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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, 2020

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
(State or other jurisdiction of
incorporation or organization)

47-0728886
(I.R.S. Employer
Identification No.)

500 Cummings Center, Suite 2450
Beverly, Massachusetts
(Address of principal executive offices)

01915
(Zip Code)

(978619-1300

(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 11, 2020, the registrant had outstanding 15,981,046 shares of its common stock ($.01 par value).

1

ATN INTERNATIONAL, INC.

FORM 10-Q

Quarter Ended March 31, 2020

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

3

PART I—FINANCIAL INFORMATION

4

Item 1

Unaudited Condensed Consolidated Financial Statements

4

Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019

4

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

5

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28-47

Item 3

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4

Controls and Procedures

48

PART II—OTHER INFORMATION

48

Item 1

Legal Proceedings

48

Item 1A

Risk Factors

48

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 6

Exhibits

49

SIGNATURES

51

CERTIFICATIONS

2

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations including the impact of the novel coronavirus pandemic, COVID-19, on the global economy and on our business, liquidity and operations; our future revenue, operating income expectations and capital expenditures; the competitive environment in our key markets, demand for our services and industry trends; the timing and impact of the CAF II federal support revenues and the FirstNet transaction; the impact of digital enhancements; our liquidity; and management’s plans and strategy for the future. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results.  Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) the general performance of our operations, including operating margins, revenues, capital expenditures, and the future growth and retention of our major customers and subscriber base and consumer demand for solar power; (2) our ability to maintain favorable roaming arrangements, receive roaming traffic and satisfy the needs and demands of our major wireless customers; (3) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes in the telecommunications industry; (4) government regulation of our businesses, which may impact our FCC and other telecommunications licenses or our renewables businesses; (5) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (6) economic, political and other risks and opportunities facing our operations, including the severity and length of the impact of COVID-19 on the global economy and on our business; (7) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (8) our ability to expand and obtain funding for our renewable energy business; (9) our ability to find investment or acquisition or disposition opportunities that fit the strategic goals of the Company; (10) the occurrence of weather events and natural catastrophes; (11) increased competition; (12) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (13) our continued access to capital and credit markets; and (14) the risk of currency fluctuation for those markets in which we operate. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, as amended by Amendment No. 1 to the 2019 Annual Report on Form 10-K filed with the SEC on April 29, 2020, and as may be updated by our Quarterly Reports on Form 10-Q and the other reports we file from time to time with the SEC. Except as required by law, the Company undertakes no obligation and has no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

In this Report, the words “the Company,” “we,” “our,” “ours,” “us” and “ATN” refer to ATN International, Inc. and its subsidiaries. This Report contains trademarks, service marks and trade names that are the property of, or licensed by, ATN and its subsidiaries.

Reference to dollars ($) refer to US dollars unless otherwise specifically indicated.

3

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

March 31, 

December 31, 

    

2020

    

2019

ASSETS

Current Assets:

Cash and cash equivalents

$

145,913

$

161,287

Restricted cash

 

1,072

 

1,071

Short-term investments

 

104

 

416

Accounts receivable, net of allowance for credit losses of $12.7 million and $12.7 million, respectively

 

45,246

 

35,904

Inventory, materials and supplies

 

5,399

 

5,253

Prepayments and other current assets

 

37,608

 

24,792

Total current assets

 

235,342

 

228,723

Fixed Assets:

Property, plant and equipment

 

1,246,452

 

1,237,555

Less accumulated depreciation

 

(653,525)

 

(631,974)

Net fixed assets

 

592,927

 

605,581

Telecommunication licenses, net

 

93,687

 

93,686

Goodwill

 

60,691

 

60,691

Customer relationships, net

 

7,014

 

7,441

Operating lease right-of-use assets

 

65,515

 

68,763

Other assets

 

53,416

 

65,841

Total assets

$

1,108,592

$

1,130,726

LIABILITIES AND EQUITY

Current Liabilities:

Current portion of long-term debt

$

3,750

$

3,750

Accounts payable and accrued liabilities

 

66,307

 

74,093

Dividends payable

 

2,722

 

2,721

Accrued taxes

 

9,625

 

8,517

Current portion of operating lease liabilities

11,179

11,406

Advance payments and deposits

 

19,861

 

19,182

Total current liabilities

 

113,444

 

119,669

Deferred income taxes

 

7,545

 

8,680

Operating lease liabilities, excluding current portion

53,721

56,164

Other liabilities

 

59,028

 

57,454

Long-term debt, excluding current portion

 

81,775

 

82,676

Total liabilities

 

315,513

 

324,643

Commitments and contingencies (Note 14)

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; 17,365,847 and 17,324,858 shares issued, respectively, 15,979,034 and 16,001,937 shares outstanding, respectively

 

172

 

172

Treasury stock, at cost; 1,386,813 and 1,322,921 shares, respectively

 

(54,358)

 

(51,129)

Additional paid-in capital

 

189,667

 

188,471

Retained earnings

 

538,161

 

541,890

Accumulated other comprehensive income

 

(7,884)

 

(3,282)

Total ATN International, Inc. stockholders’ equity

 

665,758

 

676,122

Non-controlling interests

 

127,321

 

129,961

Total equity

 

793,079

 

806,083

Total liabilities and equity

$

1,108,592

$

1,130,726

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, 2020 AND 2019

(Unaudited)

(In thousands, Except Per Share Data)

Three months ended March 31, 

    

2020

    

2019

REVENUE:

Communication services

$

107,896

$

100,465

Other

 

3,009

 

2,835

Total revenue

 

110,905

 

103,300

OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated):

Termination and access fees

 

28,113

 

27,888

Engineering and operations

 

18,489

 

19,032

Sales, marketing and customer service

 

9,504

 

9,390

General and administrative

 

24,923

 

23,816

Transaction-related charges

 

44

 

40

Depreciation and amortization

 

22,518

 

20,718

Loss on disposition of long-lived assets

15

302

Total operating expenses

 

103,606

 

101,186

Income from operations

 

7,299

 

2,114

OTHER INCOME (EXPENSE)

Interest income

243

928

Interest expense

 

(1,156)

 

(1,281)

Other expenses

 

(2,901)

 

187

Other income (expense), net

 

(3,814)

 

(166)

INCOME BEFORE INCOME TAXES

 

3,485

 

1,948

Income tax provisions

 

1,109

 

1,213

NET INCOME

 

2,376

 

735

Net income attributable to non-controlling interests, net of tax expense of $0.3 million and $0.4 million, respectively.

 

(3,390)

 

(2,316)

NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS

$

(1,014)

$

(1,581)

NET LOSS PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS:

Basic

$

(0.06)

$

(0.10)

Diluted

$

(0.06)

$

(0.10)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

Basic

 

16,001

 

16,001

Diluted

 

16,001

 

16,001

DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK

$

0.17

$

0.17

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

5

ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(Unaudited)

(In thousands)

Three Months Ended March 31,

 

2020

    

2019

Net income

$

2,376

$

735

Other comprehensive income (loss):

Foreign currency translation adjustment

 

(4,425)

 

237

Unrealized loss on derivatives

(177)

(61)

Other comprehensive income (loss), net of tax

 

(4,602)

 

176

Comprehensive income (loss)

 

(2,226)

 

911

Less: Comprehensive income attributable to non-controlling interests

 

(3,390)

 

(2,316)

Comprehensive loss attributable to ATN International, Inc.

$

(5,616)

$

(1,405)

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, 2020 AND 2019

(In Thousands, Except Per Share Data)

    

    

    

    

    

Accumulated

    

Total

    

    

Treasury

Additional

Other

ATNI

Non-

Common

Stock,

Paid In

Retained

Comprehensive

Stockholders’

Controlling

Total

Stock

at cost

Capital

Earnings

Income/(Loss)

Equity

Interests

Equity

 

Balance, December 31, 2019

$

172

$

(51,129)

$

188,471

$

541,890

$

(3,282)

$

676,122

$

129,961

$

806,083

Purchase of 62,892 shares of common stock

 

(3,229)

(3,229)

(3,229)

Stock-based compensation

 

1,196

1,196

(36)

1,160

Dividends declared on common stock ($0.17 per common share)

 

(2,715)

(2,715)

(4,220)

(6,935)

Repurchase of non-controlling interests

(1,774)

(1,774)

Comprehensive income:

Net income (loss)

 

(1,014)

(1,014)

3,390

2,376

Other comprehensive income

 

(4,602)

(4,602)

(4,602)

Total comprehensive income (loss)

 

(5,616)

 

3,390

 

(2,226)

Balance, March 31, 2020

$

172

$

(54,358)

$

189,667

$

538,161

$

(7,884)

$

665,758

$

127,321

$

793,079

Balance, December 31, 2018

$

172

$

(48,547)

$

181,778

$

563,593

$

(1,609)

$

695,387

$

127,937

$

823,324

Purchase of 28,242 shares of common stock

 

(1,569)

(1,569)

(1,569)

Stock-based compensation

 

1,301

1,301

1,301

Dividends declared on common stock ($0.17 per common share)

 

(2,693)

(2,693)

(1,553)

(4,246)

Repurchase of non-controlling interests

(225)

(225)

Investments made by minority shareholders in consolidated affiliates

488

488

Comprehensive income:

Net income (loss)

 

(1,581)

(1,581)

2,316

735

Other comprehensive income

 

176

176

176

Total comprehensive income (loss)

 

(1,405)

 

2,316

 

911

Balance, March 31, 2019

$

172

$

(50,116)

$

183,079

$

559,319

$

(1,433)

$

691,021

$

128,963

$

819,984

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, 2020 AND 2019

(Unaudited)

(In thousands)

Three Months Ended March 31,

2020

    

2019

    

Cash flows from operating activities:

Net income

$

2,376

$

735

Adjustments to reconcile net income to net cash flows provided by operating activities:

Depreciation and amortization

22,518

 

20,718

Provision for doubtful accounts

1,260

 

1,285

Amortization of debt discount and debt issuance costs

126

 

160

Stock-based compensation

1,160

 

1,301

Deferred income taxes

(1,135)

 

(1,914)

Loss on equity investments

1,775

(Gain) loss on disposition of long-lived assets

15

302

Unrealized loss on foreign currency

739

(64)

Other non-cash activity

(17)

Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions:

Accounts receivable

(10,887)

 

(9,102)

Materials and supplies, prepayments, and other current assets

431

 

90

Prepaid income taxes

399

 

5,158

Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities

(4,055)

 

(3,188)

Accrued taxes

355

 

1,620

Other assets

298

324

Other liabilities

84

 

1,362

Net cash provided by operating activities

 

15,459

 

18,770

Cash flows from investing activities:

Capital expenditures

 

(14,061)

 

(17,641)

Hurricane rebuild capital expenditures

(123)

Purchases of strategic investments

(2,768)

(10,000)

Purchase of short-term investments

(5,000)

Proceeds from sale of short-term investments

141

Net cash used in investing activities

 

(16,829)

 

(32,623)

Cash flows from financing activities:

Dividends paid on common stock

 

(2,721)

 

(2,720)

Distributions to non-controlling interests

 

(4,220)

 

(1,540)

Payment of debt issuance costs

 

(1,010)

 

Principal repayments of term loan

 

(938)

 

(949)

Stock-based compensation share repurchases

 

(1,625)

 

(1,569)

Purchases of common stock- share repurchase plan

(1,600)

Repurchases of non-controlling interests

(1,774)

(225)

Investments made by minority shareholders in consolidated affiliates

 

 

488

Net cash used in financing activities

 

(13,888)

 

(6,515)

Effect of foreign currency exchange rates on cash and cash equivalents

 

(115)

 

15

Net change in cash, cash equivalents, and restricted cash

 

(15,373)

 

(20,353)

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

 

162,358

 

192,907

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

$

146,985

$

172,554

Noncash investing activity:

Purchases of property, plant and equipment included in accounts payable and accrued expenses

$

8,393

$

8,129

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 is a holding company that, directly and through its subsidiaries, owns and operates telecommunications businesses in North America, the Caribbean and Bermuda as well as a renewable energy business in India. The Company was incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than a half of its operations to stockholders in 1998. Since that time, the Company has engaged in many strategic acquisitions and investments to help grow its operations, using the cash generated from its established operating units to re-invest in its existing businesses, to make strategic investments in additional businesses, and to return cash to the Company’s investors. The Company has built, and seeks to maintain, resources to support its operating subsidiaries and to improve their customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. The Company looks for businesses that offer growth opportunities or potential strategic benefits, but require additional capital investment in order to execute on their business plans. The Company holds controlling positions with respect to some of its investments and non-controlling positions in others. The Company’s investments in earlier stage businesses frequently offer a product and service development component in addition to the prospect of generating returns on its invested capital.

The Company has identified three operating segments to manage and review its operations and to facilitate investor presentations of its results. These three operating segments are as follows:

International Telecom. The Company’s international telecom segment offers services to other telecom providers (“Carrier Services”), such as international long-distance, roaming from other carriers’ customers roaming into the Company’s retail markets, and transport and access services, as well as fixed internet and voice services and retail mobility services to customers in Bermuda, Guyana and the US Virgin Islands.  The Company also offers fixed video services in Bermuda, the Cayman Islands, and the US Virgin Islands. In addition, the international telecom segment offers managed information technology services to enterprise customers.

US Telecom. In the United States, the Company offers Carrier Services, including wholesale roaming services, site maintenance and the leasing of critical network infrastructure such as towers and transport facilities, as well as fixed and mobile communications services to the Company’s retail customers in the Southwestern United States, and communications services provided to enterprise customers.

Renewable Energy. In India, the Company provides distributed generation solar power to corporate, utility and municipal customers.

9

The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Company reports its revenue and the markets it served as of March 31, 2020:

Segment

   

Services

   

Markets

   

Tradenames

 

International Telecom

 

Mobility

 

Bermuda, Guyana, US Virgin Islands

 

GTT+, One, Logic, Viya

 

Fixed

 

Bermuda, Cayman Islands, Guyana, US Virgin Islands

 

GTT+, One, Logic, Viya

Carrier Services

Bermuda, Guyana, US Virgin Islands

GTT+, One, Logic, Viya

Managed Services

Bermuda, US Virgin Islands

Fireminds, One, Logic, Viya

US Telecom

 

Mobility

 

United States (rural markets)

 

Choice, Choice NTUA Wireless, Commnet, WestNet, Geoverse

Fixed

United States

Commnet, Choice, Choice NTUA Wireless, Deploycom, WestNet

Carrier Services

Commnet, Essextel

 

Managed Services

 

 

Choice

Renewable Energy

Solar

India

Vibrant Energy

The Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet its return on investment and other criteria. In addition, the Company considers non-controlling investments in earlier stage businesses that it considers strategically relevant, and which may offer long-term growth potential for the Company, either individually, or as research and development businesses that can support the Company’s operating subsidiaries in new product and service development and offerings. The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their revenues which is eliminated in consolidation. For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 13 to the Consolidated Financial Statements included in this Report.

COVID-19

In March 2020, the World Health Organization declared a novel strain of coronavirus, now referred to as COVID-19, as a pandemic, as the virus spread globally to multiple countries, including the United States and other countries in which the Company has substantial operations. The Company is continuing to monitor and assess the effects of the COVID-19 pandemic on its commercial operations, the safety of its employees and their families, its sales force and customers and any potential impact on the Company’s revenue in 2020.

The preparation of the condensed consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis the Company evaluates estimates, judgments and methodologies. The Company assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context with the information and estimates reasonably available to the Company and the unknown future impacts COVID-19 as of March 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, the carrying value of its goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While the Company’s assessment did not indicate that there was a material impact to the Company’s consolidated financial statements as of and for the quarter ended March 31, 2020, the Company’s future assessments of the impacts of COVID-19, as well as other factors, could result in material

10

impacts to the Company’s consolidated financial statements in future reporting periods. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent economic conditions normalize and more customary operating conditions resume. Actual results may materially differ from these estimates.

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 such periods. 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, 2019, filed with the SEC on March 2, 2020, as amended by Amendment No. 1 to the 2019 Annual Report on Form 10-K filed with the SEC on April 29, 2020.

The condensed consolidated financial statements include the accounts of the Company, its subsidiaries in which the Company holds controlling interests and certain entities which are consolidated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) authoritative guidance on the consolidation of variable interest entities, since it is determined that the Company is the primary beneficiary of these entities.

Presentation of Revenue

The Company has changed its presentation of revenue in the Condensed Consolidated Statement of Operations and in the Selected Segment Financial Information tables. This change is intended to better align the Company’s financial performance with industry competitors and to facilitate a more constructive dialogue with the investment community.

Specifically, the previously disclosed revenue categories of wireless and wireline revenue are being represented as mobility, fixed and Carrier Services revenue within the Company’s segment information and are included within communications services revenue within its Statements of Operations. Managed services revenue, which was previously a component of wireline revenue, is now included in other revenue along with revenue from the Company’s Renewable Energy operations.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequently issued related updates (“ASU 2016-02”), which provide comprehensive lease accounting guidance. The standard requires entities to recognize lease assets and liabilities on the balance sheet as well as disclosure of key information about leasing arrangements. ASU 2016-02 became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted ASC 2016-02 on January 1, 2019 utilizing the optional transition method with a cumulative adjustment on the date of adoption and not adjusting prior periods. Refer to Note 4 of the Condensed Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The standard: (a) expands and refines hedge accounting for both financial and non-financial risk components, (b) aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and (c) includes certain targeted

11

improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. There was not a material impact to the Company’s Consolidated Financial Statements upon adoption.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).  ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. The Company adopted ASU 2016-13 using the modified retrospective approach on its January 1, 2020 effective date. Refer to Note 3 of the Condensed Consolidated Financial Statements in this Report.

3. REVENUE RECOGNITION AND RECEIVABLES

Contract Assets and Liabilities

The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless contracts with both a multiyear service period and a promotional discount. In these contracts the revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s balance sheets.

Contract liabilities consist of advance payments and billings in excess of revenue recognized. Retail revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities are recorded in advanced payments and deposits on the Company’s balance sheets.

In July 2019, the Company entered into a Network Build and Maintenance Agreement (the “FirstNet Agreement”) with AT&T Mobility, LLC (“AT&T”) to build a portion of AT&T’s network for the First Responder Network Authority (“FirstNet”) as well as a commercial wireless network in or near its current operating area in the Southwestern United States (the “FirstNet Transaction”).  The transaction includes construction and service performance obligations. The Company allocated the transaction price of the FirstNet Agreement to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances.

The Company has certain wholesale roaming agreements that contain stand ready performance obligations and management allocates transaction value to performance obligations based on the standalone selling price. The standalone selling price is the estimated price the Company would charge for the good or service with similar customers in similar circumstances. Management determined the performance obligations were obligations to make the service continuously available and will recognize revenue evenly over the service period.

12

Contract assets and liabilities consisted of the following (in thousands):

March 31, 2020

December 31, 2019

$ Change

% Change

Contract asset – current

$

2,375

$

2,413

$

(38)

(2)

%

Contract asset – noncurrent

816

905

(89)

(10)

%

Contract liability – current

(19,371)

(15,044)

(4,327)

29

%

Contract liability – noncurrent

(5,193)

(5,450)

257

(5)

%

Net contract liability

$

(21,373)

$

(17,176)

$

(4,197)

24

%

The contract asset – current is included in prepayments and other current assets, the contract asset – noncurrent is included in other assets, and the contract liabilities are included in advance payments and deposits on the Company’s balance sheet. The increase in the Company’s net contract liability was due to the timing of customer prepayments, contract billings, and the FirstNet Transaction. During the three months ended March 31, 2020, the Company recognized revenue of $12.0 million related to its December 31, 2019 contract liability. During the three months ended March 31, 2020 the Company amortized $0.7 million of the December 31, 2019 contract asset into revenue. The Company did not recognize any revenue in the three months ended March 31, 2020 related to performance obligations that were satisfied or partially satisfied in previous periods.

Contract Acquisition Costs

The March 31, 2020 balance sheet includes current contract acquisition costs of $1.7 million in prepayments and other current assets and long term contract acquisition costs of $1.1 million in other assets. During the three months ended March 31, 2020, the Company amortized $0.5 million of contract acquisition cost.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear retail wireless contracts, which include a promotional discount, and the Company’s construction and service contracts. The transaction price allocated to unsatisfied performance obligations was $353 million and $241 million at March 31, 2020 and December 31, 2019, respectively. The Company expects to satisfy the majority of the remaining performance obligations and recognize the transaction price within 24 months and the remainder thereafter.

The Company has certain retail, wholesale, and renewable energy contracts where transaction price is allocated to remaining performance obligations. However, the Company omits these contracts from its disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.

Disaggregation

The Company's revenue is presented on a disaggregated basis in Note 13 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision makers for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from communication services and other revenue. Communication Services revenue is further disaggregated into mobility, fixed, Carrier Services, and other services. Other revenue is further disaggregated into renewable energy and managed services. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Receivables

The Company adopted ASU 2016-13 on January 1, 2020. The standard requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses is based on all relevant information including historical information, current

13

conditions, and reasonable and supportable forecasts that affect the collectability of the amounts. We adopted ASU 2016-13 using the modified retrospective approach, however, there was no impact of adoption on retained earnings.

The standard impacted the Company’s calculation of credit losses from trade receivables. Historically, the Company recorded credit losses subsequent to the initial revenue transaction. After adoption of ASU 2016-13, the Company will record an estimate of future credit losses in conjunction with the revenue transaction based on the information available including historical experience and management’s expectations of future conditions. Those estimates will be updated as additional information becomes available. Our allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. There is no significant impact to our operating results for the current period due to the adoption of this standard.

At March 31, 2020, the Company had gross accounts receivable of $57.9 million and an allowance for credit loss of $12.7 million. At January 1, 2020 the Company had gross accounts receivable of $48.6 million and an allowance for credit losses of $12.7 million. The Company monitors receivables through the use of historical operating data adjusted for expectation of future performance as appropriate. Activity in the allowance for credit losses is below:

    

Three months ended March 31, 2020

Balance at January 1, 2020

 

$

12,724

Current period provision for expected losses

 

1,260

Write-offs charged against the allowance

 

(1,525)

Recoveries collected

208

Balance at March 31, 2020

$

12,667

4. LEASES

The Company adopted ASC 842 on January 1, 2019, utilizing the optional transition method with a cumulative adjustment on the date of adoption. Under this approach, the guidance was applied to leases that had commenced as of January 1, 2019 with a cumulative effect adjustment as of that date and prior periods were not adjusted. Upon adoption, the Company recognized an operating lease right-of-use (“ROU”) asset of $70.8 million, a short-term lease liability of $8.2 million, and a long-term lease liability of $61.2 million. The adoption had no impact on retained earnings or other components of equity.

The Company elected the package of practical expedients. Under the package of practical expedients, for existing leases, the Company does not reassess: i) whether the arrangement contains a lease; ii) lease classification and; iii) initial direct costs.

The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The lease terms are generally between three and ten years, some of which include additional renewal options.

14

Supplemental lease information

The components of lease expense were as follows (in thousands):

Three months ended March 31, 2020

Three months ended March 31, 2019

Operating lease cost:

Operating lease cost

$

4,047

$

3,516

Short-term lease cost

543

713

Variable lease cost

803

961

Total operating lease cost

$

5,393

$

5,190

Finance lease cost:

Amortization of right-of-use asset

$

571

$

593

Variable costs

272

296

Total finance lease cost

$

843

$

889

During the three months ended March 31, 2020 and 2019, the Company paid $3.5 million and $3.2 million, respectively, related to lease liabilities. During the three months ended March 31, 2020 the Company did not record any additional lease liabilities arising from ROU assets. During the three months ended March 31, 2019, the Company recorded $0.2 million of lease liabilities arising from ROU assets. At March 31, 2020, finance leases with a cost of $26.3 million and accumulated amortization of $10.0 million were included in property, plant and equipment. At December 31, 2019, finance leases with a cost of $25.9 million and accumulated amortization of $9.4 million were included in property, plant and equipment.

The weighted average remaining lease terms and discount rates as of March 31, 2020 and December 31, 2019 are noted in the table below:

March 31, 2020

December 31, 2019

Weighted-average remaining lease term

Operating leases

6.4 years

6.5 years

Financing leases

11.7 years

11.7 years

Weighted-average discount rate

Operating leases

5.1%

5.0%

Financing leases

n/a

n/a

15

Maturities of lease liabilities as of March 31, 2020 were as follows (in thousands):

Operating Leases

2020 (excluding the three months ended March 31, 2020)

$

11,097

2021

13,748

2022

12,773

2023

10,561

2024

9,532

Thereafter

18,572

Total lease payments

76,283

Less imputed interest

(11,384)

Total

$

64,899

Maturities of lease liabilities as of December 31, 2019 were as follows (in thousands):

Operating Leases

2020

$

14,526

2021

13,714

2022

12,787

2023

10,713

2024

9,671

Thereafter

18,355

Total lease payments

79,766

Less imputed interest

(12,195)

Total

$

67,571

As of March 31, 2020, the Company did not have any material operating or finance leases that have not yet commenced.

5. USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates relate to the allowance for credit losses, useful lives of the Company’s fixed and finite-lived intangible assets, allocation of purchase price to assets acquired and liabilities assumed in business combinations, fair value of indefinite-lived intangible assets, goodwill, assessing the impairment of assets, revenue, and income taxes. Actual results could differ significantly from those estimates. See Note 1 for a discussion of the impact of COVID-19 on the use of these estimates.

6. IMPACT OF HURRICANES IRMA AND MARIA

During September 2017, the US Virgin Islands’ economy, the Company’s customer base and its operations were all severely impacted by Hurricanes Irma and Maria (collectively, the “Hurricanes”).  The Company’s wireless and wireline networks and commercial operations were severely damaged by these storms and as a result of the significant damage to the wireline network and the lack of consistent commercial power in the territory, the Company was unable to provide most of its wireline services, which comprise the majority of our revenue in this business, from mid-September 2017 and through most of 2018.  During the year ended December 31, 2017, the Company recorded a net pre-tax loss within the Company’s consolidated statement of operations of $4.0 million related to the impact of the Hurricanes.  This loss consisted of $35.4 million for the write off of damaged assets, net of insurance recoveries of $34.6 million which

16

were received in February 2018. This loss also included $3.2 million of additional operating expenses that were specifically incurred to address the impact of the Hurricanes.

During the year ended December 31, 2018, the Company received $15.5 million in additional funding from the Federal Communications Commission’s (“FCC”) Universal Service Fund (“USF”) to further subsidize its operations in the US Virgin Islands that was recorded as revenue.  This level of additional funding is not expected to continue in future periods. 

During the three months ended March 31, 2019 the Company spent $0.1 million for network restoration and resiliency enhancements that allowed the reconnection of a significant majority of affected households and businesses.  The Company’s wireline network restoration work is complete, however, whether the Company’s revenue recovers to pre-Hurricane levels will be impacted by population movements, the degree of negative economic impact of the Hurricanes on the local economy, and the Company’s subscriber base’s future appetite for wireline services.

7. FAIR VALUE MEASUREMENTS AND INVESTMENTS

In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, and defines fair value based upon an exit price model.

The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market.

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes corporate obligations and non-exchange traded derivative contracts.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments and intangible assets that have been impaired whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 are summarized as follows (in thousands):

March 31, 2020

Significant Other

Quoted Prices in

Observable

Unobservable

Active Markets

Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total

Certificates of deposit

$

$

380

$

$

380

Money market funds

2,028

2,028

Short term investments

104

104

Other investments

12,996

12,996

Interest rate swap

(232)

(232)

Total assets and liabilities measured at fair value

$

2,132

$

148

$

12,996

$

15,276

December 31, 2019

    

Significant Other

Quoted Prices in

Observable

Unobservable

Active Markets

Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total

 

Certificates of deposit

$

$

380

$

$

380

Money market funds

2,329

2,329

Short term investments

416

416

Other investments

12,700

12,700

Interest rate swap

(56)

(56)

Total assets and liabilities measured at fair value

$

2,745

$

324

$

12,700

$

15,769

Certificate of Deposit

As of March 31, 2020 and December 31, 2019, this asset class consisted of a time deposit at a financial institution denominated in US dollars. The asset class is classified within Level 2 of the fair value hierarchy because the fair value was based on observable market data.

Money Market Funds

As of March 31, 2020 and December 31, 2019, this asset class consisted of a money market portfolio that comprises Federal government and US Treasury securities. The asset class is classified within Level 1 of the fair value hierarchy because its underlying investments are valued using quoted market prices in active markets for identical assets.

Short Term Investments and Commercial Paper

As of March 31, 2020 and December 31, 2019, these asset classes consisted of short term foreign and US corporate bonds, equity securities, and commercial paper. Corporate bonds and commercial paper are classified within Level 2 of the fair value hierarchy because the fair value is based on observable market data. Equity securities are classified within Level 1 because fair value is based on quoted market prices in active markets for identical assets. The Company held equity securities with a fair value of $0.1 million and $0.2 million at March 31, 2020 and December 31, 2019, respectively. Net income includes $0.1 million of losses for the quarter ended March 31, 2020. No gain or loss was recorded in the quarter ended March 31, 2019

Other Investments

In the first quarter of 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument. The Company elected to fair value the investment upon acquisition. At March 31, 2020, the fair value of the investment was $10.5 million and the Company recorded $0.3 million of income in the quarter

18

ended March 31, 2020 from changes in the fair value of the investment. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate calculated based on the investment attributes and the probability of potential future scenarios occurring.

In the third quarter of 2019, the Company made a $14.4 million investment in a renewable energy partnership. The Company received an investment tax credit of $12.0 million from its equity method investment and will receive future cash distributions from the partnership’s operations. The Company elected the deferral method to account for the credit and elected the fair value option for the equity method investment. The Company’s investment had a fair value of $2.5 million at March 31, 2020, unchanged from December 31, 2019. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate and future cash flows calculated based on the investment attributes.

The Company also holds investments in equity securities consisting of non-controlling investment in privately held companies. These investments, over which the Company does not have the ability to exercise significant influence, are without readily determinable fair values. The investments are measured at cost, less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. The carrying value of the strategic investments was $2.1 million at March 31, 2020 and December 31, 2019. These investments are included with other assets on the consolidated balance sheets.

Equity Method Investments

In the first quarter of 2020, the Company increased its ownership in one investment of a privately held company to approximately 24% of the outstanding equity through an additional $2.8 million investment. With this investment the Company obtained the ability to exercise significant influence over the investee and will begin accounting for the investment under the equity method of accounting recording its share of the investee’s earnings or losses. The carrying value of the investment was $15.8 million at March 31, 2020. The value increased $0.3 million from the December 31, 2019 balance due to an additional investment of $2.8 million, $0.3 million of the Company’s share of investee losses, and currency losses of $2.2 million. The investment is included with other assets on the consolidated balance sheets.

Other Fair Value Disclosures

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. The fair value of the interest rate swap is measured using Level 2 inputs. During the three months ended March 31, 2020, the Company recorded $0.2 million of loss for changes in fair value of investment.

The fair value of long-term debt is estimated using Level 2 inputs. At March 31, 2020, the fair value of long-term debt, including the current portion, was $86.0 million and its book value was $85.5 million. At December 31, 2019, the fair value of long-term debt, including the current portion, was $86.9 million and its book value was $