, 2024 | $ | 173 | $ | (92,463) | $ | 207,551 | $ | 405,031 | $ | 9,700 | $ | 529,992 | $ | 98,724 | $ | 628,716 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2021 | $ | 172 | $ | (71,714) | $ | 192,132 | $ | 475,887 | $ | 4,773 | $ | 601,250 | $ | 101,003 | $ | 702,253 | ||||||||||||||||
Purchase of 56,284 shares of common stock |
| — | | (2,081) | | — | | — | | — | | (2,081) | | — | | (2,081) | ||||||||||||||||
Balance, December 31, 2022 | $ | 173 | $ | (73,825) | $ | 198,449 | $ | 449,806 | $ | 6,210 | $ | 580,813 | $ | 96,016 | $ | 676,829 | ||||||||||||||||
Purchase of 71,563 shares of common stock |
| — | | (2,840) | | — | | — | | — | | (2,840) | | — | | (2,840) | ||||||||||||||||
Stock-based compensation | | — | | — | | 1,310 | | — | | — | | 1,310 | | 150 | | 1,460 | | — | | — | | 1,634 | | — | | — | | 1,634 | | 144 | | 1,778 |
Dividends declared on common stock ($0.17 per common share) | | — | | — | | — | | (2,675) | | — | | (2,675) | | (263) | | (2,938) | ||||||||||||||||
Dividends declared on common stock ($0.21 per common share) | | — | | — | | — | | (3,315) | | — | | (3,315) | | — | | (3,315) | ||||||||||||||||
Repurchase of noncontrolling interests | | — | | — | | (278) | | — | | — | | (278) | | (2,205) | | (2,483) | | — | | — | | (68) | | — | | — | | (68) | | (527) | | (595) |
Accrued dividend - redeemable preferred units | | — | | — | | — | | (1,116) | | — | | (1,116) | | — | | (1,116) | | — | | — | | — | | (1,045) | | — | | (1,045) | | — | | (1,045) |
Deemed dividend - redeemable common units | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (2,531) | | — | | (2,531) | | 2,820 | | 289 |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) |
| — | | — | | — | | (2,040) | | — | | (2,040) | | 83 | | (1,957) |
| — | | — | | — | | (5,885) | | — | | (5,885) | | (1,170) | | (7,055) |
Other comprehensive income (loss) |
| — | | — | | — | | — | | 422 | | 422 | | — | | 422 |
| — | | — | | — | | — | | 480 | | 480 | | — | | 480 |
Total comprehensive income (loss) | | — | | — | | — | | (2,040) | | 422 |
| (1,618) |
| 83 |
| (1,535) | | — | | — | | — | | (5,885) | | 480 |
| (5,405) |
| (1,170) |
| (6,575) |
Balance, March 31, 2022 | $ | 172 | $ | (73,795) | $ | 193,164 | $ | 470,056 | $ | 5,195 | $ | 594,792 | $ | 98,768 | $ | 693,560 | ||||||||||||||||
Balance, March 31, 2023 | $ | 173 | $ | (76,665) | $ | 200,015 | $ | 437,030 | $ | 6,690 | $ | 567,243 | $ | 97,283 | $ | 664,526 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 20232024 AND 20222023
(Unaudited)
(In Thousands)
| | | | | |
| Three Months Ended March 31, | ||||
| 2023 |
| 2022 | ||
Cash flows from operating activities: | | | | | |
Net loss | $ | (7,055) | | $ | (1,957) |
Adjustments to reconcile net loss to net cash flows provided by operating activities: | | | | | |
Depreciation and amortization | | 36,404 | |
| 33,292 |
Amortization of intangibles from acquisitions | | 3,247 | | | 3,258 |
Provision for doubtful accounts | | 1,378 | |
| 1,913 |
Amortization of debt discount and debt issuance costs | | 569 | |
| 501 |
(Gain) loss on disposition of long-lived assets | | (167) | | | 3,420 |
Stock-based compensation | | 1,778 | |
| 1,461 |
Deferred income taxes | | (1,953) | |
| 191 |
Loss on pension settlement | | 369 | | | — |
Gain on equity investments | | (315) | | | (4,222) |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | |
Accounts receivable | | 3,573 | |
| 1,677 |
Customer receivable | | 745 | | | (746) |
Prepaid income taxes | | 679 | |
| 6,206 |
Accrued taxes | | 6,953 | |
| 2,763 |
Materials and supplies, prepayments, and other current assets | | (3,503) | |
| (5,330) |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | (24,548) | |
| (27,465) |
Other assets | | 141 | | | (325) |
Other liabilities | | (2,283) | |
| (3,249) |
Net cash provided by operating activities |
| 16,012 | |
| 11,388 |
Cash flows from investing activities: | | | | | |
Capital expenditures |
| (50,598) | |
| (34,220) |
Government capital programs | | | | | |
Amounts disbursed | | (2,127) | | | (248) |
Amounts received | | 593 | | | — |
Purchases of strategic investments | | (630) | | | — |
Net cash used in investing activities |
| (52,762) | |
| (34,468) |
Cash flows from financing activities: | | | | | |
Dividends paid on common stock |
| (3,310) | |
| (2,672) |
Distributions to noncontrolling interests |
| — | |
| (263) |
Payment of debt issuance costs |
| (119) | |
| — |
Finance lease payment | | (249) | | | (338) |
Term loan - repayments |
| (1,171) | |
| (938) |
Revolving credit facility – borrowings | | 57,553 | | | 36,500 |
Revolving credit facility – repayments | | (14,000) | | | (15,500) |
Proceeds from customer receivable credit facility |
| 4,300 | |
| 8,000 |
Repayment of customer receivable credit facility | | (1,570) | | | (1,003) |
Purchases of common stock – stock- based compensation | | (1,433) | | | (1,136) |
Purchases of common stock – share repurchase plan | | (1,407) | | | (941) |
Repurchases of noncontrolling interests | | (595) | | | (2,481) |
Net cash provided by financing activities |
| 37,999 | |
| 19,228 |
Net change in cash, cash equivalents, and restricted cash |
| 1,249 | |
| (3,852) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 59,728 | |
| 80,697 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 60,977 | | $ | 76,845 |
Noncash investing activity: | | | | | |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 16,208 | | $ | 13,221 |
| | | | | |
| Three Months Ended March 31, | ||||
| 2024 |
| 2023 | ||
Cash flows from operating activities: | | | | | |
Net loss | $ | (7,948) | | $ | (7,055) |
Adjustments to reconcile net loss to net cash flows provided by operating activities: | | | | | |
Depreciation and amortization | | 34,340 | |
| 36,404 |
Amortization of intangibles from acquisitions | | 1,980 | | | 3,247 |
Provision for doubtful accounts | | 1,322 | |
| 1,378 |
Amortization of debt discount and debt issuance costs | | 625 | |
| 569 |
Gain on disposition of assets and contingent consideration | | (493) | | | (167) |
Stock-based compensation | | 1,909 | |
| 1,778 |
Deferred income taxes | | (2,181) | |
| (1,953) |
Loss on pension settlement | | — | | | 369 |
Gain on investments | | (170) | | | (315) |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | |
Accounts receivable | | 2,183 | |
| 3,573 |
Customer receivable | | 254 | | | 745 |
Prepaid income taxes | | — | |
| 679 |
Accrued taxes | | 3,966 | |
| 6,953 |
Materials and supplies, prepayments, and other current assets | | (626) | |
| (3,503) |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | (9,624) | |
| (24,548) |
Other assets | | 340 | | | 141 |
Other liabilities | | (2,701) | |
| (2,283) |
Net cash provided by operating activities |
| 23,176 | |
| 16,012 |
Cash flows from investing activities: | | | | | |
Capital expenditures |
| (36,016) | |
| (50,598) |
Government capital programs | | | | | |
Amounts disbursed | | (13,473) | | | (2,127) |
Amounts received | | 10,546 | | | 593 |
Purchases of strategic investments | | — | | | (630) |
Purchase of intangible assets | | (573) | | | — |
Purchase of investments - employee benefit plan | | (25) | | | — |
Proceeds from investments - employee benefit plan | | 201 | | | — |
Proceeds from sale of assets | | 3,655 | | | — |
Net cash used in investing activities |
| (35,685) | |
| (52,762) |
Cash flows from financing activities: | | | | | |
Dividends paid on common stock |
| (3,701) | |
| (3,310) |
Payment of debt issuance costs |
| (72) | |
| (119) |
Finance lease payments | | (443) | | | (249) |
Term loan - repayments |
| (3,801) | |
| (1,171) |
Revolving credit facility – borrowings | | 46,000 | | | 57,553 |
Revolving credit facility – repayments | | (18,302) | | | (14,000) |
Proceeds from customer receivable credit facility |
| 3,700 | |
| 4,300 |
Repayment of customer receivable credit facility | | (1,804) | | | (1,570) |
Purchases of common stock – stock- based compensation | | (1,896) | | | (1,433) |
Purchases of common stock – share repurchase plan | | (121) | | | (1,407) |
Repurchases of noncontrolling interests | | — | | | (595) |
Net cash provided by financing activities |
| 19,560 | |
| 37,999 |
Net change in cash, cash equivalents, and restricted cash |
| 7,051 | |
| 1,249 |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 62,167 | |
| 59,728 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 69,218 | | $ | 60,977 |
Supplemental cash flow information: | | | | | |
Interest paid | $ | 10,291 | | $ | 6,711 |
Taxes paid | $ | 748 | | $ | 29 |
Dividends declared, not paid | $ | 3,720 | | $ | 3,315 |
Noncash investing activity: | | | | | |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | | | | | |
Amounts accrued for reimbursable capital expenditures from government capital programs | $ | 33,446 | | $ | 1,435 |
Amounts accrued for non-reimbursable capital expenditures | $ | 14,032 | | $ | 14,773 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
8
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND BUSINESS OPERATIONS
The Company providesis a leading provider of digital infrastructure and communications services with a focus on rural and remote markets in the United States, and internationally, including inBermuda and the Caribbean region, with a focus on smaller markets, many of which are rural or remote, with a growing demand for infrastructure investments, Through its operating subsidiaries, it primarily provides: (i) carrier and enterprise communications services, such as terrestrial and submarine fiber optic transport, and communications tower facilities; and (ii) fixed and mobile telecommunications connectivity to residential, business and government customers, including a range of high-speed internet and data services, fixed and mobile wireless solutions, and video and voice services.region.
At the holding company level, the Company oversees the allocation of capital within and among its subsidiaries, affiliates, new investments, and stockholders. The Company has developed significant operational expertise and resources that it uses to augment theits capabilities of its individual operating subsidiaries in its local markets. The Company has built a platform of resources and expertise toWith this support, itsthe Company’s operating subsidiaries andare able to improve their quality of service with greater economies of scale and expertise than would typically be available atin the operating subsidiary level.size markets they operate in. The Company provides management, technical, financial, regulatory, and marketing services to its operating subsidiaries and typically receivereceives a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. The Company also actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally looklooks for those that it believes fit the Company’s profile of telecommunications businesses and have the potential to complement its “glassthe Company’s “First-to-Fiber” and steel” and “first to fiber”“Glass & Steel™” approach in markets while keeping a focus on generating steady excess operating cash flows over extended periods of time. The Company uses the cash generated from its operations to re-invest in organicmaintain an appropriate ratio of debt and cash on hand and to fund growth in its existing businesses, to make strategic investments in additional businesses, and capital expenditures, to return cash to its investorsstockholders through dividends or stock repurchases.repurchases, and make strategic investments or acquisitions.
For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Notes 1 and 12 to the Consolidated Financial Statements included in this Report.
As of March 31, 2023,2024, the Company offered the following types of services to its customers:
● |
● | Fixed Telecommunications Services. The Company provides fixed data and voice telecommunications services to business and consumer customers. These services include consumer broadband and high-speed data solutions for businesses. For some markets, fixed services also include video services and revenue derived from support under certain government programs. |
● | Carrier Telecommunication Services. The Company delivers services to other telecommunications providers |
● | Managed Services. The Company provides information technology services such as network, application, infrastructure and hosting services to both its business and consumer customers to complement its fixed services in its existing markets. |
As was previously disclosed, and effective January 27, 2021,Through March 31, 2024, the Company no longer provides distributed generation solar power to commercial and industrial customers. These operations were the only operations within the Company’s Renewable Energy segment. As such, the Company no longer identifies the Renewable Energy segment as
9
an operating segment and now has only two operating segments to manage and review its operations and to facilitate investor presentations of its results. These two operating segments are as follows:
● | International |
● | US |
9
2024 the Company provided mobility services to retail customers in the western United States. |
The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which it reports its revenue and the markets it served during the three months ended March 31, 2023:2024:
| | | | | | | | | | |
| | US Telecom | ||||||||
Services | Markets | | Tradenames |
| Services |
| Markets | | Tradenames | |
| Mobility |
|
| |||||||
|
|
|
|
| ||||||
|
|
| | Bermuda, Guyana, US Virgin Islands | | One, GTT, Viya | ||||
| Mobility Services | United States (rural markets) | | Choice, Choice NTUA Wireless | ||||||
Fixed Services | | Bermuda, Cayman Islands, Guyana, US Virgin Islands | | One, Logic, GTT, Viya | | Fixed Services | | United States | | Alaska Communications, Commnet, Choice, Choice NTUA Wireless, Sacred Wind Communications, Ethos, Deploycom |
Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, Essextel, GTT, Viya | | Carrier Services | | United States | | Alaska Communications, Commnet, Sacred Wind Communications |
Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT, Viya, | ||||||
|
|
|
| |||||||
| |
|
|
|
| |||||
|
|
|
|
|
|
| ||||
| Managed Services |
| United States | | Alaska Communications, Choice |
For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 1312 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Liquidity
The Company’s 2019 CoBank Credit Facility matures on April 10, 2024, which is within twelve months of the issuance of these consolidated financial statements. At March 31, 2023, the Company owed $122.0 million for amounts drawn under the credit facility. For the year ended December 31, 2022, the Company generated positive cash flows from operating activities of $102.9 million. At March 31, 2023, the Company had $56.0 million of unrestricted cash and
10
cash equivalents and $5.0 million of restricted cash. If the Company is unable to refinance its existing debt or obtain additional financing on or before the maturity of the 2019 CoBank Credit Facility, this could impact the Company’s ability to meet its obligations coming due within one year after issuance of these consolidated financial statements. Management is actively pursuing debt financing options which would extend the maturity date of the 2019 CoBank Credit Facility and may increase its capacity, and management expects to complete this financing process during 2023. In the event the Company is unable to refinance or replace its 2019 CoBank Credit Facility, the Company has additional actions at its discretion, including reducing capital expenditures not required to sustain current network operations, reducing operating cash outflows such as marketing and general and administrative expenses, and pursuing equity financing through issuance of equity securities in public markets. However, management does not currently believe these additional actions will be required to be implemented due to its debt refinancing plans.
In light of the plans discussed above, management believes it is probable the Company will meet its obligations as they come due for a minimum of twelve months from the issuance date of these consolidated financial statements. However, if the Company were unable to refinance its existing debt, obtain additional financing, or implement the above plans, as needed, there could be an adverse impact on the Company’s operations.
Restructuring Expense
In connection with the repositioning oforder to reduce the Company’s legacy wholesale roaming operations in its US Telecom segment,and International Telecom segments’ cost structure, the Company recorded a $2.9has incurred, since the first quarter of 2023, certain network termination and reduction in force costs totaling $12.4 million restructuring chargethrough March 31, 2024. Of this amount, $1.2 million and $2.9 million were recorded during the three months ended March 31, 2024 and 2023, related torespectively. A summary of the decommissioningcosts, since the first quarter of certain cell sites. 2023, is below (in thousands):
| | | | | | | | | |
| | | US | | | International | | | |
| | | Telecom | | | Telecom | | | Total |
Employee termination benefits | | $ | 1,960 | | $ | 4,681 | | $ | 6,641 |
Contract termination costs | | | 5,777 | | | — | | | 5,777 |
Total | | $ | 7,737 | | $ | 4,681 | | $ | 12,418 |
The charge is recorded in the Restructuring ExpenseExpenses on the Company’s statement of operations. As ofConsolidated Income Statements. During the three months ended March 31, 2023,2024, the Company paid $0.5$2.0 million of the restructuring costs. In total, since the first quarter of 2023 and through March 31, 2024, the Company paid $7.7 million, recorded a gain of $0.3 million on lease termination, and accrued $2.7$5.0 million of the restructuring expenses.costs remain accrued. In conjunction with the restructuring, the Company terminated $5.0certain leases and removed $5.6 million of lease right of use assets and $5.3$5.9 million of lease liabilities from its balance sheet.
10
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for the periods described therein. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the SEC on March 15, 2023.2024.
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.
Recent Accounting Pronouncements
In December 2023, the FASB released ASU 2023-09, titled "Enhancements to Income Tax Disclosures," with the aim of improving the clarity and usefulness of income tax disclosures. The update focuses primarily on enhancing disclosures related to rate reconciliation and income taxes paid. ASU 2023-09 becomes effective for annual reporting periods starting after December 15, 2024, with early adoption permitted. While the changes prescribed by ASU 2023-09 are implemented prospectively, retrospective application is also allowed. The Company has chosen not to early adopt this standard and is currently assessing its potential impact on our consolidated financial statements and accompanying disclosures.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (ASU 2023-07), which requires that a public entity disclose, on an interim and annual basis, significant segment expense categories and amounts that are regularly provided to its chief operating decision maker (CODM) and included in each reported measure of segment profit or loss. An entity must also disclose, by reportable segment, the amount and composition of other expenses. The standard requires an entity to disclose the title and position of its CODM and explain how the CODM uses these reported measures in assessing segment performance and determining how to allocate resources. ASU 2023-07 will be effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 31, 2024, with retrospective application. The standard allows early adoption of these requirements and we are currently evaluating the disclosure impacts of our adoption.
11
3. REVENUE RECOGNITION AND RECEIVABLES
Revenue Accounted for in Accordance with Other Guidance
The Company records revenue in accordance with ASC 606 from contracts with customers and ASC 842 from lease agreements, as well as government grants. Lease revenue recognized under ASC 842 is disclosed in Note 4 and government grant revenue is disclosed in Note 9.8.
Timing of Revenue Recognition
Revenue accounted for in accordance with ASC 606 consisted of the following for the periods presented below.below (in thousands):
| | | | | | | | |
| Three months ended March 31,2024 | |||||||
| International | | US | | | | ||
| Telecom | | Telecom | | Total | |||
Services transferred over time | $ | 88,560 | | $ | 78,043 | | $ | 166,603 |
Goods and services transferred at a point in time | | 3,034 | | | 3,271 | | | 6,305 |
Total revenue accounted for under ASC 606 | $ | 91,594 | | $ | 81,314 | | $ | 172,908 |
Operating lease income | | 72 | | | 2,034 | | | 2,106 |
Government grant revenue (1) | | 1,393 | | | 10,387 | | | 11,780 |
Total revenue | $ | 93,059 | | $ | 93,735 | | $ | 186,794 |
| | | | | | | | | ||||||
| | | | | | | Three months ended March 31,2023 | |||||||
| Three months ended | | International | | US | | | | ||||||
| | March 31, 2023 | | March 31, 2022 | Telecom | | Telecom | | Total | |||||
Services transferred over time | | | | | | | $ | 85,680 | | $ | 81,072 | | $ | 166,752 |
US Telecom | $ | 81,072 | | $ | 72,290 | | ||||||||
International Telecom | | 85,680 | | | 81,302 | | ||||||||
Total | | 166,752 | | | 153,592 | | ||||||||
Goods and services transferred at a point in time | | | | | | | | 3,259 | | | 2,546 | | | 5,805 |
US Telecom | | 2,546 | | | 3,597 | | ||||||||
International Telecom | | 3,259 | | | 2,723 | | ||||||||
Total | | 5,805 | | | 6,320 | | ||||||||
Total revenue accounted for under ASC 606 | | 172,557 | | | 159,912 | | $ | 88,939 | | $ | 83,618 | | $ | 172,557 |
Operating lease income | | 72 | | | 1,831 | | | 1,903 | ||||||
Government grant revenue (1) | | 1,397 | | | 9,917 | | | 11,314 | ||||||
Total revenue | $ | 90,408 | | $ | 95,366 | | $ | 185,774 |
(1) | Revenue recognized from CAF II, USF and RDOF programs. Refer to Note 8. |
Contract Assets and Liabilities
The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from consumer Mobility contracts with both a multiyear service period and a promotional discount. In these contracts, the revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s balance sheets.
Contract liabilities consist of advance payments and billings in excess of revenue recognized. Mobility and Fixed revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including Mobility services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities also include certain long term fixed business and carrier service customer contracts. ContractThe current portion of contract liabilities are recorded in advanced payments and deposits and other liabilitiesthe noncurrent portion is included in deferred revenue, long-term on the Company’s balance sheets.
12
In July 2019, the Company entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC (“AT&T”) andthat was subsequently entered into amendments in August 2020, May 2021 and August 2022amended through March 31, 2024 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, the Company is building a portion of AT&T’s network for the First Responder Network Authority in or near the Company’s current operating areas in the western United States (the “FirstNet Transaction”). The FirstNet Transaction includes construction and service performance obligations. The current portion of receivables under this agreement is recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.
In May 2023, the Company allocatedamended its current roaming agreement and entered into a carrier management services agreement with Verizon Wireless (the “Verizon CMS Agreement”). The transaction includes service performance obligations under which revenue is recognized over time. The Company allocates the transaction price of the FirstNet Agreementthese agreements to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances. The current portion of receivables under this agreement is recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.
12
Contract assets and liabilities consisted of the following (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | | $ Change | | % Change | March 31, 2024 | | December 31, 2023 | | | $ Change | | % Change | |||||||
Contract asset – current | $ | 3,010 | | $ | 2,932 | | $ | 78 | | 3 | % | $ | 3,469 | | $ | 3,616 | | $ | (147) | | | (4.1) | % |
Contract asset – noncurrent | | 3,734 | | | 3,775 | | | (41) | | (1) | % | | 5,490 | | | 5,509 | | | (19) | | | (0.3) | % |
Contract liability – current | | (26,086) | | | (27,284) | | | 1,198 | | 4 | % | | (31,721) | | | (30,990) | | | (731) | | | 2.4 | % |
Contract liability – noncurrent | | (70,444) | | | (72,543) | | | 2,099 | | 3 | % | | (61,611) | | | (64,035) | | | 2,424 | | | (3.8) | % |
Net contract liability | $ | (89,786) | | $ | (93,120) | | $ | 3,334 | | 4 | % | $ | (84,373) | | $ | (85,900) | | $ | 1,527 | | | (1.8) | % |
The contract asset – current is included in prepayments and other current assets and the contract asset – noncurrent is included in other assets on the Company’s balance sheet. The contract liability – current is included in advance payments and deposits and the contract liability – noncurrent is included in other liabilities on the Company’s balance sheet. The decrease in the Company’s net contract liability was due to the timing of customer prepayments, contract billings, and recognition of deferred revenue. During the three months ended March 31, 2023,2024, the Company recognized revenue of $14.816.8 million related to its December 31, 20222023 contract liability and amortized $0.7$1.3 million of the December 31, 20222023 contract asset to revenue.
Contract Acquisition Costs
The March 31, 2024 and 2023 balance sheet includessheets include contract acquisition costs of $11.4 million and $9.0 million, respectively, in other assets. During the three months ended March 31, 20232024 and 2022,2023, the Company amortized $1.11.6 million and $0.8$1.1 million, respectively, of contract acquisition costs.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear Mobility contracts, which include a promotional discount, Managed Services contracts, and the Company’s Carrier Services construction and service contracts. The transaction price allocated to unsatisfied performance obligations was $286463 million and $312$494 million at March 31, 20232024 and December 31, 2022,2023, respectively. The decrease during 2024 was due to the Company satisfying certain performance obligations. The Company expects to satisfy approximately 50%34% of the remaining performance obligations and recognize the transaction price within 24 months and approximately $50 and the remainder thereafter.million annually from 2026 through 2031.
The Company has certain Mobility, Fixed, and Carrier Services contracts where the transaction price is allocated to remaining performance obligations. However, the Company omits these contracts from its disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.
13
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 1312 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision makers for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from Communication Services, Construction, and Other revenue. Communication Services revenue is further disaggregated into business and consumer Mobility, business and consumer Fixed, Carrier Services, and Other services. Other revenue is further disaggregated into Managed Services revenue.
Receivables
The Company records an estimate of future credit losses in conjunction with the revenue transaction based on the information available including historical experience and management’s expectations of future conditions. Those estimates will be updated as additional information becomes available. The Company’s allowance for uncollectible
13
accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.
The Company had gross accounts receivable of $155.3 million and an allowance for credit losses of $16.9 million as of March 31, 2024. In addition, the Company had receivables under the FirstNet Agreement totaling $52.7 million, of which $45.2 million was long-term. At MarchDecember 31, 2023, the Company had gross accounts receivable of $152.3$155.0 million and an allowance for credit losses of $16.0$16.4 million and a receivable under the FirstNet Agreement totaling $51.8$52.9 million, of which $6.1 million was current and $45.7 million was long-term. At December 31, 2022, the Company had gross accounts receivable of $154.5 million, an allowance for credit losses of $15.2 million and a receivable under the FirstNet Agreement totaling $52.5 million, of which $5.8 million was current and $46.7 million was long-term. The Company monitors receivables through the use of historical operating data adjusted for the expectation of future performance as appropriate. Activity in the allowance for credit losses is below:below (in thousands):
| | | | | | | | | | | | |
| | Three months ended | | Three months ended | ||||||||
|
| March 31, 2023 |
| March 31, 2022 |
| March 31, 2024 |
| March 31, 2023 | ||||
| | | | | | | | | | | | |
Balance at beginning of period |
| $ | 15,171 | | $ | 13,885 |
| $ | 16,362 | | $ | 15,171 |
Current period provision for expected losses |
| | 1,378 | | | 1,913 |
| | 1,322 | | | 1,378 |
Write-offs charged against the allowance |
| | (591) | | | (862) |
| | (903) | | | (591) |
Recoveries collected | | | 74 | | | 108 | | | 83 | | | 74 |
Balance at end of period | | $ | 16,032 | | $ | 15,044 | | $ | 16,864 | | $ | 16,032 |
14
4. LEASES
Lessee Disclosure
The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The lease terms are generally between three and 10 years, some of which include additional renewal options.
Supplemental lease information
The components of lease expense were as follows (in thousands):
| | | | | | | | | | |
| Three months ended | Three months ended | ||||||||
| March 31, 2023 |
| March 31, 2022 | March 31, 2024 |
| March 31, 2023 | ||||
Operating lease cost: | | | | | | | | | | |
Operating lease cost | $ | 5,981 | | $ | 6,142 | $ | 5,479 | | $ | 5,981 |
Short-term lease cost | | 677 | | | 509 | | 691 | | | 677 |
Variable lease cost | | 662 | | | 804 | | 1,429 | | | 662 |
Total operating lease cost | $ | 7,320 | | $ | 7,455 | $ | 7,599 | | $ | 7,320 |
| | | | | | | | | | |
Finance lease cost: | | | | | | | | | | |
Amortization of right-of-use asset | $ | 699 | | $ | 797 | $ | 612 | | $ | 699 |
Variable costs | | 203 | | | 248 | | 198 | | | 203 |
Interest costs | | 84 | | | 102 | | 100 | | | 84 |
Total finance lease cost | $ | 986 | | $ | 1,147 | $ | 910 | | $ | 986 |
During the three months ended March 31, 20232024 and 2022,2023, the Company paid $5.0$4.8 million and $5.6$5.0 million, respectively, for operating lease liabilities. During the three months ended March 31, 20232024 and 2022,2023, the Company recorded $2.9$2.3 million and $3.7$2.9 million, respectively, of operating lease liabilities arising from ROUright of use assets. During the three months ended March 31, 2023, in conjunction with the restructuring activities the Company terminated certain leases and removed $5.0
14
million of lease right of use assets and $5.3 million of lease liabilities from its balance sheet, and recordedresulting in the recording of a gain of $0.3 million in the restructuring expense line of its statement of operations.
At March 31, 2023,2024, finance leases with a cost of $27.5$31.7 million and accumulated amortization of $14.1$17.0 million were included in property, plant and equipment. During the three months ended March 31, 2024, the Company paid $0.4 million of financing cash flows and $0.1 million of operating cash flows for finance lease liabilities. During the three months ended March 31, 2023, the Company paid $0.2$0.2 million of financing cash flows, $0.9 million of investing cash flows and $0.1 million of operating cash flows for finance lease liabilities. At March 31, 2023,2024, finance leases had a lease liability of $5.15.2 million, of which $1.0$1.8 million was current.
At December 31, 2022,2023, finance leases with a cost of $26.6$31.7 million and accumulated amortization of $13.5$16.4 million were included in property, plant and equipment.
The weighted average remaining lease terms and discount rates as of March 31, 2023 and December 31, 2022 are noted in the table below:
| | | | | |
| March 31, 2023 | | December 31, 2022 | ||
Weighted-average remaining lease term | | | | | |
Operating leases | | 13.1 years | | | 12.4 years |
Financing leases | | 9.3 years | | | 9.3 years |
| | | | | |
Weighted-average discount rate | | | | | |
Operating leases | | 6.1% | | | 6.0% |
Financing leases | | 6.9% | | | 6.7% |
Maturities of lease liabilities as of March 31, 2023 were as follows (in thousands):
| | | | | |
| Operating Leases | | Financing Leases | ||
2023 (excluding the three months ended March 31, 2023) | | 12,977 | | | 1,045 |
2024 | | 17,023 | | | 1,240 |
2025 | | 13,897 | | | 972 |
2026 | | 9,771 | | | 504 |
2027 | | 7,708 | | | 495 |
Thereafter | | 79,134 | | | 2,651 |
Total lease payments | | 140,510 | | | 6,907 |
Less imputed interest | | (53,450) | | | (1,822) |
Total | $ | 87,060 | | $ | 5,085 |
15
The weighted average remaining lease terms and discount rates as of March 31, 2024 and December 31, 2023 are noted in the table below:
| | | | | |
| March 31, 2024 | | December 31, 2023 | ||
Weighted-average remaining lease term | | | | | |
Operating leases | | 12.9 years | | | 13.3 years |
Financing leases | | 9.2 years | | | 9.2 years |
| | | | | |
Weighted-average discount rate | | | | | |
Operating leases | | 6.6% | | | 6.3% |
Financing leases | | 7.2% | | | 6.6% |
Maturities of lease liabilities as of March 31, 2024 were as follows (in thousands):
| | | | | |
| Operating Leases | | Financing Leases | ||
2024 (excluding the three months ended March 31, 2024) | $ | 13,608 | | $ | 1,614 |
2025 | | 16,800 | | | 1,394 |
2026 | | 12,405 | | | 570 |
2027 | | 9,542 | | | 534 |
2028 | | 7,553 | | | 505 |
Thereafter | | 82,078 | | | 2,145 |
Total lease payments | | 141,986 | | | 6,762 |
Less imputed interest | | (56,664) | | | (1,555) |
Total | $ | 85,322 | | $ | 5,207 |
Maturities of lease liabilities as of December 31, 20222023 were as follows (in thousands):
| | | | | | | | | | |
| Operating Leases | | Financing Leases | Operating Leases | | Financing Leases | ||||
2023 | $ | 19,417 | | $ | 1,403 | |||||
2024 | | 17,836 | | | 1,342 | $ | 18,048 | | $ | 2,030 |
2025 | | 14,805 | | | 978 | | 16,022 | | | 1,488 |
2026 | | 10,505 | | | 504 | | 11,755 | | | 601 |
2027 | | 8,096 | | | 495 | | 9,327 | | | 534 |
2028 | | 7,807 | | | 505 | |||||
Thereafter | | 76,452 | | | 2,651 | | 80,637 | | | 2,145 |
Total lease payments | | 147,111 | | | 7,373 | | 143,596 | | | 7,303 |
Less imputed interest | | (53,794) | | | (1,914) | | (57,133) | | | (1,662) |
Total | $ | 93,317 | | $ | 5,459 | $ | 86,463 | | $ | 5,641 |
As of March 31, 2023,2024, the Company did not have any material operating or finance leases that have not yet commenced.
Lessor Disclosure
The Company is the lessor in agreements to lease the use of its network assets including its wireless cell sites and buildings. For the three months ended March 31, 20232024 and 2022,2023, the Company recorded $1.9$2.1 million and $1.0$1.9 million, respectively, of lease income from agreements in which the Company is the lessor. Lease income is classified as Carrier Services revenue in the statement of operations.
16
The following table presents the maturities of future undiscounted lease payments for the periods indicated:indicated (in thousands):
| | | | |
2023 (excluding the three months ended March 31, 2023) | $ | 4,609 | ||
2024 | | 5,891 | ||
2024 (excluding the three months ended March 31, 2024) | $ | 5,995 | ||
2025 | | 5,716 | | 7,060 |
2026 | | 5,410 | | 6,749 |
2027 | | 4,267 | | 5,559 |
2028 | | 5,180 | ||
Thereafter | | 14,360 | | 13,353 |
Total future lease payments | $ | 40,253 | $ | 43,896 |
5. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates relate to the allowance for credit losses on trade receivables, useful lives of the Company’s fixed and finite-lived intangible assets, allocation of purchase price to assets acquired and liabilities assumed in business combinations, fair value of indefinite-lived intangible assets, goodwill and income taxes. Actual results could differ significantly from those estimates.
16
6. ACQUISITIONS AND DISPOSITIONS
US Telecom
Acquisition of Sacred Wind Enterprises
On November 7, 2022, the Company’s newly formed wholly owned subsidiary Alloy, Inc. (Alloy”) acquired all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), Inc., a rural telecommunications provider in New Mexico for $44.6 million of consideration (“Sacred Wind Transaction”). The purchase price allocation was finalized during the three months ended March 31, 2023. As part of the Sacred Wind Transaction, the Company transferred consideration of $18.0 million of cash, net of $9.4 million of cash acquired, $14.8 million of redeemable noncontrolling interests, and $3.7 million of contingent consideration less $1.3 million of receivables related to working capital adjustments. Upon completion of the Sacred Wind Transaction, the former Sacred Wind shareholders own 6% of the Alloy equity. This equity is classified as redeemable noncontrolling interests in the Company’s financial statements because the holders have an option, beginning in 2026, to put the equity interest to a subsidiary of the Company at the then fair market value. The redeemable noncontrolling interests do not have preference relative to other equity units and participate in gains and losses in Alloy. The contingent consideration is earned based on certain operating metrics of Sacred Wind beginning in 2025 through 2027. The fair value of the contingent consideration was calculated using discounted cash flow analysis based on a range of probability weighted outcomes. The Company funded the acquisition with borrowings under its CoBank Credit Facility and assumed $31.6 million of Sacred Wind debt, to the United States of America administered through the Rural Utilities Service.
The table below represents the purchase price allocation of the total consideration transferred to the acquired assets and assumed liabilities based on management’s estimate of their acquisition date fair values (amounts in thousands):
| | |
Consideration Transferred | $ | 44,560 |
Preliminary purchase price allocation: | | |
Cash and cash equivalents | | 2,619 |
Restricted cash | | 6,747 |
Current assets | | 4,888 |
Operating lease right of use assets | | 989 |
Fixed assets | | 85,255 |
Intangible assets | | 1,232 |
Current liabilities | | (10,176) |
Lease liabilities | | (967) |
Deferred taxes | | (14,388) |
Debt | | (31,639) |
Net assets acquired | $ | 44,560 |
The acquired fixed assets are comprised of telecommunication equipment located in the Southwest United States. The fixed assets were valued using the income and cost approaches. Cash flows were discounted between 7% and 12% based on the risk associated with the cash flows to determine fair value under the income approach. The fixed assets have useful lives ranging from 1 to 25 years. The intangible assets include a $0.6 million trade name. The estimated fair value of the trade name was determined using the relief from royalty method. The useful life of the trade name is 5 years. The acquired receivables consist of trade receivables incurred in the ordinary course of business. The Company expects to collect the full amount of the receivables. Current liabilities includes $6.5 million of deposits received under government grant programs that will be used to construct fixed assets in future periods.
The Company incurred $0.8 million of transaction-related charges pertaining to legal, accounting, consulting services, and employee related costs associated with the transaction during the year ended December 31, 2022.
17
7.6. FAIR VALUE MEASUREMENTS AND INVESTMENTS
In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, and defines fair value based upon an exit price model.
The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
| | |
Level 1 | | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market. |
| | |
Level 2 | | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes corporate obligations and non-exchange traded derivative contracts. |
17
| | |
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. |
Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are summarized as follows (in thousands):
| | | | | | | | | |
| | March 31, 2024 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,076 | | | 1,076 |
Employee benefit plan investments | | | 2,991 | | | — | | | 2,991 |
Alaska Communications redeemable common units | | | — | | | (8,419) | | | (8,419) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (249) | | | (249) |
Total assets and liabilities measured at fair value | | $ | 3,291 | | $ | (22,352) | | $ | (19,061) |
| | | | | | | | | |
| | December 31, 2023 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,197 | | | 1,197 |
Employee benefit plan investments | | | 3,014 | | | — | | | 3,014 |
Alaska Communications redeemable common units | | | — | | | (11,063) | | | (11,063) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (249) | | | (249) |
Total assets and liabilities measured at fair value | | $ | 3,314 | | $ | (24,875) | | $ | (21,561) |
18
Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are summarized as follows (in thousands):
| | | | | | | | | |
| | March 31, 2023 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,694 | | | 1,694 |
Alaska Communications redeemable common units | | | — | | | (22,266) | | | (22,266) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (654) | | | (654) |
Total assets and liabilities measured at fair value | | $ | 300 | | $ | (35,986) | | $ | (35,686) |
| | | | | | | | | |
| | December 31, 2022 | |||||||
| | Significant Other | |||||||
| | Quoted Prices in | | Unobservable | | | | ||
| | Active Markets | | Inputs | | | | ||
Description | | (Level 1) | | (Level 3) | | Total | |||
Short term investments | | $ | 300 | | $ | — | | $ | 300 |
Other investments | | | — | | | 1,616 | | | 1,616 |
Alaska Communications redeemable common units | | | — | | | (22,557) | | | (22,557) |
Alloy redeemable common units | | | — | | | (14,760) | | | (14,760) |
Warrants on Alaska Communications redeemable common units | | | — | | | (654) | | | (654) |
Total assets and liabilities measured at fair value | | $ | 300 | | $ | (36,355) | | $ | (36,055) |
19
Other Investments
The Company holds investments in equity securities consisting of noncontrolling investments in privately held companies. The investments are accounted for using equity method accounting, the measurement alternative for investments without a readily determinable fair value, or fair value. The fair value investments are valued using levelLevel 3 inputs and the Company used the income approach to fair value the investment. The inputs consisted of a discount rate and future cash flows calculated based on the investment attributes. A roll forward of the investments is below:below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Investments without a readily determinable fair value | | Fair value investments | | Equity investments | | Total | | Investments without a readily determinable fair value | | Fair value investments | | Equity method investments | | Total | ||||||||
Balance, December 31, 2023 | | $ | 41,710 | | $ | 1,197 | | $ | — | | $ | 42,907 | ||||||||||||
Income recognized | | | — | | | 19 | | | — | | | 19 | ||||||||||||
Contributions / (distributions) | | | — | | | (140) | | | — | | | (140) | ||||||||||||
Foreign currency gain | | | — | | | — | | | — | | | — | ||||||||||||
Reclassification of foreign currency losses | | | — | | | — | | | — | | | — | ||||||||||||
Transfers | | | — | | | — | | | — | | | — | ||||||||||||
Balance, March 31, 2024 | | $ | 41,710 | | $ | 1,076 | | $ | — | | $ | 42,786 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Balance, December 31, 2022 | | $ | 22,590 | | $ | 1,616 | | $ | 13,963 | | $ | 38,169 | | $ | 22,590 | | $ | 1,616 | | $ | 13,963 | | $ | 38,169 |
Income recognized | | | — | | | 77 | | | 238 | | | 315 | | | — | | | 77 | | | 238 | | | 315 |
Contributions | | | — | | | — | | | 630 | | | 630 | ||||||||||||
Foreign currency gain | | | — | | | — | | | 111 | | | 111 | ||||||||||||
Contributions / (distributions) | | | — | | | — | | | 630 | | | 630 | ||||||||||||
Foreign currency loss | | | — | | | — | | | 111 | | | 111 | ||||||||||||
Balance, March 31, 2023 | | $ | 22,590 | | $ | 1,693 | | $ | 14,942 | | $ | 39,225 | | $ | 22,590 | | $ | 1,693 | | $ | 14,942 | | $ | 39,225 |
| | | | | | | | | | | | | ||||||||||||
Balance, December 31, 2021 | | $ | 17,820 | | $ | 1,925 | | $ | 28,699 | | $ | 48,444 | ||||||||||||
Income (loss) recognized | | | — | | | 99 | | | (662) | | | (563) | ||||||||||||
Foreign currency gain | | | — | | | — | | | 256 | | | 256 | ||||||||||||
Gain recognized | | | 4,770 | | | — | | | — | | | 4,770 | ||||||||||||
Balance, March 31, 2022 | | $ | 22,590 | | $ | 2,024 | | $ | 28,293 | | $ | 52,907 |
During the year ended December 31, 2023, the Company lost the ability to exert significant influence over its India solar investment. As a result, the Company transferred $16.3 million from equity method investments to investments without a readily determinable fair value and the accounting for the investment changed to the cost method from the equity method of accounting.
These investments are included with other assets on the consolidated balance sheets.
Redeemable Common Units and Warrants
The Company has issued redeemable common units, and warrants to purchase additional common units, in consolidated subsidiaries of the Company. The instruments are redeemable at the option of the holder. Both the common units and warrants to purchase common units are recorded at fair value in the Company’s financial statements. The common units are recorded in redeemable noncontrolling interest and the warrants are recorded in other liabilities on the Company’s balance sheets. The put options for the Alloy redeemable common units beginsbegin in November 2026. The put options for the Alaska Communications redeemable common units begin the earlier of a public offering or July 2028. The Company calculates the fair value of the instruments using a combination of market approachand discounted cash flows approaches with Level 3 inputs.
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.
19
The fair value of long-term debt is estimated using Level 2 inputs. At March 31, 2024, the fair value of long-term debt, including the current portion, was $597.4 million and its book value was $589.3 million. At December 31, 2023, the fair value of long-term debt, including the current portion, was $519.0$571.6 million and its book value was $512.8$562.9 million. At December 31, 2022,
7. LONG-TERM DEBT
2023 CoBank Credit Facility
On July 13, 2023, the fair valueCompany, along with certain of long-termits subsidiaries as guarantors, entered into a new Credit Agreement with CoBank, ACB and a syndicate of other lenders (as may be amended from time to time, the “2023 CoBank Credit Facility”).
The 2023 CoBank Credit Facility provides for a five-year $170 million revolving credit facility (the “2023 CoBank Revolving Loan”) and a six-year $130 million term loan facility (the “2023 CoBank Term Loan”). The Company may use (i) up to $25 million under the 2023 CoBank Credit Facility for letters of credit, and (ii) up to $20 million under a swingline sub-facility. Upon the closing of the 2023 CoBank Credit Facility, the Company drew all of the 2023 CoBank Term Loan and approximately $13.6 million of the 2023 CoBank Revolving Loan. These borrowings were used to repay $139.5 million of debt outstanding under the 2019 CoBank Credit Facility at close.
The 2023 CoBank Term Loan must be repaid in quarterly principal payments in the amounts set forth below, with the outstanding principal balance maturing on July 13, 2029. The 2023 CoBank Revolving Loan may be repaid at any time on or prior to its maturity on July 13, 2028. All amounts outstanding under the 2023 CoBank Credit Facility will be due and payable upon the earlier of the maturity date or the acceleration of the loans and commitments upon an event of default.
| |
2023 CoBank Term Loan Quarterly Payment Dates | 2023 CoBank Term Loan Quarterly Repayments |
December 31, 2023 – June 30, 2025 | $812,500 (2.5% per annum) |
September 30, 2025 – June 30, 2026 | $1,625,000 (5% per annum) |
September 30, 2026 – June 30, 2029 | $2,437,500 (7.5% per annum) |
Amounts borrowed under the 2023 CoBank Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York (SOFR) plus an applicable margin ranging between 2.00% to 3.75% for the 2023 CoBank Term Loan or 1.75% to 3.50% for Revolving Loans or (ii) a base rate plus an applicable margin ranging from 1.00% to 2.75% for the Term Loan or 0.75% to 2.50% for the 2023 CoBank Revolving Loans. Swingline loans will 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 one-month SOFR rate (ii) the federal funds effective rate (as defined in the 2023 CoBank Credit Agreement) plus 0.50% per annum; and (iii) the prime rate (as defined in the 2023 CoBank Credit Agreement). The applicable margin is determined based on the ratio (as further defined in the 2023 CoBank Credit Agreement) of the Company’s maximum Total Net Leverage Ratio. Under the terms of the 2023 CoBank Credit Agreement, the Company must also pay a fee ranging from 0.25% to 0.50% on the average daily unused portion of the 2023 CoBank Credit Facility over each calendar quarter.
The 2023 CoBank Credit Agreement contains a financial covenant (as further defined in the 2023 CoBank Credit Agreement) that imposes a maximum Total Net Leverage Ratio, as well as customary representations, warranties and covenants, including the current portion, was $473.7 millioncovenants limiting additional indebtedness, liens, guaranties, mergers and its book value was $467.2 million.consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. The maximum Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 3.25 to 1.0. The 2023 CoBank Credit Agreement provides for events of default customary for credit facilities of this type,
20
including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy.
8. LONG-TERM DEBTThe Company capitalized $4.2 million of fees associated with the 2023 CoBank Credit Facility which are being amortized over the life of the debt and $3.7 million were unamortized as of March 31, 2024.
The Company had $128.4 million outstanding under the 2023 CoBank Term Loan as of March 31, 2024. Under the 2023 CoBank Revolving Loan, the Company had $60.8 million outstanding and $109.2 million of availability as of March 31, 2024. The Company was in compliance with all financial covenants as of March 31, 2024.
In October 2023, the Company entered a two year, forward starting 1-month floating to fixed SOFR interest rate swap agreement. The swap was effective November 13, 2023 in a non-amortizing notional amount of $50.0 million, has a fixed SOFR rate of 4.896% and matures on November 13, 2025.
2019 CoBank Credit Facility
On April 10, 2019, the Company entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (as amended, the “2019 CoBank Credit Facility”). The 2019 CoBank Credit Facility providesprovided for a $200 million revolving credit facility that includesincluded (i) up to $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $24.0 millionIn connection with the execution of performance letters of credit have been issued and remainthe 2023 CoBank Credit Facility, as defined above, outstanding and undrawn as of March 31, 2023. Theborrowings under the 2019 CoBank Credit Facility matures on April 10, 2024. Refer to Liquidity disclosurewere repaid in Note 1 regarding the maturity of the facility.full.
Amounts borrowed under the 2019 CoBank Credit Facility bearbore 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 bearbore interest at the base rate plus the applicable margin for base rate loans. The base rate iswas equal to the higher of (i) 1.00% plus the higher of (x) LIBOR for an interest period of one month and (y) LIBOR for an interest period of one week; (ii) the Federal Funds Effective Rate (as defined in the 2019 CoBank Credit Facility) plus 0.50% per annum; and (iii) the Prime Rate (as defined in the 2019 CoBank Credit Facility). The applicable margin iswas determined based on the Total Net Leverage Ratio (as defined in the 2019 CoBank Credit Facility). Under the terms of the 2019 CoBank Credit Facility, the Company must also paypaid a commitment fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
On November 7, 2022, the Company further amended the 2019 CoBank Credit Facility to allow for the incurrence of certain indebtedness related to payment guarantees in connection with its Replace and Remove project.
On December 28, 2022, the Company further amended the 2019 CoBank Credit Facility, effective November 7, 2022, to allow for certain transactions contemplated with the Sacred Wind Transaction.
The 2019 CoBank Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. The Company’s investments in “unrestricted” subsidiaries and certain dividend payments to 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 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 March 31, 2023, the Company was in compliance with all of the financial covenants, had $122.0 million outstanding and $54.0 million of availability in connection with the 2019 CoBank Credit Facility. There are no outstanding interest rate hedge agreements under the 2019 CoBank Credit Facility as of March 31, 2023.
Letter of Credit Facility
On November 14, 2022, the Company entered into a General Agreement of Indemnity to issue performance Standby Letters of Credit on behalf of the Company and its subsidiaries. As of March 31, 2023,2024, $4.232.4 million of Standby Letters of Credit had been issued under this agreement.
21
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a Credit Agreement (the “Alaska Credit Facility”) with Fifth Third Bank, National Association, as Administrative Agent, and a syndicate of lenders to provide a $35.0 million revolving facility (the “Alaska Revolving Facility”) and a $210.0 million initial term loan facility (the “Alaska Term Loan”).
On December 23, 2022, Alaska Communications entered into a First Amendment Agreement (the “ACS Amendment’Amendment”). The ACS Amendment amends the Alaska Credit Facility to increase its Revolving Credit Commitment from $35.0 million to $75.0 million and Term Loan Commitment from $210$210.0 million to $230$230.0 million. As a part of the transaction, the Term Loan commitment was fully funded as the outstanding Revolving Credit Commitment balance was transferred.
21
As of March 31, 2023,2024, Alaska Communications had drawn $17.0$40.0 million on its Revolving Credit Commitment and had $58.0$35.0 million is available to draw. The Term Loan balance was $230.0$227.1 million and principal payments commencecommenced in the fourth quarter of 2023. Both facilities mature on July 22, 20262026.
In addition to the above changes, the ACS Amendment replaced the calculation of interest from an applicable margin applied to LIBOR with the same applicable margin applied to the Secured Overnight Financing Rate (“SOFR”) plus a 10-basis point adjustment.
The CompanyAlaska Communications capitalized $7.3 million of fees associated with the Alaska Credit Facility which are being amortized over the life of the debt and $5.0$3.5 million were unamortized as of March 31, 2023.2024.
The Alaska Credit Facility also provides for incremental facilities up to an aggregate principal amount of the greater of $70.0 million and Alaska Communications’ trailing twelve-month Consolidated EBITDA (as defined in the Alaska Credit Facility).
The key terms and conditions of the Alaska Credit Facility include the following:
● | Amounts outstanding bear an interest rate of the forward-looking SOFR rate with a |
● | Principal repayments are due quarterly |
● | Alaska Communications is required to maintain financial ratios as defined in the Alaska Credit Facility, including (a) a maximum Consolidated Net Total Leverage Ratio of 4.00 to 1, stepping down to 3.75 to 1 beginning with the second quarter of 2024; and (b) a minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1; and |
● | The Alaska Credit Facility is non-recourse to the Company and is secured by substantially all of the personal property and certain material real property owned by Alaska Communications. |
Alaska Communication’s interest rate swap, which had been designated as a cash flow hedge with an interest rate of 1.6735%, expired on June 30, 2022. As of March 31,In November 2023, there areAlaska Communications entered no outstandingtwo forward starting 1-month floating to fixed SOFR interest rate hedgeswap agreements. The total non-amortizing notional amount of the agreements associatedis $200.0 million, with the Alaska Credit Facility.fixed SOFR rates of 4.8695% and 4.8980% and both agreements mature on June 30, 2025.
22
Alaska Term Facility
On June 15, 2022, Alaska Communications Systems Holdings, the parent company of Alaska Communications, entered into a secured lending arrangement with Bristol Bay Industrial, LLC.LLC (the “Alaska Term Facility”).
The Alaska Term Facility providesprovided for a secured delayed draw term loan in an aggregate principal amount of up to $7.5 million and the proceeds may bewere used to pay certain invoices from a contractor for work performed in connection
22
with a fiber build. Interest on the Alaska Term Facility accrues at a fixed rate of 4.0% and is payable commencing on March 31, 2023. Scheduledscheduled quarterly payments of principal commenced on March 31, 2023. The Alaska Term Facility matures on June 30, 2024.
The Alaska Term Facility contains events of default customary for facilities of this type.
As of March 31, 2023, the Company2024, Alaska Communications Systems Holdings had $7.1$5.3 million outstanding and no available borrowings under the Alaska Term Facility.
FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into a receivables credit facility with the Company, Commnet Wireless, and CoBank, ACB (the “Receivables Credit Facility”).
The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75.0 million and the proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the Receivables Credit Facility, which provide the loan security, relate to the obligations of AT&T under the FirstNet Agreement.
On December 23, 2022,19, 2023, CoBank amended the Receivables Credit Facility and extended the delayed draw period to December 31, 2023.2024.
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 accruesaccrue at a fixed annual interest rate to be quoted by CoBank.
The Receivables Credit Facility contains customary events of termination, representations and warranties, affirmative and negative covenants and events of default customary for facilities of this type.
As of March 31, 2023, the Company2024, Commnet Wireless had $48.7$48.4 million outstanding, of which $6.6$7.6 million was current, and $18.0$11.3 million of availability under the Receivables Credit Facility. The CompanyCommnet Wireless capitalized $0.8 million in fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.6$0.5 million were unamortized as of March 31, 2023.2024.
GTT Credit Facilities
On September 5,October 12, 2022, GTT received approval from Republic Bank (Guyana) Limited for a $2.9 million term facility and a $5.7 million overdraft facility (the “GTT Credit Facilities”) subject to the approval from the Minister of Finance at the Bank of Guyana. Such approval from the Minister of FinanceGuyana, which was received during the quarter endedon March 31, 2023.
The GTT Credit Facilities are secured by real estate assets and carry a fixed interest rate of 7.5% which will be reviewed by the bank from time to time and subject to change at the bank’s discretion. The term facility is repayable
23
over five years in equal monthly installments of principal and interest, commencing one month after funds are advanced. The overdraft facility will expire on October 11, 2023.31, 2024.
As of March 31, 2023, $3.6 million was outstanding on the overdraft facility and2024, there were no outstanding amounts under the term facility.GTT Credit Facilities.
23
Sacred Wind Term Debt
In connection with the Sacred Wind Transactionacquisition completed on November 7, 2022, the Company assumed $31.6 million of term debt (the “Sacred Wind Term Debt”) with the United States of America acting through the Administrator of the Rural Utilities Service (“RUS”). The loan agreements are dated as of October 23, 2006 and March 17, 2016. RUS provides financial assistance in the form of loans under the Rural Electrification Act of 1936 to furnish or improve telecommunications and/or broadband services in rural areas.
The Sacred Wind Term Debt is secured by substantially all assets of Sacred Wind and an underlying mortgage to the United States of America. These mortgage notes are to be repaid in equal monthly installments covering principal and interest beginning after the date of issue and expiring by 2035.
The Sacred Wind Term Debt contains certain restrictions on the declaration or payment of dividends, redemption of capital stock or investment in affiliated companies without the consent by the RUS noteholders. The agreements also contain a financial covenant which Sacred Wind was not in compliance with as of December 31, 2021. Sacred Wind submitted a corrective action plan to comply with the financial covenant as of December 31, 2025. On May 5, 2022, Sacred Wind’s corrective action plan was accepted by the RUS. As of March 31, 2023, the Company2024, Sacred Wind was in compliance with that corrective action plan.
As of March 31, 2023, $30.62024, $27.4 million was outstanding under the Sacred Wind Term Debt. Of that amount, $3.23.3 million was current and $27.4$24.1 million was long term.
The mortgage notes carry fixed interest rates ranging from 0.88% to 5.0%.
Viya Debt
The Company, and certain of its subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties, and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% per annum and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of ourthe Viya subsidiaries and is guaranteed by us. the Company.
The Company paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya Debt. The fee was recorded as a reduction to the Viya Debt carrying amount and is being amortized over the life of the loan.
As of March 31, 2023,2024, $60.0 million of the Viya Debt remained outstanding and $0.3$0.2 million of the rate lock fee was unamortized.
On May 5, 2022, RTFC agreed to amend the Net Leverage Ratio to 7.0 to 1.0 through the maturity date of July 1, 2026. The Ratio is tested annually, and the CompanyViya was in compliance with the Net Leverage Ratio as of December 31, 2022.2023.
One Communications Debt
24
The Company had an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which matured and was repaid in full on December 22, 2022. This loan bore interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75% per annum paid quarterly.
Debt Maturity
The table below summarizes the annual maturities of the Company’s debt instruments (amounts in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Customer | | | | | | | | | | | | Customer | ||
| US | | International | | Total | Receivable | US | | International | | Corporate and | | Total | Receivable | |||||||||
| Telecom | | Telecom | | Debt | Credit Facility | |||||||||||||||||
2023 (excluding the three months ended March 31, 2023) | $ | 4,998 | | $ | 3,553 | | $ | 8,551 | $ | 4,904 | |||||||||||||
2024 | | 138,536 | | | — | | | 138,536 | | 6,787 | |||||||||||||
2025 | | 14,969 | | | — | | | 14,969 | | 7,083 | |||||||||||||
2026 | | 230,469 | | | 60,000 | | | 290,469 | | 7,393 | |||||||||||||
2027 | | 3,723 | | | — | | | 3,723 | | 7,718 | |||||||||||||
Amounts Maturing During | Telecom | | Telecom | | Other | | Debt | Credit Facility | |||||||||||||||
April 1, 2024 through December 31, 2024 | $ | 13,549 | | $ | — | | $ | 2,438 | | $ | 15,987 | $ | 5,644 | ||||||||||
Year ending December 31, 2025 | | 14,969 | | | — | | | 4,875 | | | 19,844 | | 7,830 | ||||||||||
Year ending December 31, 2026 | | 253,469 | | | 60,000 | | | 8,125 | | | 321,594 | | 8,192 | ||||||||||
Year ending December 31, 2027 | | 3,723 | | | — | | | 9,750 | | | 13,473 | | 8,572 | ||||||||||
Year ending December 31, 2028 | | 3,858 | | | — | | | 9,750 | | | 13,608 | | 8,973 | ||||||||||
Thereafter | | 14,028 | | | — | | | 14,028 | | 14,794 | | 10,192 | | | — | | | 154,257 | | | 164,449 | | 9,221 |
Total | | 406,723 | | | 63,553 | | | 470,276 | | 48,679 | | 299,760 | | | 60,000 | | | 189,195 | | | 548,955 | | 48,432 |
Debt Discounts | | (5,277) | | | (318) | | | (5,595) | | (572) | | (3,764) | | | (224) | | | (3,676) | | | (7,664) | | (455) |
Book Value | | 401,446 | | | 63,235 | | | 464,681 | | 48,107 | |||||||||||||
Book Value as of March 31, 2024 | $ | 295,996 | | $ | 59,776 | | $ | 185,519 | | $ | 541,291 | $ | 47,977 |
9.8. GOVERNMENT SUPPORT AND SPECTRUM MATTERS
Universal Service Fund and Connect America Fund Phase IIOther Domestic Funding Programs
The Company recognizes revenue from several government funded programs including the Universal Service Fund (“USF”), a subsidy program managed by the Federal Communications Commission (“FCC”), and the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”), and the Emergency Connectivity Fund (“ECF”), a program to help schools and libraries support remote learning in underserved communities.. USF funds are disbursed to telecommunication providers through four programs:programs the High Cost Program; the Low Income Program (“Lifeline Program”); the Schools and Libraries Program (“E-Rate Program”); and the Rural Health Care Support Program. Program (“RHC”). The Company’s International Telecom segment receives $5.5 million of legacy frozen high cost support funding in the US Virgin Islands. This funding expires on December 31, 2025.
The Company also recognizes revenue from the Connect America Fund Phase II program (“CAF II”) which offers subsidies to carriers to expand broadband coverage in designated areas. Under CAF II, the Company’s US Telecom segment will receive an aggregate of $27.7 million annually through December 2025 and an aggregate of $8.0 million annually from January 2026 through July 2028.
All of the programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of March 31, 2023. Revenue recognizedalso recognizes revenue from the USFFCC’s Affordable Connectivity Program (“ACP”) and CAFIIthe Emergency Connectivity Fund (“ECF”). The ACP provides eligible low-income consumers with a monthly subsidy for broadband connectivity and the ECF provides schools and libraries with subsidies for broadband connectivity. Funding under the ACP and ECF programs is recognized as revenue from government grants. Revenue from other programs is recognizedset to expire in accordance with ASC 606.
RDOF (“Rural Digital Opportunities Fund”)the second quarter of 2024.
The Company expects to receivewas awarded approximately $22.7 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”). Revenue recognized from the RDOF program is recognized as revenue from government grants.
All of the programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of March 31, 2024. Revenue recognized from the USF and CAF II programs is recognized as revenue from government grants. Revenue from other programs is recognized in accordance with ASC 606.
25
The Company recorded the amounts below as communication services revenue for the reported periods:periods (in thousands):
| | | | | | | | | | | | | | | | |
| Three months ended | Three months ended | ||||||||||||||
| March 31, 2023 | March 31, 2024 | ||||||||||||||
| | | | | | | | | | | | | | | | |
| US Telecom | | International Telecom | | Total | US Telecom | | International Telecom | | Total | ||||||
| | | | | | | | | | | | | | | | |
High cost support | $ | 2,494 | | $ | 1,397 | | $ | 3,891 | $ | 3,455 | | $ | 1,393 | | $ | 4,848 |
CAF II | | 6,815 | | | — | | | 6,815 | | 6,787 | | | — | | | 6,787 |
RDOF | | 608 | | | — | | | 608 | | 145 | | | — | | | 145 |
Other Programs | | 15,660 | | | 4 | | | 15,664 | ||||||||
ECF | | 6,813 | | | — | | | 6,813 | ||||||||
RHC | | 3,437 | | | — | | | 3,437 | ||||||||
Other | | 6,701 | | | 315 | | | 7,016 | ||||||||
Total | $ | 25,577 | | $ | 1,401 | | $ | 26,978 | $ | 27,338 | | $ | 1,708 | | $ | 29,046 |
| | | | | | | | | | | | | | | | |
| Three months ended | Three months ended | ||||||||||||||
| March 31, 2022 | March 31, 2023 | ||||||||||||||
| | | | | | | | | | | | | | | | |
| US Telecom | | International Telecom | | Total | US Telecom | | International Telecom | | Total | ||||||
| | | | | | | | | | | | | | | | |
High cost support | $ | 1,056 | | $ | 2,761 | | $ | 3,817 | $ | 2,494 | | $ | 1,397 | | $ | 3,891 |
CAF II | | 6,822 | | | — | | | 6,822 | | 6,815 | | | — | | | 6,815 |
Other Programs | | 5,554 | | | — | | | 5,554 | ||||||||
RDOF | | 608 | | | — | | | 608 | ||||||||
ECF | | 8,067 | | | — | | | 8,067 | ||||||||
RHC | | 2,900 | | | — | | | 2,900 | ||||||||
Other | | 4,693 | | | 4 | | | 4,697 | ||||||||
Total | $ | 13,432 | | $ | 2,761 | | $ | 16,193 | $ | 25,577 | | $ | 1,401 | | $ | 26,978 |
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
26
Construction Grants
The Company has also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse the Company for its construction costs, is generally distributed upon completion of a project.after the Company incurs reimbursable costs. Completion deadlines begin in June 20232024 and once these projects are constructed, the Company is obligated to provide service to the participants. The Company expects to meet all requirements associated with these grants. A roll forward of the Company’s grant awards is below (in thousands).
| | | | |
| Amount | | Amount | |
Grants awarded, December 31, 2022 | $ | 80,197 | ||
Grants awarded, December 31, 2023 | $ | 100,149 | ||
New grants | | 4,364 | | — |
Grants awarded, March 31, 2023 | $ | 84,561 | ||
Construction complete | | — | ||
Grants awarded, March 31, 2024 | $ | 100,149 |
During the three months ended March 31, 2024, the Company disbursed capital expenditures of $3.4 million under these programs and received reimbursement of $1.9 million. These cash flows are classified as investing activities in the Company’s statement of cash flows.
In addition, the Company partners with tribal governments to obtain grants under various government programs including the Tribal Broadband Connectivity Program ("TBCP"(“TBCP”) and the Rural Development Broadband ReConnect Program (“ReConnect”). The TBCP is a programand ReConnect programs are administered by the National Telecommunications and Information AdministrationUnited States government agencies to deploy broadband connectivity on tribal lands.in certain underserved areas. The Company was identified as a sub recipient of TBCP grants under these programs totaling $145.5$192.6 million as of March 31, 2023.2024. Through March 31, 2024, the Company has received $10.4 million of funding under these programs and spent $10.1 million on construction obligations. These amounts are recorded as operating cash flows in the company’s statement of cash flows.
2627
Replace and Remove Program
On July 15, 2022, the Company was notified that it was an approved participant in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the Replace and Remove Program, the Company was allocated up to approximately $207$207 million in reimbursement amounts to cover documented and approved costs to remove and securely destroy all ZTE communications equipment and services in its U.S. networks and replace such equipment. The Replace and Remove Program requires that the Company complete its first request for reimbursement for services performed under the program no later than July 14, 2023, and that it complete the project no later than one year from submitting its initial reimbursement request. Therequest, or by July 2024. In April 2024, the FCC granted the Company’s request to extend the program’s completion deadlines to the first quarter of 2025. At this time, the Company anticipates that it will be able to meet the deadlines and requirements of the program.
A summary of the amounts spent and reimbursed under the Replace and Remove Program is below (in thousands):
| | | | | | | | |
| Capital | | Operating | | Total | |||
| | | | | | | | |
Total spend, December 31, 2023 | $ | 49,262 | | $ | 15,126 | | $ | 64,388 |
Amounts spent | | 11,734 | | | 4,568 | | | 16,302 |
Total spend, March 31, 2024 | $ | 60,996 | | $ | 19,694 | | $ | 80,690 |
| | | | | | | | |
Total reimbursements, December 31, 2023 | $ | (12,773) | | $ | (4,354) | | $ | (17,127) |
Reimbursements received | | (8,586) | | | (5,843) | | | (14,429) |
Total reimbursements, March 31, 2024 | $ | (21,359) | | $ | (10,197) | | $ | (31,556) |
| | | | | | | | |
Amount pending reimbursement | $ | 39,637 | | $ | 9,497 | | $ | 49,134 |
| | | | | | | | |
| Capital | | Operating | | Total | |||
| | | | | | | | |
Total spend, December 31, 2022 | $ | 1,836 | | $ | 1,489 | | $ | 3,325 |
Amounts spent | | 1,485 | | | 1,900 | | | 3,385 |
Total spend, March 31, 2023 | $ | 3,321 | | $ | 3,389 | | $ | 6,710 |
| | | | | | | | |
Amount pending reimbursement | $ | 3,321 | | $ | 3,389 | | $ | 6,710 |
At March 31, 2023, the Company established a receivable for $6.72024, $33.4 million of costs for which itthe capital expenditures were accrued and unpaid. The Company expects to be reimbursed underfor all amounts spent within the program.next twelve months. Amounts identified as capital are recorded as investing cash flows and amounts identified as operating are recorded as operating cash flows in the Company’s statement of cash flows.
27
10.9. RETIREMENT PLANS
Multi-employer Defined Benefit Plan
Pension benefits for substantially all of the Company’s Alaska-based employees are provided through the Alaska Electrical Pension Fund (“AEPF”). The Company pays a contractual hourly amount based on employee classification or base compensation to the AEPF. As a multi-employer defined benefit plan, the accumulated benefits
28
and plan assets are not determined for, or allocated separately to, the individual employer. This plan was not in endangered or critical status during the plan year.
Defined Benefit Plan
The Company has noncontributory defined benefit pension and noncontributory defined medical, dental, vision, and life benefit plans for eligible employees who meet certain eligibility criteria. The majority of benefits under the plans are frozen and the plans no longer allow new participants to join.
The Company recorded the net periodic benefit cost identified below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Three months ended | ||||||||||||||||||||
| March 31, 2023 |
| March 31, 2022 | | March 31, 2024 |
| March 31, 2023 | ||||||||||||||||
| Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | ||||||||
Operating expense | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | $ | 38 | | $ | 31 | | $ | 57 | | $ | 36 | | $ | 22 | | $ | 16 | | $ | 38 | | $ | 31 |
Non-operating expense | | | | | | | | | | | | | | | | | | | | | | | |
Interest cost | | 593 | | | 35 | | | 565 | | | 33 | | | 824 | | | 45 | | | 593 | | | 35 |
Expected return on plan assets |
| (953) | |
| — | | | (925) | |
| — | |
| (729) | |
| — | | | (953) | |
| — |
Amortization of unrecognized actuarial gain | | | (11) | | | (28) | | | — | | | — | |||||||||||
Settlements | | 369 | | | — | | | — | | | — | | | — | | | — | | | 369 | | | — |
Net periodic pension expense (benefit) | $ | 47 | | $ | 66 | | $ | (303) | | $ | 69 | | $ | 106 | | $ | 33 | | $ | 47 | | $ | 66 |
The Company was not required to make contributions to its pension plans during the three months ended March 31, 20232024 and 2022.2023. However, the Company periodically evaluates whether to make discretionary contributions. The Company funds its postretirement benefit plans as claims are made and did not make contributions to its pension plans during the three months ended March 31, 20232024 and 2022. 2023.
11.10. INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2024 and 2023 was (25.6%) and 2022 was 9.5% and 296.7%, respectively.
The Company recorded an income tax expense of $1.6 million in relation to a pretax loss of $6.3 million for the three months ended March 31, 2024. The effective tax rate for the three months ended March 31, 2024 was primarily impacted by the following items: (i) the mix of income generated among the jurisdictions in which the Company operates, (ii) net expense related to valuation allowances placed on certain deferred tax assets that are not expected to be realizable based on the weight of positive and negative evidence, (iii) forecasted tax impact of global intangible low-taxed income (“GILTI”) inclusion, and (iv) discrete items including expense of $1.5 million to record an uncertain tax position for the current year, and expense of $0.7 million for interest on uncertain tax positions for prior years.
The Company recorded an income tax benefit of $0.7 million in relation to a pretax loss of $7.8 million for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2023 was primarily impacted by the following itemsitems: (i) the mix of income generated among the jurisdictions in which the Company operates, (ii) a net increase related to valuation allowances placed on certain deferred tax assets and (iii) discrete items including $0.6 million of expense for interest on unrecognized tax positions.
The Company recorded an income tax provision of $ 3.0 million in relation to income before taxes of $1.0 million for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2022 was primarily impacted by the following items: (i) a $ 0.5 million net increase of unrecognized tax positions recognized discretely, (ii) a $ 2.1 million net expense recognized discretely to record a valuation allowance on certain deferred tax
28
assets that are not expected to be realizable based on the weight of positive and negative evidence, and (iii) the mix of income generated among the jurisdictions in which the Company operates.
The Company’s effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. The Company’s consolidated tax rate will
29
continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which the Company operates. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from the Company’s accrued positions as a result of uncertain and complex applications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgments by management. Accordingly, the Company could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
12.11. EARNINGS PER SHARE AND REDEEMABLE NONCONTROLLING INTERESTS
Earnings Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share (in thousands):
| | | | | | | | | | |
| Three months ended March 31, | Three months ended March 31, | ||||||||
| 2023 | | 2022 | 2024 | | 2023 | ||||
Numerator: | | | | | | | | | | |
Net Loss attributable to ATN International, Inc. stockholders- Basic | | (5,885) | | | (948) | |||||
Net loss attributable to ATN International, Inc. stockholders- Basic | | (6,315) | | | (5,885) | |||||
Less: Preferred dividends | | (1,045) | | | (1,116) | | (1,348) | | | (1,045) |
Net Loss attributable to ATN International, Inc. common stockholders- Diluted | $ | (6,930) | | $ | (2,064) | $ | (7,663) | | $ | (6,930) |
| | | | | | | | | | |
Denominator: | | | | | | | | | | |
Weighted-average shares outstanding- Basic | | 15,768 | | | 15,708 | | 15,437 | | | 15,768 |
Effective of dilutive securities: | | | | | | |||||
Stock options, restricted stock units and performance stock units | | — | | | — | |||||
Weighted-average shares outstanding- Diluted | | 15,768 | | | 15,708 | | 15,437 | | | 15,768 |
29
Redeemable Noncontrolling Interests
In connection with certain acquisitions, the Company accounts for third-party non-controlling minority investments as redeemable noncontrolling interests, which consist of both redeemable common and, in some instances, preferred units, in its consolidated financial statements.
The common units contain put options allowing the holder to sell at a future date, the common units to a subsidiary of the Company at the then fair market value. The common units participate in the earnings and losses of the subsidiaries and are allocated their applicable share of earningearnings and losses. After the allocation of earnings and losses, the Company estimates the fair value of the common units and adjusts the book value of the common units to that estimated fair value.
The preferred units contain put options allowing the holder to sell at a future date, the preferred units to a subsidiary of the Company at a fixed price equal to face value of the units plus unpaid dividends. The preferred units hold a distribution preference over common units and carry a fixed dividend rate.
The put options for both the common and preferred units, if any, are nonrecourse to the Company and exercisable at the earlier of a future initial public offering of the subsidiary or certain dates beginning in July 2028.2026.
For the three months ended March 31, 20232024 and 2022,2023, the Company allocated losses of $2.8$3.5 million and $1.1$2.8 million, respectively, to the redeemable common units representing their proportionate share of operating losses. The Company then compared the book value of the common units to the fair value and the fair value exceeded the book value. As a result, the book value was increased by $0.9 million and $2.5 million during the three months ended March 31, 2023.
The following table provides a roll forward of the activity related to the Company’s redeemable noncontrolling interests for the three months ended March 31,2024 and 2023, and 2022:
| | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | |||
Balance, December 31, 2022 | $ | 55,152 | | $ | 37,317 | | $ | 92,469 |
Accrued preferred dividend | | 1,045 | | | — | | | 1,045 |
Allocated net loss | | — | | | (2,821) | | | (2,821) |
Change in fair value | | — | | | 2,530 | | | 2,530 |
Balance, March 31, 2023 | $ | 56,197 | | $ | 37,026 | | $ | 93,223 |
| | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | |||
Balance, December 31, 2021 | $ | 50,296 | | $ | 22,640 | | $ | 72,936 |
Accrued preferred dividend | | 1,116 | | | — | | | 1,116 |
Allocated net loss | | — | | | (1,092) | | | (1,092) |
Change in fair value | | — | | | 1,092 | | | 1,092 |
Balance, March 31, 2022 | $ | 51,412 | | $ | 22,640 | | $ | 74,052 |
respectively.
30
13. SEGMENT REPORTING
The Company has the following two reportable and operating segments: i) International Telecom and ii) US Telecom.
The following tables provide informationtable provides a roll forward of the activity related to the Company’s redeemable noncontrolling interests for each operating segmentthe three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | | | | | |
For the Three Months Ended March 31, 2023 | ||||||||||||
|
| | |
| |
| | | | | | |
| | International | | US | | Corporate and | | | | |||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||
Revenue | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | |
Mobility - Business | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 |
Mobility - Consumer | | | 22,532 | | | 987 | | | — | | | 23,519 |
Total Mobility | | | 26,107 | | | 1,159 | | | — | | | 27,266 |
Fixed - Business | | | 17,113 | | | 36,320 | | | — | | | 53,433 |
Fixed - Consumer | | | 41,778 | | | 22,582 | | | — | | | 64,360 |
Total Fixed | | | 58,891 | |
| 58,902 | |
| — | |
| 117,793 |
Carrier Services | | | 3,690 | | | 32,084 | | | — | | | 35,774 |
Other | |
| 400 | | | 75 | | | — | | | 475 |
Total Communication Services Revenue | |
| 89,088 | | | 92,220 | | | — | | | 181,308 |
Construction | | | — | | | 590 | | | — | | | 590 |
Other | | | | | | | | | | | | |
Managed Services | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total other revenue | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Revenue | | | 90,408 | | | 95,367 | | | — | | | 185,774 |
Depreciation and amortization | |
| 14,186 | |
| 21,487 | |
| 731 | |
| 36,404 |
Amortization of intangibles from acquisitions | | | 380 | | | 2,867 | | | — | | | 3,247 |
Non-cash stock-based compensation | |
| 67 | |
| 77 | |
| 1,634 | |
| 1,778 |
Operating income (loss) | |
| 13,825 | |
| (4,342) | |
| (8,847) | |
| 636 |
| | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | |||
Balance, December 31, 2023 | $ | 60,094 | | $ | 25,823 | | $ | 85,917 |
Accrued preferred dividend | | 1,348 | | | — | | | 1,348 |
Allocated net loss | | — | | | (3,512) | | | (3,512) |
Change in fair value | | — | | | 868 | | | 868 |
Balance, March 31, 2024 | $ | 61,442 | | $ | 23,179 | | $ | 84,621 |
| | | | | | | | |
| Redeemable Preferred Units | | Redeemable Common Units | | Total Redeemable Noncontrolling Interests | |||
Balance, December 31, 2022 | $ | 55,152 | | $ | 37,317 | | $ | 92,469 |
Accrued preferred dividend | | 1,045 | | | — | | | 1,045 |
Allocated net loss | | — | | | (2,821) | | | (2,821) |
Change in fair value | | — | | | 2,530 | | | 2,530 |
Balance, March 31, 2023 | $ | 56,197 | | $ | 37,026 | | $ | 93,223 |
31
12. SEGMENT REPORTING
The Company has the following two reportable and operating segments: i) International Telecom and ii) US Telecom.
| | | | | | | | | | | | |
For the Three Months Ended March 31, 2022 | ||||||||||||
|
| | |
|
|
| | |
| | | |
| | International | | US | | Corporate and | | | | |||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||
Revenue | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | |
Mobility - Business | | $ | 3,616 | | $ | 374 | | $ | — | | $ | 3,990 |
Mobility - Consumer | | | 19,970 | | | 1,456 | | | — | | | 21,426 |
Total Mobility | | | 23,586 | | | 1,830 | | | — | | | 25,416 |
Fixed - Business | | | 17,254 | | | 27,145 | | | — | | | 44,399 |
Fixed - Consumer | | | 41,093 | | | 18,968 | | | — | | | 60,061 |
Total Fixed | | | 58,347 | | | 46,113 | | | — | | | 104,460 |
Carrier Services | | | 3,402 | | | 32,989 | | | — | | | 36,391 |
Other | |
| 276 | | | — | | | — | | | 276 |
Total Communication Services Revenue | |
| 85,611 | | | 80,932 | | | — | | | 166,543 |
Construction | | | — | | | 1,987 | | | — | | | 1,987 |
Other | | | | | | | | | | | | |
Managed Services | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Other Revenue | | | 1,176 | | | 2,313 | | | — | | | 3,489 |
Total Revenue | | | 86,787 | | | 85,232 | | | — | | | 172,019 |
Depreciation | |
| 13,897 | | | 18,442 | | | 953 | |
| 33,292 |
Amortization of intangibles from acquisitions | | | 418 | | | 2,840 | | | — | | | 3,258 |
Non-cash stock-based compensation | |
| 60 | | | 90 | | | 1,311 | |
| 1,461 |
Operating income (loss) | |
| 11,802 | | | (4,635) | | | (7,059) | |
| 108 |
The following tables provide information for each operating segment (in thousands):
| | | | | | | | | | | | |
For the Three Months Ended March 31, 2024 | ||||||||||||
|
| | |
| |
| | | | | | |
| | International | | US | | Corporate and | | | | |||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||
Revenue | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | |
Mobility - Business | | $ | 4,808 | | $ | 74 | | $ | — | | $ | 4,882 |
Mobility - Consumer | | | 21,229 | | | 764 | | | — | | | 21,993 |
Total Mobility | | | 26,037 | | | 838 | | | — | | | 26,875 |
Fixed - Business | | | 18,532 | | | 34,965 | | | — | | | 53,497 |
Fixed - Consumer | | | 42,789 | | | 22,919 | | | — | | | 65,708 |
Total Fixed | | | 61,321 | |
| 57,884 | |
| — | |
| 119,205 |
Carrier Services | | | 3,574 | | | 30,052 | | | — | | | 33,626 |
Other | |
| 818 | | | 744 | | | — | | | 1,562 |
Total Communication Services Revenue | |
| 91,750 | | | 89,518 | | | — | | | 181,268 |
Construction | | | — | | | 1,586 | | | — | | | 1,586 |
Other | | | | | | | | | | | | |
Managed Services | | | 1,309 | | | 2,631 | | | — | | | 3,940 |
Total other revenue | | | 1,309 | | | 2,631 | | | — | | | 3,940 |
Total Revenue | | | 93,059 | | | 93,735 | | | — | | | 186,794 |
Depreciation and amortization | |
| 16,124 | |
| 18,138 | |
| 78 | |
| 34,340 |
Amortization of intangibles from acquisitions | | | 251 | | | 1,729 | | | — | | | 1,980 |
Non-cash stock-based compensation | |
| 23 | |
| 132 | |
| 1,754 | |
| 1,909 |
Operating income (loss) | |
| 11,685 | |
| 597 | |
| (7,708) | |
| 4,574 |
32
| | | | | | | | | | | | |
For the Three Months Ended March 31, 2023 | ||||||||||||
|
| | |
|
|
| | |
| | | |
| | International | | US | | Corporate and | | | | |||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||
Revenue | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | |
Mobility - Business | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 |
Mobility - Consumer | | | 22,532 | | | 987 | | | — | | | 23,519 |
Total Mobility | | | 26,107 | | | 1,159 | | | — | | | 27,266 |
Fixed - Business | | | 17,113 | | | 36,320 | | | — | | | 53,433 |
Fixed - Consumer | | | 41,778 | | | 22,582 | | | — | | | 64,360 |
Total Fixed | | | 58,891 | | | 58,902 | | | — | | | 117,793 |
Carrier Services | | | 3,690 | | | 32,084 | | | — | | | 35,774 |
Other | |
| 400 | | | 75 | | | — | | | 475 |
Total Communication Services Revenue | |
| 89,088 | | | 92,220 | | | — | | | 181,308 |
Construction | | | — | | | 590 | | | — | | | 590 |
Other | | | | | | | | | | | | |
Managed Services | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Other Revenue | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Revenue | | | 90,408 | | | 95,366 | | | — | | | 185,774 |
Depreciation | |
| 14,186 | | | 21,487 | | | 731 | |
| 36,404 |
Amortization of intangibles from acquisitions | | | 380 | | | 2,867 | | | — | | | 3,247 |
Non-cash stock-based compensation | |
| 67 | | | 77 | | | 1,634 | |
| 1,778 |
Operating income (loss) | |
| 13,825 | | | (4,342) | | | (8,847) | |
| 636 |
33
Selected balance sheet data for each of the Company’s segments as of March 31, 20232024 and December 31, 20222023 consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| |
| |
|
| | | | International | | US | | Corporate and | | | | ||||
| | International | | US | | Corporate and | | | | | Telecom | | Telecom | | Other | | Consolidated | |||||||
| | Telecom | | Telecom | | Other (1) | | Consolidated | ||||||||||||||||
March 31, 2023 | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and short-term investments | | $ | 30,664 | | $ | 19,433 | | $ | 6,219 | | $ | 56,316 | ||||||||||||
March 31, 2024 | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and restricted cash | | $ | 35,369 | | $ | 32,288 | | $ | 1,561 | | $ | 69,218 | ||||||||||||
Total current assets | | | 113,711 | | | 110,108 | | | 7,733 | | | 231,552 | | | 121,262 | | | 157,318 | | | 11,147 | | | 289,727 |
Fixed assets, net | | | 468,961 | | | 580,633 | | | 6,769 | | | 1,056,363 | | | 479,325 | | | 585,979 | | | 6,178 | | | 1,071,482 |
Goodwill | |
| 4,835 | |
| 35,269 | |
| — | | | 40,104 | |
| 4,835 | |
| 35,269 | |
| — | | | 40,104 |
Total assets | |
| 658,621 | |
| 959,395 | |
| 81,999 | | | 1,700,015 | |
| 679,591 | |
| 1,006,960 | |
| 92,603 | | | 1,779,154 |
Total current liabilities | | | 88,967 | | | 96,844 | | | 19,573 | | | 205,384 | | | 87,986 | | | 155,274 | | | 30,357 | | | 273,617 |
Total debt | | | 63,235 | | | 327,553 | | | 122,000 | | | 512,788 | ||||||||||||
December 31, 2022 | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and short-term investments | | $ | 25,345 | | $ | 22,679 | | $ | 6,936 | | $ | 54,960 | ||||||||||||
Total debt, including current portion | | | 59,776 | | | 295,996 | | | 185,519 | | | 541,291 | ||||||||||||
December 31, 2023 | | | | | | | | | | | | | ||||||||||||
Cash, cash equivalents, and restricted cash | | $ | 26,354 | | $ | 33,574 | | $ | 2,239 | | $ | 62,167 | ||||||||||||
Total current assets | | | 105,324 | | | 116,038 | | | 8,326 | | | 229,688 | | | 107,469 | | | 162,768 | | | 11,035 | | | 281,272 |
Fixed assets, net | | | 462,447 | | | 585,969 | | | 7,538 | | | 1,055,954 | | | 481,911 | | | 593,833 | | | 4,915 | | | 1,080,659 |
Goodwill | |
| 4,835 | |
| 35,269 | |
| — | | | 40,104 | |
| 4,836 | |
| 35,268 | |
| — | | | 40,104 |
Total assets | |
| 643,664 | |
| 980,543 | |
| 83,662 | | | 1,707,869 | |
| 672,171 | |
| 1,019,924 | |
| 91,619 | | | 1,783,714 |
Total current liabilities | | | 86,738 | | | 119,755 | | | 26,687 | | | 233,180 | | | 86,540 | | | 169,297 | | | 37,357 | | | 293,194 |
Total debt | | | 59,659 | | | 308,589 | | | 99,000 | | | 467,248 | ||||||||||||
Total debt, including current portion | | | 64,254 | | | 293,607 | | | 159,009 | | | 516,870 |
| | ��� | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2023 | | $ | 21,464 | | $ | 31,261 | | $ | — | | $ | 52,725 |
2022 | | | 15,170 | | | 19,095 | | | 203 | | | 34,468 |
For the three months ended March 31, 2024 and 2023, the Company spent $49.5 million and $52.7 million, respectively, on capital expenditures relating to its telecommunications networks and business support systems of which $13.5 million and $2.1 million, respectively, are reimbursable under various government programs. The following notes the Company’s capital expenditures, by operating segment, for these periods (in thousands).
| | | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2024 | | $ | 16,915 | | $ | 31,233 | | $ | 1,341 | | $ | 49,489 |
2023 | | | 21,464 | | | 31,261 | | | — | | | 52,725 |
(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
14.13. COMMITMENTS AND CONTINGENCIES
Regulatory and Litigation Matters
The Company and its subsidiaries are subject to certain regulatory and legal proceedings and other claims arising in the ordinary course of business, some of which involve claims for damages and taxes that are substantial in amount. Historically, the Company’s subsidiary, GTT, has been subject to other long-standing litigation proceedings and disputes in Guyana that have not yet been resolved. The Company believes that, except for the items discussed below, for which the Company is currently unable to predict the final outcome, the disposition of matters currently pending will not have a material adverse effect on the Company’s financial position or results of operations.
34
Beginning in 2006, the National Frequency Management Unit (now the Telecommunications Agency, , or the “NFMU/TA”) and GTT have been engaged in discussions regarding the amount of and methodology for calculation of spectrum fees payable by GTT in Guyana. Since that time, GTT has made payments of undisputed spectrum fees as amounts invoiced by the NFMU/TA.NFMU, and to its successor, the Telecommunications Authority (“TA”). There have been limited further discussions on the subject of a revised spectrum fee methodology with the Telecommunications Agency and GTT awaits the determination of such fees.
33
On May 8, 2009, a GTT competitor, Digicel, filed a lawsuit in Guyana challenging the legality of GTT’s exclusive license rights under Guyana’s constitution and GTT intervened in the suit in order to oppose Digicel’s claims. The case remains pending. The Company believes that any legal challenge to GTT’s exclusive license rights granted in 1990 is without merit and the Company continues to defend vigorously against such legal challenge.TA.
GTT has filed several lawsuits in the High Court of Guyana asserting that, despite its denials, Digicel is engaged in international bypass in violation of GTT’s exclusive license rights, the interconnection agreement between the parties, and the laws of Guyana. Digicel filed counterclaims alleging that GTT has violated the terms of the interconnection agreement and Guyana laws. These suits, filed in 2010 and 2012, have been consolidated with Digicel’s constitutional challenge described above,are currently pending in the Court of Appeals in Guyana, however, the Company cannot accurately predict at this time when the consolidated suit will reach a court of final determination.
GTT is also involved in several legal claims regarding its tax filings with the Guyana Revenue Authority (the “GRA”) dating back to 1991 regarding the deductibility of intercompany advisory fees as well as other tax assessments. GTT’s position has been upheld by various High Court rulings made in its favor including most recently in December 2021, when an assessment relating to 2010-2016 was quashed and declared to have no legal effect. GTT has maintained that it has no unpaid corporation tax due to the GRA and that any liability GTT might be found to have with respect to the disputed tax assessments as alleged by the GRA in the aggregate amount of $32 million net of interest, would be offset in part by the amounts necessaryclaimed with respect to ensure thatrights ATN has pursuant to its agreement with the government of Guyana. GTT’s return on investment was no less than 15% per annum for the relevant periods. Severalposition has been upheld by various High Court rulings made in theits favor of GTTincluding most recently in December 2021, and while some matters have been appealed by the GRA, and the Company believes that some adverse outcome in these orother matters remain pending unheard matters could occur.
On May 20, 2021, the Company was served with a notice of application for enforcement of a foreign judgment with respect to a matter broughtdetermination by the Trinidad & Tobago Electric Commission (“TTEC”) in the High Court of Justice in the Republic of Trinidad and Tobago in August 2013 against GTT and other defendants, alleging breach of contract due to GTT’s failure to pay TTEC in connection with amounts alleged to be owed as reimbursement for cable repair costs. In December 2022, GTT settled this matter with TTEC.Court.
In February 2020, the Company’s Alaska Communications subsidiary received a draft audit report from USAC in connection with USAC’s inquiry into Alaska Communications’ funding requests under the Rural Health Care Support Program for certain customers for the time period of July 2012 through June 2017. The draft audit report alleges violations of the FCC’s rules for establishing rural rates and urban rates, the provisioning and billing of ineligible services and products, and violations of the FCC’s competitive bidding rules. Alaska Communications has provided USAC with extensive comments in response to its draft audit report seeking correction of numerous factual and legal errors that it believed it had identified. As a result of these conversations and comments being submitted by Alaska Communications, USAC’s auditors may revise their findings, including the amounts they recommend USAC seek to recover. USAC’s auditors are expected to issue a final audit report incorporating Alaska Communications’ responses that will be sent to USAC’s Rural Health Care Division to review and determine if corrective action would be appropriate. In the event that the Company disagrees with USAC’s final audit report, the Company can appeal that decision to USAC’s Rural Health Care Division and/or the FCC. At this time, the Company cannot predict the contents or timing of the final USAC audit report, the outcome of the audit or the impact on the Company’s business, financial condition, results of operations, or liquidity and may require certain undertakings in addition to any proposed financial settlement.
Alaska Communications also received a Letter of Inquiry on March 18, 2018, and subsequent follow up information requests, from the FCC Enforcement Bureau requesting historical information regarding Alaska Communications’ participation in the FCC’s Rural Health Care Support Program. The Company is engaged in discussions
On May 8, 2024, we entered into a Consent Decree with the FCC’s Enforcement Bureau and will continue to work constructively to provide it the information it is seeking. Any adverse outcome with respect to the FCC Enforcement Bureau, regarding both the USAC and FCC Enforcement Bureau’s inquiry mayinvestigation and agreed to (i) pay a settlement amount of approximately $6.3 million, and (ii) enter into a three-year compliance agreement in connection with Alaska Communication’s continued participation in the RHC Program. At this time, we believe that we can comply with all of the terms of the compliance agreement.
The settlement amount of $6.3 million consists of a $5.3 million cash payment and the $1.0 million forgiveness of certain receivables, both of which have an adversebeen accrued on the Company’s balance sheet as of March 31, 2024. As such, this settlement will not impact the Company’s business, financial condition, resultsstatement of operations or liquidity and may require certain undertakings in addition to any proposed financial settlement.future periods.
With respect to all of the foregoing matters, the Company believes that some adverse outcome is probable and has accordingly accrued $15.3$17.0 million as of March 31, 20232024 for these and other potential liabilities arising in various
34
claims, legal actions and regulatory proceedings arising in the ordinary course of business. The Company also faces contingencies that are reasonably possible to occur that cannot currently be estimated. It is the Company’s policy to expense costs associated with loss contingencies, including any related legal fees, as they are incurred.
15.14. SUBSEQUENT EVENTS
Verizon Carrier Managed Services Agreement
On May 10, 2023, Commnet Wireless, LLC (“Commnet”), a subsidiary of ATN International, Inc. (the “Company”)8, 2024, the Company entered into a Carrier Managed Services Master Agreement (the “Agreement”)Consent Decree with Cellco Partnership d/b/the FCC Enforcement Bureau, regarding both the USAC and FCC Enforcement Bureau’s investigation and agreed to (i) a Verizon Wireless (“Verizon”), pursuant to which Commnet will providesettlement amount of approximately $6.3 million, and (ii) enter into a variety of network, infrastructure and technical services that will help deliver next generation wireless services to Verizon’s subscribersthree-year compliance agreement in Commnet’s current operating area in the southwestern United States.
Pursuant to the Agreement and subject to certain limitations contained therein, Commnet will upgrade its wireless service in specific areas and provide services to Verizon for an initial seven year term (the “Commitment Period”). The Commitment Period will automatically renew for up to two additional three year periods, unless Verizon provides no less than twelve months’ notice on non-renewal prior to the expiration of the then-current term.
In connection with the Agreement, Commnet has also agreed to provide Verizon with high capacity transport in its coverage area. Verizon will continue to use Commnet’s wireless communications network for roaming services at a fixed rate per site during the build period until such time as upgrades to the network to meet certain performance service level agreements for both RAN operations and transport are met.
Verizon will pay Commnet an aggregate of an estimated approximately $200 million in total amounts for both non-recurring payments for upgrades and construction to its current RAN and transport network and in monthly recurring charges over the initial Commitment Period.
The Agreement may be terminated at any time upon the mutual written consent of Commnet and Verizon. In addition, Verizon may terminate the Agreement upon the occurrence of certain events, including failure to meet certain milestones or completion dates with respect to network coverage, failure to meet certain SLAs with respect to the ongoing services, the declaration of a bankruptcy event by Commnet and breach of any other material terms of the Agreement.
The foregoing summary of the Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of the Agreement. The Company intends to file a redacted copy of the Agreement as an Exhibit to its Quarterly Report on Form 10-Q for the quarter ending June 30, 2023.
Alaska Communication’s continued
35
participation in the RHC Program. At this time, we believe that we can comply with all of the terms of the compliance agreement.
The settlement amount of $6.3 million consists of a $5.3 million cash payment and the $1.0 million forgiveness of certain receivables, both of which have been accrued on the Company’s balance sheet as of March 31, 2024. As such, this settlement will not impact the statement of operations in future periods.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We provideare a leading provider of digital infrastructure and communications services with a focus on rural and remote markets in the United States, and internationally, including inBermuda and the Caribbean region, with a focus on smaller markets, many of which are rural or remote, with a growing demand for infrastructure investments, Through our operating subsidiaries, we primarily provide: (i) carrier and enterprise communications services, such as terrestrial and submarine fiber optic transport, and communications tower facilities; and (ii) fixed and mobile telecommunications connectivity to residential, business and government customers, including a range of high-speed internet and data services, fixed and mobile wireless solutions, and video and voice services.region.
At the holding company level, we oversee the allocation of capital within and among our subsidiaries, affiliates, new investments, and stockholders. We have developed significant operational expertise and resources that we use to augment theour capabilities of our individual operating subsidiaries in our local markets. We have built a platform of resources and expertise toWith this support, our operating subsidiaries andare able to improve their quality of service with greater economies of scale and expertise than would typically be available atin the operating subsidiary level.size markets we operate in. We provide management, technical, financial, regulatory, and marketing services to our operating subsidiaries and typically receive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. We also actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally look for those that we believe fit our profile of telecommunications businesses and have the potential to complement our “glass“First-to-Fiber” and steel” and “first to fiber”“Glass & Steel™” approach in markets while keeping a focus on generating steady excess operating cash flows over extended periods of time. We use the cash generated from our operations to re-invest in organicmaintain an appropriate ratio of debt and cash on hand and to fund growth in our existing businesses,and to make strategic investments in additional businesses, andfund capital expenditures, to return cash to our investorsstockholders through dividends or stock repurchases.repurchases, and make strategic investments or acquisitions.
For further information about our financial segments and geographical information about our operating revenues and assets, see Notes 1 and 1312 to the Consolidated Financial Statements included in this Report.
As of March 31, 2023,2024, we offeroffered the following types of services to our customers:
● |
● | Fixed Telecommunications Services. We provide fixed data and voice telecommunications services to business and consumer customers. These services include consumer broadband and high-speed data solutions for businesses. For some markets, fixed services also include video services and revenue derived from support under certain government programs. |
● | Carrier Telecommunication Services. We deliver services to other telecommunications providers |
● | Managed Services. We provide information technology services such as network, application, infrastructure and hosting services to both our business and consumer customers to complement our fixed services in our existing markets. |
As was previously disclosed, and effective January 27, 2021, we no longer provide distributed generation solar power to commercial and industrial customers. These operations were the only operations within our Renewable Energy segment. As such, we no longer identify the Renewable Energy segment as an operating segment and now have only two
36
Through March 31, 2024, we identified two operating segments to manage and review our operations and to facilitate investor presentations of our results. These two operating segments are as follows:
● | International |
● | US |
The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we reported our revenue and the markets we served as of March 31, 2024:
| | | | | | | | | | |
| | US Telecom | ||||||||
Services | Markets | | Tradenames |
| Services |
| Markets | | Tradenames | |
| Mobility |
|
| |||||||
|
|
|
|
| ||||||
|
|
| | Bermuda, Guyana, US Virgin Islands | | One, GTT, Viya | ||||
| Mobility Services | United States (rural markets) | | Choice, Choice NTUA Wireless | ||||||
Fixed Services | | Bermuda, Cayman Islands, Guyana, US Virgin Islands | | One, Logic, GTT, Viya | | Fixed Services | | United States | | Alaska Communications, Commnet, Choice, Choice NTUA Wireless, Sacred Wind Communications, Ethos, Deploycom |
Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, Essextel, GTT, Viya | | Carrier Services | | United States | | Alaska Communications, Commnet, Sacred Wind Communications |
Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT, Viya, | ||||||
|
|
|
| |||||||
| |
|
|
|
| |||||
|
|
|
|
|
|
| ||||
| Managed Services |
| United States | | Alaska Communications, Choice |
37
The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of March 31, 2023:
Carrier Managed Services
Acquisition of Sacred Wind Enterprises
On November 7, 2022, we, via our newly formed wholly owned subsidiary Alloy, Inc. (“Alloy”), acquired all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), a rural telecommunications provider in New Mexico (the “Sacred Wind Transaction”) for $44.6 million of consideration. The purchase price allocation was finalized during the three months ended March 31, 2023. As part of the Sacred Wind Transaction, we transferred consideration of $18.0 million of cash, net of $9.4 million of cash acquired, $14.8 million of redeemable noncontrolling interests, and $3.7 million of contingent consideration, less $1.3 million of receivables related to working capital adjustments. Upon completion of the Sacred Wind Transaction, the former Sacred Wind shareholders own 6% of the Alloy equity. This equity is classified as redeemable noncontrolling interests in our financial statements because the holders have an option, beginning in 2026, to put the equity interest to a subsidiary of the Company at the then fair market value. The redeemable noncontrolling interests do not have preference relative to other equity units and participate in gains and losses in Alloy. The contingent consideration is earned based on certain operating metrics of Sacred Wind beginning in 2025 through 2027. The fair value of the contingent consideration was calculated using discounted cash flow analysis based on a range of probability weighted outcomes. We funded the acquisition with borrowing under our CoBank Credit Facility and assumed $31.6 million of Sacred Wind debt, to the United States of America administered through the Rural Utilities Service.
We believe that the acquisition of Sacred Wind will expand our infrastructure reach and broadband services in the rural Southwest and increase our wholesale carrier, residential and business broadband services.
FirstNet Agreement
In July 2019, we entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC (“AT&T”) that we subsequently amended in August 2020, May 2021 and August 2022through March 31, 2024 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, we are building a portion of AT&T’s network for the First Responder Network Authority (“FirstNet”) in or near our current operating areas in the Westernwestern United States. Pursuant to the FirstNet Agreement and subject to certain limitations contained therein, all cell sites must be completed and accepted within a specified period of time. We expect that total construction revenue related to FirstNet will approximate $80 million to $85 million. DuringSince the three months endedinception of the project through March 31, 2023 and 2022,2024, we have recorded $0.6 million and $2.0$73.2 million in construction revenue respectively.and expect to record approximately $9.0 million in additional construction revenue and related costs as sites are completed. We expect to substantially complete the build by the end of 2024 with the remainder to be completed in early 2025. Revenues from construction are expected to have minimal impact on operating income. As of March 31, 2023, approximately 75% of the cell sites related to the FirstNet Agreement were completed and we expect to substantially complete the build by the end of 2023 with the remainder to be completed in early 2024.
Following acceptance of a cell site, AT&T will own the cell site and we will assign to AT&T any third-party tower lease applicable to such cell site. If the cell site is located on a communications tower we own, AT&T will pay us pursuant to a separate lease agreement for an initial term of eight years. In addition to building the network, we will provide ongoing equipment and site maintenance and high-capacity transport to and from these cell sites for an initial term ending in 2029.2031.
AT&TOn May 10, 2023, we entered into a Carrier Managed Services Master Agreement (the “Agreement”) with Cellco Partnership d/b/a Verizon Wireless (“Verizon”), pursuant to which we will provide a variety of network, infrastructure and technical services that will help deliver next generation wireless services to Verizon’s subscribers in our current operating area in the southwestern United States.
Pursuant to the Agreement and subject to certain limitations contained therein, we will upgrade our wireless service in specific areas and provide services to Verizon for an initial term ending in 2030.
Following acceptance of a cell site, we will continue to own the cell site. 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 2030.
With respect to each of our FirstNet and Verizon agreements, our carrier partners 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.completed. Thereafter, revenue from the maintenance, leasing and transport services provided to AT&T is expected to generally offset revenue from wholesale mobility roaming services. We are currently receiving revenue from the FirstNet Transaction and expect overall operating income contributions from the FirstNet Transaction to have a relatively steady impact going forward.
Universal Service Fund and Connect America Fund Phase IIOther Domestic Funding Programs
38
We recognize revenue from several government funded programs including the USF, a subsidy program managed by the Federal Communications Commission (“FCC”), and the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”), and the Emergency Connectivity Fund (“ECF”), a program to help schools and libraries support remote learning in underserved communities.. USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; the Low Income Program (“Lifeline Program”); the Schools and Libraries Program (“E-Rate Program”); and the Rural Health Care Support Program. Our International Telecom segment receives $5.5 million of legacy frozen high cost support funding in the US Virgin Islands. This funding expires on December 31, 2025.
We also recognize revenue from the Connect America Fund Phase II program (“CAF II”) which offers subsidies to carriers to expand broadband coverage in designated areas. Under CAF II, our US Telecom segment will receive an aggregate of $27.7 million annually through December 2025 and an aggregate of $8.0 million annually from January 2026 through July 2028.
AllWe also recognize revenue from the FCC’s Affordable Connectivity Program (“ACP”) and the Emergency Connectivity Fund (“ECF”). The ACP provides eligible low-income consumers with a monthly subsidy for broadband
38
connectivity and the ECF provides schools and libraries with subsidies for broadband connectivity. Funding under the ACP and ECF programs are subjectis set to certain operational and reporting compliance requirements. We believe we are in compliance with these requirements as of March 31, 2023.
In 2018, the FCC initiated a proceeding to replace the High Cost Program support received by Viyaexpire in the US Virgin Islands with a new Connect USVI Fund. On November 16, 2020, the FCC announced that Viya was not the recipientsecond quarter of the Connect USVI Fund award and authorized funding to be issued to the new awardee in June 2021. Pursuant to the terms of the program and effective in July 2021, Viya’s annual USF support was reduced from $16.4 million to $10.9 million. In July 2022, this support was reduced again to $5.5 million for the annual period through June 2023. In April of 2023, the FCC issued an order extending the high cost support in the US Virgin Islands at the current $5.5 million per year received from July 2023 through December 31, 2025. In connection with this order, the FCC requires that we maintain our current footprint for voice and broadband services in the US Virgin Islands.
RDOF (“Rural Digital Opportunities Fund”)2024.
We expect to receivewere awarded approximately $22.7 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”). WeDuring the three months ended March 31, 2024 and 2023, we recorded $0.1 million and $0.6 million of revenue from the RDOF program, duringrespectively.
All of the three months endedprograms are subject to certain operational and reporting compliance requirements. We believe we are in compliance with these requirements as of March 31, 2023.2024.
Construction Grants
We have also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse us for our construction costs, is generally distributed upon completion of a project.after we incur reimbursable costs. Completion deadlines begin in June 20232024 and once these projects are constructed, we are obligated to provide service to the participants. We expect to meet all requirements associated with these grants. A roll forwardAs of March 31, 2024, we were awarded $100.1 million of construction grants.
During the three months ended March 31, 2024, we disbursed capital expenditures of $3.4 million under these programs and received reimbursement of $1.9 million. These cash flows are classified as investing activities in our grant awards is below (in thousands).statement of cash flows.
| | |
| Amount | |
Grants awarded, December 31, 2022 | $ | 80,197 |
New grants | | 4,364 |
Grants awarded, March 31, 2023 | $ | 84,561 |
In addition, we partner with tribal governments to obtain grants under various government grant programs including, but not limited to, the Tribal Broadband Connectivity Program ("TBCP"(“TBCP”) and the Rural Development Broadband ReConnect Program (“ReConnect”). The TBCP is a programThese programs are administered by the National Telecommunications and Information AdministrationUnited States government agencies to deploy broadband connectivity on tribal lands.in certain underserved areas. We were identified as a sub recipient of TBCP grants under these programs totaling $145.5$192.6 million as of March 31, 2023.
39
Table2024. Through March 31, 2024, we have received $10.4 million of Contentsfunding under these programs and spent $10.1 million on construction obligations. These amounts are recorded as operating cash flows in the company’s statement of cash flows.
Replace and Remove Program
On July 15, 2022, we were notified that we were an approved participant in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the Replace and Remove Program, we were allocated up to approximately $207 million in reimbursement amounts to cover documented and approved costs to remove and securely destroy all prohibited communications equipment and services in our U.S. networks and replace such equipment. The Replace and Remove Program requires that we complete our first request for reimbursement for services performed under the program no later than July 14, 2023 and that we complete the project no later than one year from submitting our initial reimbursement request. Werequest, or by July 2024. In April 2024, the FCC granted our request to extend the program’s completion deadline to the first quarter of 2025. At this time, we anticipate that we will be able to meet the deadlines and requirements of the program.
We have incurred total expenditures of $80.7 million related to this project, of which $16.3 million were incurred in 2024. Of these total expenditures, $61.0 million were classified as capital.
At March 31, 2023, we established a receivable for $6.72024, $33.4 million of costs for which wecapital expenditures were accrued and unpaid. We expect to be reimbursed underfor all amounts spent within the program.
next twelve months. During the three months ended March 31, 2024 we
4039
have received $14.4 million of reimbursement under the program, of which $5.8 million was classified as operating cash inflows and $8.6 million was classified as investing cash inflows in our statement of cash flows.
Selected Segment Financial Information
The following represents selected segment information for the three months ended March 31, 20232024 and 20222023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2024 | |||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | |
| |
| | |
| | | ||
| | International | | US | | Corporate and | | | | | International | | US | | Corporate and | | | | ||||||
| | Telecom | | Telecom | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | ||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 | | $ | 4,808 | | $ | 74 | | $ | — | | $ | 4,882 |
Mobility - Consumer | | | 22,532 | | | 987 | | | — | | | 23,519 | | | 21,229 | | | 764 | | | — | | | 21,993 |
Total Mobility | | | 26,107 | | | 1,159 | | | — | | | 27,266 | | | 26,037 | | | 838 | | | — | | | 26,875 |
Fixed - Business | | | 17,113 | | | 36,320 | | | — | | | 53,433 | | | 18,532 | | | 34,965 | | | — | | | 53,497 |
Fixed - Consumer | | | 41,778 | | | 22,582 | | | — | | | 64,360 | | | 42,789 | | | 22,919 | | | — | | | 65,708 |
Total Fixed | |
| 58,891 | |
| 58,902 | |
| — | |
| 117,793 | |
| 61,321 | |
| 57,884 | |
| — | |
| 119,205 |
Carrier Services | | | 3,690 | | | 32,084 | | | — | | | 35,774 | | | 3,574 | | | 30,052 | | | — | | | 33,626 |
Other | |
| 400 | |
| 75 | |
| — | |
| 475 | |
| 818 | |
| 744 | |
| — | |
| 1,562 |
Total Communication Services Revenue | | | 89,088 | | | 92,220 | | | — | | | 181,308 | | | 91,750 | | | 89,518 | | | — | | | 181,268 |
Construction | | | — | | | 590 | | | — | | | 590 | | | — | | | 1,586 | | | — | | | 1,586 |
Other | | | | | | | | | | | | | | | | | | | | | | | | |
Managed Services | | | 1,320 | | | 2,556 | | | — | | | 3,876 | | | 1,309 | | | 2,631 | | | — | | | 3,940 |
Total Other Revenue | | | 1,320 | | | 2,556 | | | — | | | 3,876 | | | 1,309 | | | 2,631 | | | — | | | 3,940 |
Total Revenue | | | 90,408 | | | 95,367 | | | — | | | 185,774 | | | 93,059 | | | 93,735 | | | — | | | 186,794 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | |
| 13,825 | |
| (4,342) | |
| (8,847) | |
| 636 | |
| 11,685 | |
| 597 | |
| (7,708) | |
| 4,574 |
4140
| | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | |
| |
| | |
| | | ||
| | International | | US | | Corporate and | | | | | International | | US | | Corporate and | | | | ||||||
| | Telecom | | Telecom | | Other (1) | | Consolidated | | Telecom | | Telecom | | Other (1) | | Consolidated | ||||||||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | | | | | | | | | | |
Mobility - Business | | $ | 3,616 | | $ | 374 | | $ | — | | $ | 3,990 | | $ | 3,575 | | $ | 172 | | $ | — | | $ | 3,747 |
Mobility - Consumer | | | 19,970 | | | 1,456 | | | — | | | 21,426 | | | 22,532 | | | 987 | | | — | | | 23,519 |
Total Mobility | | | 23,586 | | | 1,830 | | | — | | | 25,416 | | | 26,107 | | | 1,159 | | | — | | | 27,266 |
Fixed - Business | | | 17,254 | | | 27,145 | | | — | | | 44,399 | | | 17,113 | | | 36,320 | | | — | | | 53,433 |
Fixed - Consumer | | | 41,093 | | | 18,968 | | | — | | | 60,061 | | | 41,778 | | | 22,582 | | | — | | | 64,360 |
Total Fixed | |
| 58,347 | |
| 46,113 | |
| — | |
| 104,460 | |
| 58,891 | |
| 58,902 | |
| — | |
| 117,793 |
Carrier Services | | | 3,402 | | | 32,989 | | | — | | | 36,391 | | | 3,690 | | | 32,084 | | | — | | | 35,774 |
Other | |
| 276 | |
| — | |
| — | |
| 276 | |
| 400 | |
| 75 | |
| — | |
| 475 |
Total Communication Services Revenue | | | 85,611 | | | 80,932 | | | — | | | 166,543 | | | 89,088 | | | 92,220 | | | — | | | 181,308 |
Construction | | | — | | | 1,987 | | | — | | | 1,987 | | | — | | | 590 | | | — | | | 590 |
Other | | | | | | | | | | | | | | | | | | | | | | | | |
Managed Services | | | 1,176 | | | 2,313 | | | — | | | 3,489 | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Other Revenue | | | 1,176 | | | 2,313 | | | — | | | 3,489 | | | 1,320 | | | 2,556 | | | — | | | 3,876 |
Total Revenue | | | 86,787 | | | 85,232 | | | — | | | 172,019 | | | 90,408 | | | 95,366 | | | — | | | 185,774 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | |
| 11,802 | |
| (4,635) | |
| (7,059) | |
| 108 | |
| 13,825 | |
| (4,342) | |
| (8,847) | |
| 636 |
(1) Reconciling items refer to corporate overhead costs and consolidating adjustments.
A comparison of our segment results for the three months ended March 31, 2023,2024 and 20222023 is as follows:
International Telecom. Revenues within our International Telecom segment increased $3.6$2.7 million, or 4.1%3.0%, to $90.4$93.1 million from $86.8$90.4 million for the three months ended March 31, 20232024 and 2022,2023, respectively, as a result of network upgrades and expansions as well as improved retailcustomer care and marketing strategies which drove an increase in subscribers and equipment sales within all of our international markets. In addition, our US Virgin Islands and Bermuda markets recognized growth in Carrier Services revenue as a result of increased roaming revenues dueled to an increase in tourism in those markets. These increases, however, were partially offset by the scheduled $1.4 million reduction in federal high cost support revenuesmobile and fixed subscribers including an increase in the US Virgin Islands. number of homes passed by high-speed data solutions which allowed us to migrate legacy copper customers to more durable fiber services.
Operating expenses within our International Telecom segment increased by $1.6$4.8 million, or 2.1%6.3%, to $76.6$81.4 million from $75.0$76.6 million for the three months ended March 31, 2024 and 2023, and 2022, respectively. The increase was primarily to support this segment’s revenue growth offset by the resultimpact of an increasecertain cost reduction programs that were implemented in equipment expenses and retail and marketing costs.previous periods.
As a result, our International Telecom segment’s operating income increased $2.0decreased $2.1 million, or 16.9%15.2%, to $13.8$11.7 million from $11.8$13.8 million for the three months ended March 31, 20232024 and 2022,2023, respectively.
US Telecom. Revenue within our US Telecom segment increaseddecreased by $10.2$1.7 million, or 12.0%1.8%, to $95.4$93.7 million from $85.2$95.4 million for the three months ended March 31, 2024 and 2023, and 2022, respectively. Increasesrespectively, primarily as a result of delays in our Alaska subsidiary and the revenue impactdelivery of the Sacred Wind Transaction werecertain carrier service projects partially offset by a reductionan increase in construction revenue related to the FirstNet Transaction, reduction in roaming revenue due to the restructuring of certain carrier contracts in our western United States operations, and a reduction in our international long-distance service revenues.Transaction.
Operating expenses within our US Telecom segment increased $9.9decreased $6.6 million, or 11.0%6.6%, to $99.7$93.1 million from $89.8$99.7 million for the three months ended March 31, 20232024 and 2022,2023, respectively, as a result of increasescertain cost reduction programs that were implemented in expensesprevious periods partially offset by an increase in transport costs and costs associated with project-related revenues.
4241
being incurred to support the increased revenues within our Alaska operations and the impact of the Sacred Wind Transaction partially offset by the decrease in FirstNet construction costs as fewer sites were completed in 2023 as compared to 2022 and a reduction in costs related to our wholesale long-distance business as a result of its decrease in revenues.
As a result of the above, our US Telecom segment’s operating loss decreasedincome (loss) increased by $0.3$4.9 million or 6.5%, to a lossincome of $4.3$0.6 million from a loss of $4.6$4.3 million for the three months ended March 31, 20232024 and 2022,2023, respectively.
The following represents a year over year discussion and analysis of our results of operations for the three months ended March 31, 20232024 and 20222023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Amount of | | Percent |
| | Three Months Ended | | Amount of | | Percent |
| ||||||||||
| | March 31, | | Increase | | Increase |
| | March 31, | | Increase | | Increase |
| ||||||||||
| | 2023 | | 2022 | | (Decrease) | | (Decrease) |
| | 2024 | | 2023 | | (Decrease) | | (Decrease) |
| ||||||
REVENUE: |
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
| |
|
|
| |
Communication services | | $ | 181,308 | | $ | 166,543 | | $ | 14,765 |
| 8.9 | % | | $ | 181,268 | | $ | 181,308 | | $ | (40) |
| (0.0) | % |
Construction | | | 590 | | | 1,987 | | | (1,397) |
| (70.3) | | | | 1,586 | | | 590 | | | 996 |
| 168.8 | |
Other | |
| 3,876 | |
| 3,489 | |
| 387 |
| 11.1 | | |
| 3,940 | |
| 3,876 | |
| 64 |
| 1.7 | |
Total revenue | |
| 185,774 | |
| 172,019 | |
| 13,755 |
| 8.0 | | |
| 186,794 | |
| 185,774 | |
| 1,020 |
| 0.5 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of communications services and other | |
| 79,040 | |
| 73,011 | |
| 6,029 |
| 8.3 | | |
| 80,390 | |
| 79,040 | |
| 1,350 |
| 1.7 | |
Cost of construction revenue | | | 588 | | | 2,033 | | | (1,445) |
| (71.1) | | | | 1,570 | | | 588 | | | 982 |
| 167.0 | |
Selling, general and administrative | |
| 61,348 | |
| 54,882 | |
| 6,466 |
| 11.8 | | |
| 61,315 | |
| 61,348 | |
| (33) |
| (0.1) | |
Stock-based compensation | | | 1,778 | | | 1,461 | | | 317 | | 21.7 | | | | 1,909 | | | 1,778 | | | 131 | | 7.4 | |
Transaction-related charges | | | 13 | |
| 554 | |
| (541) |
| (97.7) | | | | 19 | |
| 13 | |
| 6 |
| 46.2 | |
Restructuring charges | |
| 2,887 | |
| — | |
| 2,887 |
| 100.0 | | |
| 1,190 | |
| 2,887 | |
| (1,697) |
| (58.8) | |
Depreciation and amortization | |
| 36,404 | |
| 33,292 | |
| 3,112 |
| 9.3 | | |
| 34,340 | |
| 36,404 | |
| (2,064) |
| (5.7) | |
Amortization of intangibles from acquisitions | | | 3,247 | | | 3,258 | | | (11) |
| (0.3) | | | | 1,980 | | | 3,247 | | | (1,267) |
| (39.0) | |
(Gain) Loss on disposition of long-lived assets | | | (167) | | | 3,420 | | | (3,587) |
| (104.9) | | ||||||||||||
Gain on disposition of long-lived assets | | | (493) | | | (167) | | | (326) |
| 195.2 | | ||||||||||||
Total operating expenses | |
| 185,138 | |
| 171,911 | |
| 13,227 |
| 7.7 | | |
| 182,220 | |
| 185,138 | |
| (2,918) |
| (1.6) | |
Income from operations | |
| 636 | |
| 108 | |
| 528 |
| 488.9 | | |
| 4,574 | |
| 636 | |
| 3,938 |
| 619.2 | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | |
| 182 | |
| 51 | |
| 131 |
| 256.9 | | |
| 445 | |
| 182 | |
| 263 |
| 144.5 | |
Interest expense | | | (8,807) | | | (3,363) | | | (5,444) |
| 161.9 | | | | (11,520) | | | (8,807) | | | (2,713) |
| 30.8 | |
Other income | |
| 194 | |
| 4,199 | |
| (4,005) |
| (95.4) | | |
| 172 | |
| 194 | |
| (22) |
| (11.3) | |
Other income (expense), net | |
| (8,431) | |
| 887 | |
| (9,318) |
| (1,050.5) | | |
| (10,903) | |
| (8,431) | |
| (2,472) |
| 29.3 | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (7,795) | |
| 995 | |
| (8,790) |
| (883.4) | | ||||||||||||
LOSS BEFORE INCOME TAXES | |
| (6,329) | |
| (7,795) | |
| 1,466 |
| (18.8) | | ||||||||||||
Income tax expense (benefit) | |
| (740) | |
| 2,952 | |
| (3,692) |
| (125.1) | | |
| 1,619 | |
| (740) | |
| 2,359 |
| (318.8) | |
NET LOSS | |
| (7,055) | |
| (1,957) | |
| (5,098) |
| 260.5 | | |
| (7,948) | |
| (7,055) | |
| (893) |
| 12.7 | |
Net loss attributable to noncontrolling interests, net of tax: | |
| 1,170 | |
| 1,009 | |
| 161 |
| 16.0 | | |
| 1,633 | |
| 1,170 | |
| 463 |
| 39.6 | |
NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (5,885) | | $ | (948) | | $ | (4,937) |
| 520.8 | % | | $ | (6,315) | | $ | (5,885) | | $ | (430) |
| 7.3 | % |
4342
Communications Services Revenue
Mobility Revenue. Our Mobility revenue consists of retail revenue generated within both our International Telecom and US Telecom segments by providing retail mobile voice and data services over our wireless networks as well as through the sale and repair services of related equipment, such as handsets and other accessories, to our retail subscribers.
Mobility revenue increaseddecreased by $1.9$0.4 million, or 7.5%1.5%, to $26.9 million for the three months ended March 31, 2024 from $27.3 million for the three months ended March 31, 2023 from $25.4 million for the three months ended March 31, 2022. Of this increase,2023. Mobility revenue from consumer customers increaseddecreased by $2.1$1.5 million partially offset by a reductionan increase in Mobility revenue from business customers of $0.2$1.1 million.
The increasedecrease in Mobility revenue, within our segments, consisted of the following:
● | International |
● | US |
We expect that
Mobility revenue within our International Telecom segment may increase as a result of continued network upgrades and our marketing efforts to increase the number of our subscribers. However, such growth may be partially offset due to increased competition inand regulatory changes within our international markets may limit that segment.revenue growth. We expect that Mobility revenue within our US Telecom segment will decrease over time as we put more emphasis on other revenue sources within that segment.
Fixed Revenue. Revenue. Fixed revenue is primarily generated by broadband, voice, and video service revenues provided to retail and business customers over our wireline networks. Fixed revenue within our US Telecom segment also includes awards from the Connect America Fund Phase II programand Emergency Connectivity Fund programs in the western United States and Alaska, as well as revenue from the Alaska Universal Service Fund. Within our International Telecom segment, Fixed revenue also includes funding under the FCC’s High Cost Program in the US Virgin Islands.
Fixed revenue increased by $13.3$1.4 million, or 12.7%1.2%, to $117.8$119.2 million from $104.5$117.8 million for the three months ended March 31, 20232024 and 2022,2023, respectively. Of this increase, $9.0$0.1 million and $4.3$1.3 million relate to increases in revenue from business and consumer customers, respectively. The increase in Fixed revenue, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, Fixed revenue increased by |
● | US Telecom. Fixed revenue within our US Telecom segment |
4443
from business customers decreased by $1.4 million as a result of a decrease in revenue generated from government programs. This decrease in revenue from business customers was partially offset by an increase in revenue from consumer customers of $0.3 million. |
Fixed revenue within our International Telecom segment may further decreasecontinue to increase as a resultwe continue to add subscribers to our fiber and fiber-fed data solutions deployed to expand and enhance our network reach. We expect the popularity of a decrease invideo and audio streaming, the demand for our videocloud services dueand smart home, business and city solutions to subscribers using alternative methods to receive video content. Such decreases, however, may be offset as a result of an increase inthe demand for broadband and other data services from consumers, businesses and government, drivengovernments. However, such increases may be offset by such trends as the popularity ofa decrease in demand for our services due to subscribers using alternative methods to receive video and audio streaming, demand for cloud services and smart home, business and city solutions as well as macro-economic and population growth in places like the Cayman Islands and Guyana.content.
Within our US Telecom segment, we expect Fixed revenue is expected to increasedecrease in the short term as both ourthe COVID-19 related Emergency Connectivity Fund program was discontinued beyond the first quarter of 2024. Over time, we expect these decreases to be partially offset by increases in other business revenue in Alaska operations and our western United States operations, including the impact of the Sacred Wind Transaction,as we further deploy fiber and fiber-fed broadband access to both consumers and businesses.
Carrier Services Revenue. Carrier Services revenue is generated by both our International Telecom and US Telecom segments. Within our International Telecom segment, Carrier Services revenue includes international long-distance services, roaming revenues generated by other carriers’ customers roaming into our retail markets, transport services and access services provided to other telecommunications carriers. Within our US Telecom segment, Carrier Services revenue includes services provided under the FirstNet Transaction,Agreement and Verizon Carrier Managed Services Agreement, wholesale roaming revenues, the provision of network switching services, tower lease revenue and other services provided to other carriers.
Carrier Services revenue decreased by $0.6$2.2 million, or 1.6%6.1%, to $35.8$33.6 million from $36.4$35.8 million for the three months ended March 31, 20232024 and 2022,2023, respectively. The increase,decrease, within our segments, consisted of the following:
● | International |
● | US Telecom. Carrier Services revenue within our US Telecom segment decreased by |
Within our International Telecom segment, Carrier Services revenue may continue to increase if tourisminternational travel continues to move towardincrease. Such increases, however, may be partially offset by a return to pre-pandemic levels. However,decrease within our International Telecom segment, we expect that Carrier Services revenue from our international long distancelong-distance business in Guyana may decrease as consumers seek to use alternative technology services to place long-distance calls. Further, such revenue may decline as the result of the implementation, by the Government of Guyana, of passed legislation which terminates our right to be the exclusive provider of domestic Fixed and international long-distance service in Guyana. While the loss of our exclusive rights in Guyana may cause an immediate reduction in our Carrier Services revenue, the complete impact of the new legislation to our operations will not be fully known until the Government of Guyana makes the terms and conditions of licenses issued to two of our competitors available to us. Over the longer term, such declines in Carrier Services revenue may be offset by increased Fixed revenue from broadband services to consumers and enterprises in Guyana, increased Mobility revenue from an increase in regulated local calling rates in Guyana or possible economic growth within that country.
Within our US Telecom segment, Carrier Services revenue may decreaseincrease as a result of the impact of continued reduced contractual wholesale roaming rates and imposed revenue caps with our Carrier customers.recent carrier service management contracts.
Other Communications Services Revenue. Other Communications Services revenue includes miscellaneous services that the operations within our International Telecom segment provide to retail subscribers.subscribers and project-related revenue generated within our US Telecom segment. Other Communications Services revenue increased by $1.1 million to $0.5$1.6 million from $0.3$0.5 million for the three months ended March 31, 2024 and 2023, respectively, primarily as a result of $0.2 million and 2022, respectively.$0.7 million of non-recurring project-related revenue being recognized within our International Telecom and US Telecom segments, respectively, during the three months ended March 31, 2024.
4544
We expect that other communications services revenue will decline to previously reported levels as the project-related fiber deployment engineering services revenue, reported during the quarter ended March 31, 2024, is not expected to continue subsequent to the completion of that project.
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 March 31, 20232024 and 2022,2023, Construction revenue decreasedincreased to $0.6$1.6 million from $2.0$0.6 million, respectively, as a result of a decreasean increase in the number of sites completed during 20232024 as compared to 2022. As of March 31, 2023, approximately 75% of the cell sites related to the FirstNet Agreement were completed and we2023. We expect to substantially complete the build by the end of 20232024 with the remainder to be completed in early 2024.2025.
Other Revenue
Managed Services Revenue. Managed Services revenue is generated within both our International and US Telecom segments and includes network, application, infrastructure, and hosting services.
Managed Services revenue increased by $0.4 million, or 11.4%, toremained consistent at $3.9 million from $3.5 million for the three months ended March 31, 20232024 and 2022, respectively.
International Telecom.2023. Managed Services revenue inwithin both our International Telecom segment increased $0.1 million toand US Telecom segments remained consistent at $1.3 million or 8.3%, from $1.2and $2.6 million, for the three months ended March 31, 2023 and 2022, respectively.
US Telecom. Within our US Telecom segment, Managed Services revenue increased $0.3 million, or 13.0%, to $2.6 million from $2.3 million for the three months ended March 31, 2023 and 2022, respectively.
We expect that Managed Services revenue may increase in both our US and International Telecom segments as a result of our continued effort to sell certain Managed Services solutions to both our consumer and business customers in all of our markets.
Operating Expenses
Cost of communication services and other. Cost of communication services and other are charges that we incur for voice and data transport circuits (in particular, the circuits between our Mobility sites and our switches), internet capacity, video programming costs, access fees we pay to terminate our calls, telecommunication spectrum fees and direct costs associated within our managed services businesses. These costs also include expenses associated with developing, operating, upgrading and supporting our telecommunications networks, including the salaries and benefits paid to employees directly involved in the development and operation of those businesses, as well as credit loss allowances and the cost of handsets and customer resale equipment incurred by our retail businesses.
Cost of communication services and other increased by $6.0$1.4 million, or 8.2%1.8%, to $79.0$80.4 million from $73.0$79.0 million for the three months ended March 31, 20232024 and 2022,2023, respectively. The net increase in cost of communication services and other, within our segments, consisted of the following:
● | International Telecom.Within our International Telecom segment, cost of communication services and other |
● | US Telecom. Cost of communication services and other within our US Telecom segment increased by |
Cost of communication services in both our International and US Telecom segments may increase as a result of product mix with an expected increase in fixed revenue and as a result of continued inflationary pressure.
4645
We expect that cost of communication services and other may increase within our International Telecom segment due to an expected increase in roaming costs if tourism continues to return to pre-pandemic levels. Within the US Telecom segment, these expenses are expected to increase in connection with our expected increase in fixed revenue, and anticipated expenses in connection with our performance related to the construction phase of our FirstNet Transaction which is expected to be substantially completed in 2023. In addition, we expect cost of services may increase as a result of continued inflationary pressure, issues facing the global supply chain and geopolitical uncertainty.
Cost of construction revenue. Cost of construction revenue includes the expenses incurred in connection with the construction of and the delivery to AT&T of cell sites in accordance with our FirstNet Agreement. During the three months ended March 31, 20232024 and 2022,2023, cost of construction revenue decreasedincreased to $0.6$1.6 million from $2.0$0.6 million as a result of a decreasean increase in the number of sites completed during 20232024 as compared to 2022. As of March 31, 2023, 75% of the cell sites related to the FirstNet Agreement and we2023. We expect to substantially complete the build by the end of 20232024 with the remainder to be completed in early 2024.2025.
Selling, general and administrative expenses. Selling, general and administrative expenses include salaries and benefits we pay to sales personnel, customer service expenses and the costs associated with the development and implementation of our promotional and marketing campaigns. Selling, general and administrative expenses also include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources as well as internal costs associated with our performance of due-diligence and integration related costs associated with acquisition activities.
Selling, general and administrative expenses increased by $6.4 million, or 11.7%, toremained consistent at $61.3 million from $54.9 million for the three months ended March 31, 20232024 and 2022, respectively.2023. The net increasechanges in selling, general and administrative expenses, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, our selling, general and administrative expenses increased by |
● | US Telecom. Selling, general and administrative expenses |
● | Corporate Overhead. Selling, general and administrative expenses within our corporate overhead |
We expect that selling,Selling, general and administrative expenses may increase in our international telecomInternational Telecom segment to support our expanded operations. Within the US Telecom segment, we expect an increase in these costs as a result of expected costs associated with the impact of the construction phase of the FirstNet Transaction, the Sacred Wind Transaction, our commitments under the Cares Act funding and other network expansions in Alaska and the southwest US. Our Corporate Overhead segment may also experience an increase in these expenses to support our recent acquisitions and expanding operations. In addition, we expect our selling, general, and administrative expenses may increase as a result of continued inflationary pressure, issues facing the global supply chain and geopolitical uncertainty.
Stock-based compensation. Stock-based compensation represents a non-cash expense related to the amortization of the grants of equity awards to employees and directors.
Stock-based compensation for the three months ended March 31, 2024 and 2023 was $1.9 million and 2022 was $1.8 million, and $1.5 million, respectively.
47
Transaction-related charges. Transaction-related charges include the external costs, such as legal, tax, accounting and consulting fees directly associated with acquisition and disposition-related activities, which are expensed as incurred. Transaction-related charges also include certain internal personnel costs incurred as a result of the completion of an acquisition or disposition. Transaction-related charges do not include employee salary and travel-related expenses, incurred in connection with acquisitions or dispositions or any integration-related costs.
We incurred a nominal amount of transaction-related charges during the three months ended March 31, 20232024 and $0.62023.
46
Restructuring expenses. In order to reduce costs to improve our cost structures and improve profitability, we incurred certain reduction in force costs totaling $1.2 million within our International Telecom segment during the three months ended March 31, 2022.
Restructuring expenses. In connection with our repositioning of our legacy wholesale roaming operations in our US Telecom segment, we recorded a $2.9 million restructuring charge during the three months ended March 31, 2023 related to the decommissioning of certain cell sites.2024.
Depreciation and amortization expenses. Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment.
Depreciation and amortization expenses increaseddecreased by $3.1$2.1 million, or 9.3%5.8%, to $36.4$34.3 million from $33.3$36.4 million for the three months ended March 31, 20232024 and 2022,2023, respectively. The net increasedecrease in depreciation and amortization expenses, within our segments, consisted primarily of the following:
● | International Telecom. Depreciation and amortization expenses increased within our International Telecom segment by |
● | US Telecom. Depreciation and amortization expenses |
● | Corporate Overhead. Depreciation and amortization expenses decreased within our corporate overhead by |
We expect depreciation and amortization expenseexpenses to increasedecrease within our International Telecom and US Telecom segments as some of our tangible and intangible assets we acquire tangible assets to expand or upgrade our telecommunications networks.acquired are now fully depreciated.
Amortization of intangibles from acquisitions. Amortization of intangibles from acquisitions include the amortization of customer relationships and trade names related to our completed acquisitions.
Amortization of intangibles from acquisitions decreased by $0.1$1.2 million to $3.2$2.0 million from $3.3$3.2 million for the three months ended March 31, 2024 and 2023, and 2022, respectively.respectively, as a result of certain intangible assets becoming fully amortized in recent periods.
We expect that amortization of intangibles from acquisitions will decrease as such costs continue to amortize.
LossGain on disposition of long-lived assets. During the three months ended March 31, 2024, we recorded a gain on the disposition of assets of $0.5 million primarily relating to the previously completed disposition of our renewable energy assets.
During the three months ended March 31, 2023, we recorded a gain on the disposition of long-lived assets of $0.2 million within our US Telecom segment.
During the three months ended March 31, 2022, we recorded a loss on the disposition of long-lived assets of $3.4 million. Of this amount, $2.4 million was incurred in our US Telecom segment relating to the disposal of certain assets while $1.0 million was incurred in our International Telecom segment as a result of the modification of agreements for the use of other certain assets.
48
Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short-term investment balances. Interest income was a nominal amount$0.4 million and $0.2 million for both the three months ended March 31, 2024 and 2023, and 2022.respectively.
Interest expense. We incur interest expense on the 20192023 CoBank Credit Facility, the Alaska Credit and Term Facilities, the Viya Debt, the One Communications Debt and theFirstNet Receivables Credit Facility. Beginning inFacility, the fourth quarter of 2022 and the first quarter of 2023, interest expense also includes interest expense onGTT Credit Facilities, the Sacred Wind Term Debt and the GTT Credit Facilities (each as defined below). Previously, we also incurred interest expense on the One Communications Debt, which matured on December 22, 2022.Viya Debt. In addition, interest expense also includes commitment fees, letter of credit fees and the amortization of debt issuance costs.
47
Interest expense increased to $8.8$11.5 million from $3.4$8.8 million for the three months ended March 31, 20232024 and 2022,2023, respectively, as additional interest expense was incurred as a result of an increase in borrowings under our credit facilities the inclusion of Sacred Wind Term Debt and the GTT Credit Facilities, as well as ana year-over-year increase in interest ratesthe term SOFR rate on all floating-rate borrowings.borrowings under those facilities.
We expect that interestInterest expense may increase in future periods as a result of increasedincreases in interest rates and future borrowings.
Other income (expenses). For the three months ended March 31, 2024, other income (expenses) was $0.2 million of income primarily related to certain employee benefit plans partially offset by losses on foreign currency transactions.
For the three months ended March 31, 2023, other income (expenses) was $0.2 million of income primarily related to gains from our noncontrolling investments.
For the three months ended March 31, 2022, other income (expenses) was $4.8 million of income primarily related to gains from our non-controlling investments.
Income taxes.Our effective tax rate for the three months ended March 31, 2024 and 2023 was (25.6%) and 2022 was 9.5% and 296.7%, respectively.
We recorded an income tax expense of $1.6 million in relation to a pretax loss of $6.3 million for the three months ended March 31, 2024. The effective tax rate for the three months ended March 31, 2024 was primarily impacted by the following items: (i) the mix of income generated among the jurisdictions in which we operate, (ii) net expense related to valuation allowances placed on certain deferred tax assets that are not expected to be realizable based on the weight of positive and negative evidence, (iii) forecasted tax impact of global intangible low-taxed income (“GILTI”) inclusion, and (iv) discrete items including expense of $1.5 million to record an uncertain tax position for the current year, and expense of $0.7 million for interest on uncertain tax positions for prior years.
We recorded an income tax benefit of $0.7 million in relation to a pretax loss of $7.8 million for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2023 was primarily impacted by the following itemsitems: (i) the mix of income generated among the jurisdictions in which we operate, (ii) a net increase related to valuation allowances placed on certain deferred tax assets and (iii) discrete items including $0.6 million of expense for interest on unrecognized tax positions.
We recorded an income tax provision of $3.0 million in relation to income before taxes of $1.0 million for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2022 was primarily impacted by the following items: (i) a $0.5 million net increase of unrecognized tax positions recognized discretely, (ii) a $2.1 million net expense recognized discretely to record a valuation allowance on certain deferred tax assets that are not expected to be realizable based on the weight of positive and negative evidence, and (iii) the mix of income generated among the jurisdictions in which we operate.
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 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.
49
Net income attributable to noncontrolling interests, net of tax. Net income attributable to noncontrolling interests, net of tax reflected an allocation of losses of$1.6 million and $1.2 million and $1.0 millionof losses generated by our less than wholly owned subsidiaries for the three months ended March 31, 20232024 and 2022,2023, respectively. Changes in net income attributable to noncontrolling interests, net of tax, within our segments, consisted of the following:
● | International Telecom. Within our International Telecom segment, net income attributable to noncontrolling interests, net of tax |
● | US Telecom. Within our US Telecom segment, |
48
million for the three months ended March 31, |
Net loss attributable to ATN International, Inc. stockholders. Net loss attributable to ATN International, Inc. stockholders was a loss of$6.3 million for the three months ended March 31, 2024 as compared to $5.9 million for the three months ended March 31, 2023 as compared to a loss of $0.9 million for the three months ended March 31, 2022.2023.
On a per diluted share basis, net loss was a loss of$0.50 per diluted share for the three months ended March 31, 2024 as compared to $0.44 per diluted share for the three months ended March 31, 2023 as compared to a loss of $0.13 per diluted share for the three months ended March 31, 2022.2023. Such per share amounts were negatively impacted by accrued preferred dividends of $1.0$1.3 million and $1.1$1.0 million for the three months ended March 31, 20232024 and 2022,2023, respectively.
Regulatory and Tax Issues
We are involved in severala 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 14 of13 to the Consolidated Financial Statements in this Report.Report.
Liquidity and Capital Resources
Historically, we have met our operational liquidity needs and have funded our capital expenditures and acquisitions through a combination of cash-on-hand, internally generated funds, proceeds from dispositions, borrowings under our credit facilities and seller financings. We believe our current cash, cash equivalents, short term investments and availability under our current credit facilities will be sufficient to meet our cash needs for at least the next twelve months for working capital needs and capital expenditures.
Total liquidity. As of March 31, 2023,2024, we had approximately $61.0$69.2 million in cash, cash equivalents, and restricted cash. Of this amount, $25.7$30.0 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. In addition, we had approximately $464.7$541.3 million of debt, net of unamortized deferred financing costs, as of March 31, 2023.2024. How and when we deploy our balance sheet capacity, including the availability under our various credit facilities (as further described below), will figure prominently in our longer-term growth prospects and stockholder returns.
Uses of Cash
Acquisitions and investments. We have historically funded our acquisitions with a combination of cash-on-hand, borrowings under our credit facilities as well as equity investor and seller financings.
Sacred Wind Transaction. On November 7, 2022, we assumed $31.6 million of debt in connection with the Sacred Wind Transaction. See Acquisition of Sacred Wind Enterprises.
50
We continue to explore opportunities to expand our telecommunications business or acquire new businesses in the United States, the Caribbean and elsewhere. Such acquisitions may require external financing. While there can be no assurance as to whether, when or on what terms we will be able to acquire any such businesses or make such investments, such acquisitions may be completed through the issuance of shares of our capital stock, payment of cash or incurrence of additional debt. From time to time, we may raise capital ahead of any definitive use of proceeds to allow us to move more quickly and opportunistically if an attractive investment materializes.
Cash used in investing activities. Cash used in investing activities wasdecreased by $17.1 million to $35.7 million from $52.8 million and $34.5 million for the three months ended March 31, 2024 and 2023, and 2022, respectively. The net increase in cash used for investing activities of $18.3 millionThis year-over-year decrease was the result of an increasea decrease in capital expenditures of $18.3$14.6 million, which includespartially offset by an increase in reimbursable capital expenditures under certain government programs of $1.9$11.3 million.
Cash provided by financing activities. Cash provided by financing activities Actual reimbursements of previously reported capital expenditures increased by $18.8$10.0 million to $38.0 million from $19.2 million forduring the three months ended March 31, 2023 and 2022, respectively. This increase was primarily related2024 as compared to an increase in borrowings, netthe same period of repayments, under2023. In addition, the three months ended March 31, 2024 includes $3.7 million of proceeds from the sale of certain assets within our credit facilitiesInternational Telecom segment.
49
Working Capital. Historically, we have internally funded our working capital needs. Pursuant to the FirstNet Agreement, AT&T has the option to repay construction costs, with interest, over an eight-year period. To fund the working capital needs created by AT&T’s option to extend its payment terms, we completed the Receivables Credit Facility, as discussed below, on March 26, 2020.
Capital expenditures. Historically, a significant use of our cash has been for capital expenditures to expand and upgrade our telecommunications networks and business support systems.
For the three months ended March 31, 20232024 and 2022,2023, we spent approximately $52.7$49.5 million and $34.5$52.7 million, respectively, on capital expenditures relating to our telecommunications networks and business support systems of which $2.1$13.5 million and $0.2$2.1 million, respectively, are reimbursable under various government programs. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
| | | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2023 | | $ | 21,464 | | $ | 31,261 | | $ | — | | $ | 52,725 |
2022 | | | 15,170 | | | 19,095 | | | 203 | | | 34,468 |
| | | | | | | | | | | | |
| | Capital Expenditures | ||||||||||
| |
| | |
| | |
| | |
| |
| | | International | | | US | | | Corporate and | | | |
Three months ended March 31, | | | Telecom | | | Telecom | | | Other (1) | | | Consolidated |
2024 | | $ | 16,915 | | $ | 31,233 | | $ | 1,341 | | $ | 49,489 |
2023 | | | 21,464 | | | 31,261 | | | — | | | 52,725 |
(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. For the year ended December 31, 2023,2024, such investments are expected to total approximately $160$100 million to $170$110 million, net of reimbursable amounts, and will primarily relate to network expansion and upgrades which are expected to further drive subscriber and revenue growth in future periods.
Income taxes.We have historically used cash-on-hand to make payments for income taxes. Our policy is to allocate capital where we believe we will get the best returns and to date has been to indefinitely reinvest the undistributed earnings of our foreign subsidiaries. As we continue to reinvest our remaining foreign earnings, no additional provision for income taxes has been made on the accumulated earnings of foreign subsidiaries.
51
Dividends. For the three months ended March 31, 2023,2024, our Board of Directors declared $3.3$3.7 million of dividends to our stockholders which includes a $0.21$0.24 per share dividend declared on March 14, 202318, 2024 and paid on April 7, 2023.5, 2024. We have declared quarterly dividends since the fourth quarter of 1998.
Stock Repurchase Plan. On September 19, 2016,December 14, 2023, our Board of Directors authorized the repurchase of up to $50.0$25.0 million of our common stock, from time to time, on the open market or in privately negotiated transactions (the “2016“2023 Repurchase Plan”). The 2023 Repurchase Plan replaced the previously approved 2016 Repurchase Plan and, as of March 31, 2024, had $24.9 million available to repurchase shares of our common stock. We repurchased $1.4$0.1 million and $0.9$1.4 million of our common stock under the 2016 Repurchase Plan during the three months ended March 31, 2024 and 2023, and 2022, respectively. As of March 31, 2023, we had $18.0 million authorized and available for share repurchases under the 2016 Repurchase Plan.
Sources of Cash
Cash provided by operations. Cash provided by operating activities was $16.0 million for the year ended March 31, 2023 as compared to $11.4$23.2 million for the three months ended March 31, 2022.2024 as compared to $16.0 million for the three months ended March 31, 2023. The increase of $4.6$7.2 million was primarily related to an increase in cash provided bythe change in operating assets and liabilities, primarily receivablesrelated to our accounts payable and accrued expenses.
Cash provided by financing activities. Cash provided by financing activities decreased by $18.4 million to $19.6 million from $38.0 million for the three months ended March 31, 2024 and 2023, respectively. This decrease was primarily related to the decrease in borrowings, net of $1.9repayments, under our credit facilities of $19.5 million andpartially offset by the $0.8 million increase in cash used for the repurchase of our common stock (including shares repurchased
50
from employees to satisfy certain accrued expenses of $2.9 million.tax withholding obligations as well as repurchases under our Stock Repurchase Plans as discussed below).
2023 CoBank Credit Facility
On July 13, 2023, we, along with certain of our subsidiaries as guarantors, entered into a new Credit Agreement with CoBank, ACB and a syndicate of other lenders (as may be amended from time to time, the “2023 CoBank Credit Facility”).
The 2023 CoBank Credit Facility provides for a five-year $170 million revolving credit facility (the “2023 CoBank Revolving Loan”) and a six-year $130 million term loan facility (the “2023 CoBank Term Loan”). We may use (i) up to $25 million under the 2023 CoBank Credit Facility for letters of credit, and (ii) up to $20 million under a swingline sub-facility. Upon the closing of the 2023 CoBank Credit Facility, we drew all of the 2023 CoBank Term Loan and approximately $13.6 million of the 2023 CoBank Revolving Loan. These borrowings were used to repay $139.5 million of debt outstanding under the 2019 CoBank Credit Facility at close.
The 2023 CoBank Term Loan must be repaid in quarterly principal payments in the amounts set forth below, with the outstanding principal balance maturing on July 13, 2029. The 2023 CoBank Revolving Loan may be repaid at any time on or prior to its maturity on July 13, 2028. All amounts outstanding under the 2023 CoBank Credit Facility will be due and payable upon the earlier of the maturity date or the acceleration of the loans and commitments upon an event of default.
| |
2023 CoBank Term Loan Quarterly Payment Dates | 2023 CoBank Term Loan Quarterly Repayments |
December 31, 2023 – June 30, 2025 | $812,500 (2.5% per annum) |
September 30, 2025 – June 30, 2026 | $1,625,000 (5% per annum) |
September 30, 2026 – June 30, 2029 | $2,437,500 (7.5% per annum) |
Amounts borrowed under the 2023 CoBank Credit Facility bear interest at a rate equal to, at our option, either (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York (SOFR) plus an applicable margin ranging between 2.00% to 3.75% for the 2023 CoBank Term Loan or 1.75% to 3.50% for Revolving Loans or (ii) a base rate plus an applicable margin ranging from 1.00% to 2.75% for the Term Loan or 0.75% to 2.50% for the 2023 CoBank Revolving Loans. Swingline loans will 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 one-month SOFR rate (ii) the federal funds effective rate (as defined in the 2023 CoBank Credit Agreement) plus 0.50% per annum; and (iii) the prime rate (as defined in the 2023 CoBank Credit Agreement). The applicable margin is determined based on the ratio (as further defined in the 2023 CoBank Credit Agreement) of our maximum Total Net Leverage Ratio. Under the terms of the 2023 CoBank Credit Agreement, we must also pay a fee ranging from 0.25% to 0.50% on the average daily unused portion of the 2023 CoBank Credit Facility over each calendar quarter.
The 2023 CoBank Credit Agreement contains a financial covenant (as further defined in the 2023 CoBank Credit Agreement) that imposes a maximum Total Net Leverage Ratio, as well as 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. The maximum Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 3.25 to 1.0. The 2023 CoBank Credit Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy.
We capitalized $4.2 million of fees associated with the 2023 CoBank Credit Facility which are being amortized over the life of the debt and $3.7 million were unamortized as of March 31, 2024.
51
We had $128.4 million outstanding under the 2023 CoBank Term Loan as of March 31, 2024. Under the 2023 CoBank Revolving Loan, we had $60.8 million outstanding and $109.2 million of availability as of March 31, 2024. We were in compliance with all financial covenants as of March 31, 2024.
In October 2023, we entered a two year, forward starting 1-month floating to fixed SOFR interest rate swap agreement. The swap was effective November 13, 2023 in a non-amortizing notional amount of $50.0 million, has a fixed SOFR rate of 4.896% and matures on November 13, 2025.
2019 CoBank Credit Facility
On April 10, 2019, we entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (as amended, the “2019 CoBank Credit Facility”). The 2019 CoBank Credit Facility providesprovided for a $200 million revolving credit facility that includesincluded (i) up to $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $24.0 millionIn connection with the execution of performance letters of credit have been issued and remainthe 2023 CoBank Credit Facility, as defined above, outstanding and undrawn as of March 31, 2023. Theborrowings under the 2019 CoBank Credit Facility matures on April 10, 2024.were repaid in full.
Amounts borrowed under the 2019 CoBank Credit Facility bearbore 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 bearbore interest at the base rate plus the applicable margin for base rate loans. The base rate iswas equal to the higher of (i) 1.00% plus the higher of (x) LIBOR for an interest period of one month and (y) LIBOR for an interest period of one week; (ii) the Federal Funds Effective Rate (as defined in the 2019 CoBank Credit Facility) plus 0.50% per annum; and (iii) the Prime Rate (as defined in the 2019 CoBank Credit Facility). The applicable margin iswas 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 paypaid a commitment fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 CoBank Credit Facility over each calendar quarter.
On November 7, 2022, we further amended the 2019 CoBank Credit Facility to allow for the incurrence of certain indebtedness related to payment guarantees in connection with its Replace and Remove project.
On December 28, 2022, we further amended the 2019 CoBank Credit Facility, effective November 7, 2022, to allow for certain transactions contemplated with our recently completed acquisition of Sacred Wind Enterprises, Inc.
The 2019 CoBank Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. Our investments in “unrestricted” subsidiaries and certain dividend payments to our stockholders are not limited unless the Total Net Leverage Ratio is equal to or greater than 1.75 to 1.0. The Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 2.75 to 1.0. In the event of a Qualifying Acquisition (as defined in the 2019 CoBank Credit Facility), the Total Net Leverage Ratio increases to 3.25 to 1.0 for the subsequent three fiscal quarters.
52
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 March 31, 2023, we were in compliance with all of the financial covenants, had $122.0 million outstanding and $54.0 million of availability in connection with the 2019 CoBank Credit Facility. There were no outstanding interest rate hedge agreements under the 2019 CoBank Credit Facility as of March 31, 2023.
Letter of Credit Facility
On November 14, 2022, we entered into a General Agreement of Indemnity to issue performance Standby Letters of Credit on behalf of us and our subsidiaries. As of March 31, 2023, $4.22024, $32.4 million of Standby Letters of Credit had been issued under this agreement.
Alaska Credit Facility
On July 22, 2021, Alaska Communications entered into a Credit Agreement (the “Alaska Credit Facility”) with Fifth Third Bank, National Association, as Administrative Agent, and a syndicate of lenders to provide a $35.0 million revolving facility (the “Alaska Revolving Facility”) and a $210.0 million initial term loan facility (the “Alaska Term Loan”).
On December 23, 2022, Alaska Communications entered into a First Amendment Agreement (the “ACS Amendment’Amendment”). The ACS Amendment amends the Alaska Credit Facility to increase its Revolving Credit Commitment from $35.0 million to $75.0 million and Term Loan Commitment from $210$210.0 million to $230$230.0 million. As a part of the transaction, the Term Loan commitment was fully funded as the outstanding Revolving Credit Commitment balance was transferred.
As of March 31, 2023,2024, Alaska Communications had drawn $17.0$40.0 million on its Revolving Credit Commitment and had $58.0$35.0 million is available to draw. The Term Loan balance was $230.0$227.1 million and principal payments commencecommenced in the fourth quarter of 2023. Both facilities mature on July 22, 20262026.
52
In addition to the above changes, the ACS Amendment replaced the calculation of interest from an applicable margin applied to LIBOR with the same applicable margin applied to the Secured Overnight Financing Rate (“SOFR”) plus a 10-basis point adjustment.
WeAlaska Communications capitalized $7.3 million of fees associated with the Alaska Credit Facility which are being amortized over the life of the debt and $5.0$3.5 million were unamortized as of March 31, 2023. 2024.
The Alaska Credit Facility also provides for incremental facilities up to an aggregate principal amount of the greater of $70.0 million and Alaska Communications’ trailing twelve-month Consolidated EBITDA (as defined in the Alaska Credit Facility).
The key terms and conditions of the Alaska Credit Facility include the following:
● | Amounts outstanding bear an interest rate of the forward-looking SOFR rate with a one-month interest period, plus the SOFR Spread Adjustment of 10 basis points, 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 SOFR margin; |
53
● | Principal repayments are due quarterly |
● | Alaska Communications is required to maintain financial ratios as defined in the Alaska Credit Facility, including (a) a maximum Consolidated Net Total Leverage Ratio of 4.00 to 1, stepping down to 3.75 to 1 beginning with the second quarter of 2024; and (b) a minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1; and |
● | The Alaska Credit Facility is non-recourse to us and is secured by substantially all of the personal property and certain material real property owned by Alaska Communications. |
Alaska Communication’s interest rate swap, which had been designated as a cash flow hedge with an interest rate of 1.6735%, expired on June 30, 2022. As of March 31,In November 2023, there are no outstandingAlaska Communications entered two forward starting 1-month floating to fixed SOFR interest rate hedgeswap agreements. The total non-amortizing notional amount of the agreements associatedis $200.0 million, with the Alaska Credit Facility.fixed SOFR rates of 4.8695% and 4.8980% and both agreements mature on June 30, 2025.
Alaska Term Facility
On June 15, 2022, Alaska Communications Systems Holdings, the parent company of Alaska Communications, entered into a secured lending arrangement with Bristol Bay Industrial, LLC.LLC (the “Alaska Term Facility”).
The Alaska Term Facility providesprovided for a secured delayed draw term loan in an aggregate principal amount of up to $7.5 million and the proceeds may bewere used to pay certain invoices from a contractor for work performed in connection
53
with a fiber build. Interest on the Alaska Term Facility accrues at a fixed rate of 4.0% and is payable commencing on March 31, 2023. Scheduledscheduled quarterly payments of principal commenced on March 31, 2023. The Alaska Term Facility matures on June 30, 2024.
The Alaska Term Facility contains events of default customary for facilities of this type.
As of March 31, 2023, we2024, Alaska Communications Systems Holdings had $7.1$5.3 million outstanding and no available borrowings under the Alaska Term Facility.
FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into a receivables credit facility with us, Commnet Wireless, and CoBank, ACB (the “Receivables Credit Facility”).
The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75.0 million and the proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the Receivables Credit Facility, which provide the loan security, relate to the obligations of AT&T under the FirstNet Agreement.
On December 23, 2022,19, 2023, CoBank amended the Receivables Credit Facility and extended the delayed draw period to December 31, 2023.2024.
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 accruesaccrue at a fixed annual interest rate to be quoted by CoBank.
54
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 March 31, 2023, we2024, Commnet Wireless had $48.9$48.4 million outstanding, of which $6.8$7.6 million was current, and $18.0 $11.3 million of availability under the Receivables Credit Facility. WeCommnet Wireless capitalized $0.8 million in fees associated with the Receivables Credit Facility which are being amortized over the life of the debt and $0.6$0.5 million were unamortized as of March 31, 2023.2024.
GTT Credit Facilities
On September 5,October 12, 2022, GTT received approval from Republic Bank (Guyana) Limited for a $2.9 million term facility and a $5.7 million overdraft facility (the “GTT Credit Facilities”) subject to the approval from the Minister of Finance at the Bank of Guyana. Such approval from the Minister of FinanceGuyana, which was received during the quarter endedon March 31, 2023.
The GTT Credit Facilities are secured by real estate assets and carry a fixed interest rate of 7.5% which will be reviewed by the bank from time to time and subject to change at the bank’s discretion. The term facility is repayable over five years in equal monthly installments of principal and interest, commencing one month after funds are advanced. The overdraft facility will expire on October 11, 2023.31, 2024.
As of March 31, 2023, $3.6 million was outstanding under the overdraft facility and2024, there were no outstanding amounts under the term facility.GTT Credit Facilities.
Sacred Wind Term Debt
In connection with the Sacred Wind acquisition completed on November 7, 2022, we assumed $31.6 million of term debt (the “Sacred Wind Term Debt”) with the United States of America acting through the Administrator of the
54
Rural Utilities Service (“RUS”). The loan agreements are dated as of October 23, 2006 and March 17, 2016. RUS provides financial assistance in the form of loans under the Rural Electrification Act of 1936 to furnish or improve telecommunications and/or broadband services in rural areas.
The Sacred Wind Term Debt is secured by substantially all assets of Sacred Wind and an underlying mortgage to the United States of America. These mortgage notes are to be repaid in equal monthly installments covering principal and interest beginning after date of issue and expiring by 2035.
The Sacred Wind Term Debt contains certain restrictions on the declaration or payment of dividends, redemption of capital stock or investment in affiliated companies without the consent by the RUS noteholders. The agreements also contain a financial covenant which Sacred Wind Enterprises was not in compliance with as of December 31, 2021. Sacred Wind Enterprises submitted a corrective action plan to comply with the financial covenant as of December 31, 2025. On May 5, 2022, Sacred Wind Enterprise’sWind’s corrective action plan was accepted by the RUS. As of March 31, 2023,2024, we were in compliance with that corrective action plan.
As of March 31, 2023, $30.62024, $27.4 million was outstanding under the Sacred Wind Term Debt. Of that amount, $3.2$3.3 million was current and $27.4$24.1 million was long term.
The mortgage notes carry fixed interest rates ranging from 0.88% to 5.0%.
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
55
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 ourthe Viya subsidiaries and is guaranteed by us.
We paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya Debt. The fee was recorded as a reduction to the Viya Debt carrying amount and is being amortized over the life of the loan.
As of March 31, 2023,2024, $60.0 million of the Viya Debt remained outstanding and $0.3$0.2 million of the rate lock fee was unamortized.
On May 5, 2022, RTFC agreed to amend the Net Leverage Ratio to 7.0 to 1.0 through the maturity date of July 1, 2026. The Ratio is tested annually, and we were in compliance with the Net Leverage Ratio as of December 31, 2022.2023.
One Communications Debt
55
We had an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which matured and was repaidDebt Maturity
The table below summarizes the annual maturities of our debt instruments (amounts in full on December 22, 2022. This loan bore interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75% per annum paid quarterly.thousands):
| | | | | | | | | | | | | |
| | | | | | | | | | | | Customer | |
| US | | International | | Corporate and | | Total | Receivable | |||||
Amounts Maturing During | Telecom | | Telecom | | Other | | Debt | Credit Facility | |||||
April 1, 2024 through December 31, 2024 | $ | 13,549 | | $ | — | | $ | 2,438 | | $ | 15,987 | $ | 5,644 |
Year ending December 31, 2025 | | 14,969 | | | — | | | 4,875 | | | 19,844 | | 7,830 |
Year ending December 31, 2026 | | 253,469 | | | 60,000 | | | 8,125 | | | 321,594 | | 8,192 |
Year ending December 31, 2027 | | 3,723 | | | — | | | 9,750 | | | 13,473 | | 8,572 |
Year ending December 31, 2028 | | 3,858 | | | — | | | 9,750 | | | 13,608 | | 8,973 |
Thereafter | | 10,192 | | | — | | | 154,257 | | | 164,449 | | 9,221 |
Total | | 299,760 | | | 60,000 | | | 189,195 | | | 548,955 | | 48,432 |
Debt Discounts | | (3,764) | | | (224) | | | (3,676) | | | (7,664) | | (455) |
Book Value as of March 31, 2024 | $ | 295,996 | | $ | 59,776 | | $ | 185,519 | | $ | 541,291 | $ | 47,977 |
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 industry.
Restrictions under Credit Facility. Our 20192023 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.
Maturity of Credit Facility. Our 2019In addition, the 2023 CoBank Credit Facility matures on April 10,contains a financial covenant that imposes a maximum ratio of indebtedness to EBITDA. As of March 31, 2024, which is within twelve monthswe were in compliance with all of the date these consolidated financial statements are available to be issued. At March 31, 2023, we owed $122.0 million for amounts drawn under the credit facility. For the year ended December 31, 2022, we generated positive cash flows from operating activities of $102.9 million. At March 31, 2023, we had $56.0 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash. If we are unable to refinance our existing debt or obtain additional financing on or before the maturitycovenants of the 20192023 CoBank Credit Facility, this could impact our ability to meet our obligations coming due within one year after issuance of these consolidated financial statements. We are actively pursuing debt financing options which would extend the maturity date of the 2019 CoBank Credit Facility and may increase its capacity, and we expect to complete this financing process during 2023. In the event that we are unable to refinance or replace our 2019 CoBank Credit Facility, we have additional actions at our discretion, including reducing capital expenditures not required to sustain current network operations, reducing operating cash flows such as marketing and general and administrative expenses, and pursuing equity financing through issuance of equity securities in public markets. However, we do not currently believe these additional actions will be required to be implemented due to our debt financing plans.Facility.
In light of the plans discussed above, we believe it is probable we will meet our obligations as they come due for a minimum of twelve months from the issuance of date of these consolidated financial statements. .However, if we are unable to refinance its existing debt, obtain additional financing, or implement the above plans, as needed, there could be an adverse impact on our operations.
56
Capital markets. Our ability to raise funds in the capital markets depends on, among other things, general economic conditions, the conditions of the telecommunications industry, our financial performance, the state of the capital markets and our compliance with SEC requirements for the offering of securities. We may fileIn August 2022, we filed a new “universal” shelf registration statement with the SEC, to register potential future offerings of up to $300 million of our securities.
Foreign Currency
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income within our income statement. During each of the three months ended March 31, 20232024 and 2022,2023, we recorded $0.2
56
million in losses on foreign currency transactions. We will continue to assess the impact of our exposure to the Guyana Dollar.
Inflation
Several of our markets have experienced an increase in operating costs, some of which we believe, is attributable to inflation. If inflation continues or worsens, it could negatively impact our Company by increasing our operating expenses. Inflation may lead to cost increases in multiple areas across our business, for example, rises in the prices of raw materials and manufactured goods, increased energy rates, as well as increased wage pressures and other expenses related to our employees. In particular, where we have agreed to undertake infrastructure build outsbuild-outs on a fixed budget for our carrier customers or by accepting government grants, inflation may result in build costs that exceed our original budget given the long delays experienced in procuring equipment and materials due to global supply chain delays. To the extent that we are unable to pass on these costs through increased prices, revised budget estimates, or offset them in other ways, they may impact our financial condition and cash flows.
Recent Accounting Pronouncements
None.Refer to Note 2.
Critical Accounting Estimates
There were no changes to critical accounting estimates from those disclosed in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Translation and Remeasurement. We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income on our income statement.
57
Employee Benefit Plans. We sponsor pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in our income statement. We recognize a pension or other postretirement plan’s funded status as either an asset or liability in our consolidated balance sheet. Actuarial gains and losses are reported as a component of other comprehensive income and amortized through other income in subsequent periods.
Interest Rate Sensitivity. As of March 31, 2023,2024, we had $372.6$206.3 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 100-basis-point change in the interest rates on our variable rate debt would result in a $3.7$2.1 million change in our annual interest expense. We may have additional exposure to fluctuations in interest rates if we again borrow amounts under our revolver loans within our credit facilities.
57
Item 4. CONTROLS AND PROCEDURES
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 March 31, 2023.2024. 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”), mean 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 by the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefitcost benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023,2024, 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 March 31, 20232024 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 1413 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Item 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 20222023 Annual Report on Form 10-K. The risks described herein and in our 20222023 Annual Report on Form 10-K, as amended, are not the only risks facing our Company. Additional risks and
58
uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
We may not be able to refinance our existing credit facility on terms and conditions interest rates and credit markets could impact our ability to service and expand our financing.
We require a significant amount of capital to expand our networks and grow our business that we fund partially from cash from operations and in part from borrowings under our credit facilities. On April 10, 2019, we entered into a credit facility, with CoBank, ACB and a syndicate of other lenders (as amended, the “2019 CoBank Credit Facility”)results. At March 31, 2023, we owed $122.0 million for amounts drawn under the 2019 CoBank Credit Facility. For the year ended December 31, 2022, we generated positive cash flows from operating activities of $102.9 million. At March 31, 2023, we had $56.0 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash. The 2019 CoBank Credit Facility matures on April 10, 2024 at which point the full amount outstanding is due and payable. Management is actively pursuing debt financing options which would extend the maturity date of the 2019 CoBank Credit Facility and may increase its capacity, however, higher interest rates and less availability in the debt markets could increase our costs of borrowing. In the event we are unable to refinance or replace the 2019 CoBank Credit Facility on terms and conditions favorable to us or at all, we may need to take actions impacting our operations such as reducing capital expenditures not required to sustain current network operations, reducing operating cash outflows such as marketing and general and administrative expenses. If we are unable to refinance our existing debt, obtain additional financing through the debt or equity markets, as needed, there may be an adverse impact on our operations or financial results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
On September 19, 2016,December 14, 2023, our Board of Directors authorized the repurchase of up to $50.0$25.0 million of our common stock, from time to time, on the open market or in privately negotiated transactions (the “2016“2023 Repurchase Plan”). We have $18.0$24.9 million available to be repurchased under that plan as of March 31, 2023.2024.
The following table reflects the repurchases by us of our common stock during the quarter ended March 31, 2023:2024:
| | | | | | | | | | |
|
| |
| | |
| |
| (d) | |
| | | | | | | | | Maximum | |
| | | | | | | | | Number (or | |
| | | | | | | (c) | | Approximate | |
| | | | (b) | | Total Number of | | Dollar Value) of | ||
| | (a) | | Average | | Shares Purchased | | Shares that May | ||
| | Total Number | | Price | | as Part of Publicly | | be Purchased | ||
| | of Shares | | Paid per | | Announced Plans | | Under the Plans or | ||
Period | | Purchased | | Share | | or Programs | | Programs | ||
January 1, 2023 — January 31, 2023 |
| — | | $ | — | | — | | $ | 19,451,514 |
February 1, 2023 — February 28, 2023 |
| — | | | — | | — | | | 19,451,514 |
March 1, 2023 — March 31, 2023 |
| 71,563 | (1) | | 39.69 | | 35,656 | | | 18,044,049 |
58
| | | | | | | | | | |
|
| |
| | |
| |
| (d) | |
| | | | | | | | | Maximum | |
| | | | | | | | | Number (or | |
| | | | | | | (c) | | Approximate | |
| | | | (b) | | Total Number of | | Dollar Value) of | ||
| | (a) | | Average | | Shares Purchased | | Shares that May | ||
| | Total Number | | Price | | as Part of Publicly | | be Purchased | ||
| | of Shares | | Paid per | | Announced Plans | | Under the Plans or | ||
Period | | Purchased | | Share | | or Programs | | Programs | ||
January 1, 2024 — January 31, 2024 |
| — | | $ | — | | — | | $ | 25,000,000 |
February 1, 2024 — February 29, 2024 |
| 4,242 | | | 28.56 | | 4,242 | | | 24,878,835 |
March 1, 2024 — March 31, 2024 |
| 58,698 | (1) | | 32.29 | | — | | | 24,878,835 |
(1) | Includes |
59
Item 5. Other Information
Verizon Carrier Managed Services AgreementRule 10b5-1 Trading Arrangements
On May 10, 2023, Commnet Wireless, LLC (“Commnet”), a subsidiaryWhile the Company does allow for its officers and directors to enter into trading arrangements intended to satisfy the affirmative defense conditions of ATN International, Inc. (the “Company”) entered into a Carrier Managed Services Master Agreement (the “Agreement”)Rule 10b5-1 with Cellco Partnership d/b/a Verizon Wireless (“Verizon”), pursuant to which Commnet will provide a variety of network, infrastructure and technical services that will help deliver next generation wireless services to Verizon’s subscribers in Commnet’s current operating area in the southwestern United States.
Pursuant toCompany’s prior approval, during the Agreement and subject to certain limitations contained therein, Commnet will upgrade its wireless service in specific areas and provide services to Verizon for an initial seven year term (the “Commitment Period”). The Commitment Period will automatically renew for up to two additional three year periods, unless Verizon provides no less than twelve months’ notice on non-renewal prior to the expirationquarter ended March 31, 2024, none of the then-current term.
In connection withCompany's directors or officers informed the Agreement, Commnet has also agreed to provide Verizon with high capacity transport in its coverage area. Verizon will continue to use Commnet’s wireless communications network for roaming services at a fixed rate per site duringCompany of the build period until such time as upgrades to the network to meet certain performance service level agreements for both RAN operations and transport are met.
Verizon will pay Commnet an aggregate of an estimated approximately $200 million in total amounts for both non-recurring payments for upgrades and construction to its current RAN and transport network and in monthly recurring charges over the initial Commitment Period.
The Agreement may be terminated at any time upon the mutual written consent of Commnet and Verizon. In addition, Verizon may terminate the Agreement upon the occurrence of certain events, including failure to meet certain milestonesadoption or completion dates with respect to network coverage, failure to meet certain SLAs with respect to the ongoing services, the declarationtermination of a bankruptcy event by Commnet and breach of any other material“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as those terms of the Agreement.are defined in Regulation S-K, Item 408.
The foregoing summary of the Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of the Agreement. The Company intends to file a redacted copy of the Agreement as an Exhibit to its Quarterly Report on Form 10-Q for the quarter ending June 30, 2023.
6059
Item 6. Exhibits:
| |||
| |||
|
| ||
31.1* | | ||
31.2* | | ||
| | | |
32.1** | | ||
| | | |
32.2** | | ||
| | | |
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 | |
| | | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | |
| | | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| | | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| | | |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| | | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| | | |
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.
6160
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.
| |
| ATN International, Inc. |
| |
Date: May 10, | /s/ |
|
|
|
|
| |
Date: May 10, | /s/ |
|
|
| Chief Financial Officer |
6261