Company Overview and History
ATN International, Inc. (ATNI) is a leading provider of digital infrastructure and communications services, with a focus on rural and remote markets in the United States, Bermuda, and the Caribbean region. The company has a rich history dating back to its founding in 1987, and has since evolved into a multinational telecommunications conglomerate, offering a diverse suite of services to both residential and business customers.
ATN's origins trace back to 1987 when it was established as a mobile communications services provider in the United States. Over the years, the company has strategically expanded its footprint through a series of acquisitions and organic growth initiatives, cementing its position as a premier provider of advanced wireless, wireline, and managed IT services. In the early 2000s, ATN began expanding its international presence, acquiring operations in Bermuda, the Cayman Islands, Guyana, and the US Virgin Islands. This international diversification has been an important part of ATN's growth strategy, allowing the company to leverage its expertise in serving rural and remote markets.
Challenges and Adaptations
Throughout its history, ATN has faced and overcome significant challenges, including navigating the evolving regulatory landscape in the telecommunications industry. The company has had to adapt to changes in government subsidy programs, such as the Universal Service Fund and other domestic funding initiatives, working closely with regulators to ensure compliance while continuing to provide essential services to its customers. Additionally, ATN has proactively managed the need for significant capital investment to upgrade and expand its telecommunications networks by leveraging government grant programs and strategic partnerships to help fund infrastructure projects.
Business Segments
Today, ATN operates two primary business segments: International Telecom and US Telecom, catering to a wide range of customer needs across its diverse geographical footprint. The company has developed significant operational expertise and resources that it uses to support its local operating subsidiaries, allowing them to improve their quality of service with greater economies of scale and expertise.
International Telecom Segment
The International Telecom segment serves customers in Bermuda, the Cayman Islands, Guyana, and the US Virgin Islands, offering a comprehensive portfolio of fixed, mobility, carrier, and managed services. This segment has been a consistent performer for ATN, with the company consistently investing in network upgrades and expansions to meet the growing demand for high-speed data and connectivity in these markets. In the third quarter of 2024, the International Telecom segment reported revenue of $94.3 million, which was flat compared to the same period in the prior year, but with a 17.3% increase in adjusted EBITDA to $32.2 million, driven by effective cost management initiatives.
The International Telecom segment offers a variety of services including mobile telecommunications, fixed telecommunications, carrier services, and managed services. Mobile telecommunications services include both business and consumer mobility services, generating revenue from voice and data plans. Fixed telecommunications services encompass broadband, voice, and video offerings for both business and consumer customers. Carrier services revenue is derived from international long-distance, roaming, transport, and access services provided to other telecommunications carriers. The managed services segment provides network, application, infrastructure, and hosting services.
In the nine months ended September 30, 2024, the International Telecom segment generated $282.70 million in total revenue, up 2.3% year-over-year. Fixed services revenue increased 3.8% to $185.29 million, driven by network upgrades and expansions that allowed the company to migrate more customers to higher-margin fiber services. Mobility revenue decreased 1.4% to $79.66 million due to a decline in prepaid voice services, partially offset by growth in data services. Carrier services revenue declined 4.5% to $10.48 million primarily from lower roaming revenues. Operating expenses for the segment decreased 4.0% to $225.80 million, resulting in operating income increasing 38.1% to $56.94 million.
US Telecom Segment
The US Telecom segment, on the other hand, has faced some challenges in recent quarters, with revenue declining 13% year-over-year to $84.2 million in the third quarter of 2024. This was primarily due to the conclusion of the Emergency Connectivity Fund (ECF) and Affordable Connectivity Program (ACP) government initiatives, which had previously provided a significant revenue stream. Additionally, the segment experienced slower-than-expected enterprise sales and delivery, particularly in Alaska. In response, ATN has taken strategic actions to align its cost structure with current revenue levels, while focusing on margin improvement and cash flow generation.
The US Telecom segment provides fixed telecommunications services, carrier services, and managed services to business customers and consumers in Alaska and the western United States. This segment also previously offered mobility services to retail customers in the western U.S., but the company has been de-emphasizing that part of the business.
For the nine months ended September 30, 2024, the US Telecom segment generated $265.83 million in revenue, down 7.4% year-over-year. This decline was primarily due to the conclusion of the Emergency Connectivity Fund and Affordable Care Program, which had provided $57 million in revenue through April 2024. Fixed services revenue decreased 7.9% to $161.39 million, while carrier services revenue fell 6.8% to $89.54 million. Operating expenses for the US Telecom segment increased 6.2% to $308.70 million, driven by a $35.27 million goodwill impairment charge and higher transaction-related costs, resulting in the operating loss widening to $42.85 million.
Financials
Despite the headwinds in the US Telecom segment, ATN's overall financial performance remains solid. For the first nine months of 2024, the company reported net cash provided by operating activities of $97.4 million, up from $89.5 million in the same period of the previous year. This strong cash flow generation has allowed ATN to continue investing in its network infrastructure, with capital expenditures (net of reimbursements) totaling $85.7 million during the first nine months of 2024, down from $126.6 million in the prior-year period.
In the most recent fiscal year (2023), ATN reported revenue of $762.22 million, with a net loss of $14.54 million. Operating cash flow for 2023 was $111.63 million, while free cash flow was negative $51.67 million.
For the most recent quarter (Q3 2024), ATN reported revenue of $178.45 million, down 6.6% year-over-year. The net loss for the quarter was $32.69 million, compared to a net loss of $3.58 million in Q3 2023. Operating cash flow improved to $97.43 million, up from $89.50 million in Q3 2023. Free cash flow for the quarter was $15.75 million, a significant improvement from negative $124.60 million in Q3 2023.
The decrease in revenue was primarily due to the conclusion of the Emergency Connectivity Fund (ECF) and Affordable Connectivity Program (ACP) government programs, as well as lower construction revenue. The net loss was driven by a $35.3 million non-cash goodwill impairment charge, $3.8 million in transaction fees related to debt refinancing, and $2.3 million in restructuring costs. The improvement in operating cash flow and free cash flow was due to better working capital management.
Liquidity
ATN's liquidity position remains stable. As of the latest reporting period, the company had a debt-to-equity ratio of 1.25 and cash and cash equivalents of $49.23 million. Additionally, ATN has access to a $100.9 million credit line under the 2023 CoBank Revolving Loan. The company's current ratio stands at 0.96, while its quick ratio is 0.90, indicating a relatively stable short-term liquidity position.
Looking ahead, ATN has updated its full-year 2024 guidance. The company now expects revenues in the range of $720 million to $730 million, down from the previous range of $730 million to $750 million. Adjusted EBITDA is now projected to be between $182 million and $188 million, compared to the previous range of $190 million to $200 million. Capital expenditures are still expected to be in the range of $100 million to $110 million, net of reimbursed amounts. With the revised adjusted EBITDA expectations, ATN now anticipates exiting the year with a net debt ratio of 2.3 to 2.6 times, compared to the previous objective of bringing down leverage closer to 2 times over the medium term.
Conclusion and Future Outlook
Despite the near-term challenges in the US Telecom segment, ATN's diverse business model, strong cash flow generation, and strategic initiatives position the company well for future growth. The company's ongoing investments in network infrastructure, coupled with its focus on margin improvement and cost management, suggest that ATN is well-equipped to navigate the evolving telecommunications landscape and continue delivering essential connectivity services to its customers across the globe.
ATN is undergoing a strategic transition, deemphasizing its legacy fixed wireless and mobility businesses in the US in favor of carrier services, enterprise, and fiber-fed consumer markets. The company is also advancing cost efficiency initiatives to improve margins and cash flow. This strategic shift, combined with the company's strong presence in international markets and its focus on rural and remote areas, provides a unique positioning in the telecommunications industry.
While the company faces challenges, particularly in its US Telecom segment due to the conclusion of government programs and slower-than-expected enterprise sales, its International Telecom segment continues to perform well. The company's ability to adapt to changing market conditions and its focus on high-margin services and cost management should help it navigate the current headwinds and position it for long-term success in the dynamic telecommunications landscape.