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Table of Contents

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, 2023

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 10, 2023, the registrant had outstanding 15,738,576 shares of its common stock ($.01 par value).

Table of Contents

ATN INTERNATIONAL, INC.

FORM 10-Q

Quarter Ended March 31, 2023

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, 2023 and December 31, 2022

4

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

5

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022

6

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022

7

Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2023 and 2022

8

Notes to Unaudited Condensed Consolidated Financial Statements

9-35

Item 2

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

36

Item 3

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4

Controls and Procedures

58

PART II—OTHER INFORMATION

58

Item 1

Legal Proceedings

58

Item 1A

Risk Factors

58

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 5

Other Information

60

Item 6

Exhibits

61

SIGNATURES

62

CERTIFICATIONS

2

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations, including our expectations regarding the benefits of our acquisition of Alaska Communications; the impact of federal support program revenues; expectations regarding future revenue, operating income, EBITDA and capital expenditures; expectations regarding our ability to refinance our existing debt and/or obtain additional financing on or before the maturity of our 2019 CoBank Credit Facility; the competitive environment in our key markets, demand for our services and industry trends; our expectations regarding construction progress under our agreement as part of the FirstNet Transaction and the effect such progress will have on our financial results; expectations regarding litigation; our liquidity; and management’s plans and strategy for the future. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results.  Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) our ability to successfully transition our U.S. Telecom business away from wholesale wireless to other carrier and consumer-based services; (2) our ability to replace and remove all ZTE equipment in our U.S. network, as required by the FCC in a timely and cost-effective manner; (3) the general performance of our operations, including operating margins, revenues, capital expenditures, and the retention of and future growth of our subscriber base and average revenue per user; (4) our ability to realize cost synergies and expansion plans for our newly acquired Alaska Communications business; (5) our ability to satisfy the needs and demands of our major carrier customers; (6) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes in the telecommunications industry; (7) government funding and subsidy program availability and regulation of our businesses, which may impact our revenue, expansion plans and operating costs; (8) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (9) economic, political and other risks and opportunities facing our operations, including those resulting from the pandemic, geopolitical tensions, including the invasion of Ukraine, and from inflation, including increased costs and supply chain disruptions; (10) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (11) our ability to find investment or acquisition or disposition opportunities that fit our strategic goals; (12) the occurrence of weather events and natural catastrophes and our ability to secure the appropriate level of insurance coverage for our assets; (13) increased competition;  (14) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (15) our continued access to capital and credit markets, 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.  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, filed with the SEC on March 15, 2023, and the other reports we file from time to time with the SEC.  The Company undertakes no obligation and have no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.

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

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

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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, 

    

2023

    

2022

ASSETS

Current Assets:

Cash and cash equivalents

$

56,016

$

54,660

Restricted cash

 

4,961

 

5,068

Short-term investments

 

300

 

300

Accounts receivable, net of allowances for credit losses of $16.0 million and $15.2 million, respectively

 

84,483

 

86,816

Customer receivable

6,083

5,803

Inventory, materials and supplies

 

18,485

 

17,902

Prepayments and other current assets

 

61,224

 

59,139

Total current assets

 

231,552

 

229,688

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

Telecommunication licenses, net

 

113,698

 

113,698

Goodwill

 

40,104

 

40,104

Intangible assets, net

 

28,823

 

31,992

Operating lease right-of-use assets

 

101,953

 

108,702

Customer receivable - long term

45,681

46,706

Other assets

 

81,841

 

81,025

Total assets

$

1,700,015

$

1,707,869

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Current Liabilities:

Current portion of long-term debt

$

11,537

$

6,173

Current portion of customer receivable credit facility

6,574

6,073

Accounts payable and accrued liabilities

 

118,240

 

155,224

Dividends payable

 

3,323

 

3,310

Accrued taxes

 

13,611

 

7,335

Current portion of lease liabilities

13,785

15,457

Advance payments and deposits

 

38,314

 

39,608

Total current liabilities

 

205,384

 

233,180

Deferred income taxes

 

26,697

 

28,650

Lease liabilities, excluding current portion

78,360

83,319

Other liabilities

 

137,148

 

138,420

Customer receivable credit facility, net of current portion

41,533

39,275

Long-term debt, excluding current portion

 

453,144

 

415,727

Total liabilities

 

942,266

 

938,571

Redeemable noncontrolling interests:

Preferred redeemable noncontrolling interests

56,197

55,152

Common redeemable noncontrolling interests

37,026

37,317

Total redeemable noncontrolling interests

93,223

92,469

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)

Additional paid-in capital

 

200,015

 

198,449

Retained earnings

 

437,030

 

449,806

Accumulated other comprehensive income

 

6,690

 

6,210

Total ATN International, Inc. stockholders’ equity

 

567,243

 

580,813

Noncontrolling interests

 

97,283

 

96,016

Total equity

 

664,526

 

676,829

Total liabilities, redeemable noncontrolling interests and equity

$

1,700,015

$

1,707,869

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Unaudited)

(In Thousands, Except Per Share Data)

Three months ended March 31, 

    

2023

    

2022

REVENUE:

Communication services

$

181,308

$

166,543

Construction

590

1,987

Other

 

3,876

 

3,489

Total revenue

 

185,774

 

172,019

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

Cost of communication services and other

 

79,040

 

73,011

Cost of construction revenue

588

2,033

Selling, general and administrative

 

61,348

 

54,882

Stock-based compensation

1,778

1,461

Transaction-related charges

 

13

 

554

Restructuring expenses

2,887

Depreciation and amortization

 

36,404

 

33,292

Amortization of intangibles from acquisitions

3,247

3,258

(Gain) Loss on disposition of long-lived assets

(167)

3,420

Total operating expenses

 

185,138

 

171,911

Income from operations

 

636

 

108

OTHER INCOME (EXPENSE)

Interest income

182

51

Interest expense

 

(8,807)

 

(3,363)

Other income

 

194

 

4,199

Other income (expense)

 

(8,431)

 

887

INCOME (LOSS) BEFORE INCOME TAXES

 

(7,795)

 

995

Income tax (benefit) expense

 

(740)

 

2,952

NET LOSS

 

(7,055)

 

(1,957)

Net loss attributable to noncontrolling interests, net of tax benefit of $(0.6) million and $(0.5) million respectively

 

1,170

 

1,009

NET LOSS ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS

$

(5,885)

$

(948)

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

Basic

$

(0.44)

$

(0.13)

Diluted

$

(0.44)

$

(0.13)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

Basic

 

15,768

 

15,708

Diluted

 

15,768

 

15,708

DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK

$

0.21

$

0.17

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Unaudited)

(In Thousands)

Three months ended
March 31, 

2023

    

2022

Net loss

$

(7,055)

$

(1,957)

Other comprehensive income:

Foreign currency translation adjustment

 

111

 

256

Reclassification of loss on pension settlement

369

Unrealized gain on derivatives

166

Other comprehensive income, net of tax

 

480

 

422

Comprehensive loss

 

(6,575)

 

(1,535)

Less: Comprehensive loss attributable to noncontrolling interests

 

1,170

 

1,009

Comprehensive loss attributable to ATN International, Inc.

$

(5,405)

$

(526)

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED MARCH 31 2023 AND 2022

(Unaudited)

(In Thousands, Except Per Share Data)

Total Equity

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, 2022

$

173

$

(73,825)

$

198,449

$

449,806

$

6,210

$

580,813

$

96,016

$

676,829

Purchase of 71,563 shares of common stock

 

(2,840)

(2,840)

(2,840)

Stock-based compensation

 

1,634

1,634

144

1,778

Dividends declared on common stock ($0.21 per common share)

(3,315)

(3,315)

(3,315)

Repurchase of noncontrolling interests

 

(68)

(68)

(527)

(595)

Deemed dividend - redeemable preferred units

(1,045)

(1,045)

(1,045)

Deemed dividend - redeemable common units

(2,531)

(2,531)

2,820

289

Comprehensive income:

Net loss

 

(5,885)

(5,885)

(1,170)

(7,055)

Other comprehensive income

 

480

480

480

Total comprehensive income (loss)

(5,885)

480

 

(5,405)

 

(1,170)

 

(6,575)

Balance, March 31, 2023

$

173

$

(76,665)

$

200,015

$

437,030

$

6,690

$

567,243

$

97,283

$

664,526

Balance, December 31, 2021

$

172

$

(71,714)

$

192,132

$

475,887

$

4,773

$

601,250

$

101,003

$

702,253

Purchase of 56,284 shares of common stock

 

(2,081)

(2,081)

(2,081)

Stock-based compensation

1,310

1,310

150

1,460

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

(2,675)

(2,675)

(263)

(2,938)

Repurchase of noncontrolling interests

(278)

(278)

(2,205)

(2,483)

Accrued dividend - redeemable preferred units

(1,116)

(1,116)

(1,116)

Deemed dividend - redeemable common units

Comprehensive income:

Net income (loss)

 

(2,040)

(2,040)

83

(1,957)

Other comprehensive income (loss)

 

422

422

422

Total comprehensive income (loss)

(2,040)

422

 

(1,618)

 

83

 

(1,535)

Balance, March 31, 2022

$

172

$

(73,795)

$

193,164

$

470,056

$

5,195

$

594,792

$

98,768

$

693,560

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(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

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND BUSINESS OPERATIONS

The Company provides digital infrastructure and communications services in the United States and internationally, including in the Caribbean region, with a focus on smaller markets, many of which are rural 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.

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 the capabilities of its individual operating subsidiaries in its local markets. The Company has built a platform of resources and expertise to support its operating subsidiaries and to improve their quality of service with greater economies of scale and expertise than would typically be available at the operating subsidiary level. The Company provides management, technical, financial, regulatory, and marketing services to its operating subsidiaries and typically receive 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 look for those that it believes fit the Company’s profile of telecommunications businesses and have the potential to complement its “glass and steel” and “first to fiber” approach in markets while generating steady excess cash flows over extended periods of time. The Company uses the cash generated from its operations to re-invest in organic growth in its existing businesses, to make strategic investments in additional businesses, and to return cash to its investors through dividends or stock repurchases.

As of March 31, 2023, the Company offered the following types of services to its customers:

Mobility Telecommunications Services. The Company offers mobile communications services over its wireless networks and related equipment (such as handsets) to both its business and consumer 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 such as the leasing of critical network infrastructure, such as tower and transport facilities, wholesale roaming, site maintenance and international long-distance services.

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, 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

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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 Telecom. In the Company’s international markets, it offers fixed services, mobility services, carrier services and managed services to customers in Bermuda, the Cayman Islands, Guyana and the US Virgin Islands.

US Telecom. In the United States, the Company offers fixed services, carrier services, and managed services to business and consumer customers in Alaska and 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:

Segment

   

Services

   

Markets

   

Tradenames

International Telecom

 

Mobility Services

 

Bermuda, Guyana, US Virgin Islands

 

One, GTT, Viya

Fixed Services

 

Bermuda, Cayman Islands, Guyana, US Virgin Islands

 

One, Logic, GTT, Viya

Carrier Services

Bermuda, Guyana, US Virgin Islands

One, GTT, Viya

Managed Services

Bermuda, Cayman Islands, US Virgin Islands, Guyana

Fireminds, One, Logic, GTT, Viya

US Telecom

 

Mobility Services

 

United States (rural markets)

 

Choice, Choice NTUA Wireless

Fixed Services

United States

 

Alaska Communications, Commnet, Choice, Choice NTUA Wireless, Sacred Wind Communications, Ethos

Carrier Services

United States

Alaska Communications, Commnet, Essextel, Sacred Wind Communications

 

Managed Services

 

United States

 

Alaska Communications, Choice

For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 13 to the Unaudited Condensed Consolidated Financial Statements included in this Report.

Liquidity

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

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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 of the Company’s legacy wholesale roaming operations in its US Telecom segment, the Company recorded a $2.9 million restructuring charge during the three months ended March 31, 2023 related to the decommissioning of certain cell sites. The charge is recorded in the Restructuring Expense on the Company’s statement of operations. As of March 31, 2023, the Company paid $0.5 million, recorded a gain of $0.3 million on lease termination, and accrued $2.7 million of the restructuring expenses. In conjunction with the restructuring the Company terminated $5.0 million of lease right of use assets and $5.3 million of lease liabilities from its balance sheet.

2. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for the periods described therein. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 15, 2023.

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

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3. REVENUE RECOGNITION AND RECEIVABLES

Revenue Accounted for in Accordance with Other Guidance

The Company records revenue in accordance with ASC 606 from contracts with customers and ASC 842 from lease agreements, as well as government grants. Lease revenue recognized under ASC 842 is disclosed in Note 4 and government grant revenue is disclosed in Note 9.

Timing of Revenue Recognition

Revenue accounted for in accordance with ASC 606 consisted of the following for the periods presented below.

Three months ended

March 31, 2023

March 31, 2022

Services transferred over time

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

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

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. Contract liabilities are recorded in advanced payments and deposits and other liabilities on the Company’s balance sheets.

In July 2019, the Company entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC (“AT&T”) and subsequently entered into amendments in August 2020, May 2021 and August 2022 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, the Company is building a portion of AT&T’s network for the First Responder Network Authority in or near the Company’s current operating areas in the western United States (the “FirstNet Transaction”). The FirstNet Transaction includes construction and service performance obligations. The Company allocated the transaction price of the FirstNet Agreement to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances. The current portion of receivables under this agreement is recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.

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

March 31, 2023

December 31, 2022

$ Change

% Change

Contract asset – current

$

3,010

$

2,932

$

78

3

%

Contract asset – noncurrent

3,734

3,775

(41)

(1)

%

Contract liability – current

(26,086)

(27,284)

1,198

4

%

Contract liability – noncurrent

(70,444)

(72,543)

2,099

3

%

Net contract liability

$

(89,786)

$

(93,120)

$

3,334

4

%

The contract asset – current is included in prepayments and other current assets and the contract asset – noncurrent is included in other assets on the Company’s balance sheet. The contract liability – current is included in advance payments and deposits and the contract liability – noncurrent is included in other liabilities on the Company’s balance sheet. The decrease in the Company’s net contract liability was due to the timing of customer prepayments, contract billings, and recognition of deferred revenue. During the three months ended March 31, 2023, the Company recognized revenue of $14.8 million related to its December 31, 2022 contract liability and amortized $0.7 million of the December 31, 2022 contract asset to revenue.

Contract Acquisition Costs

The March 31, 2023 balance sheet includes contract acquisition costs of $9.0 million in other assets. During the three months ended March 31, 2023 and 2022, the Company amortized $1.1 million and $0.8 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 $286 million and $312 million at March 31, 2023 and December 31, 2022, respectively. The Company expects to satisfy approximately 50% of the remaining performance obligations and recognize the transaction price within 24 months and the remainder thereafter.

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

Disaggregation

The Company's revenue is presented on a disaggregated basis in Note 13 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision makers for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from Communication Services, Construction, and Other revenue. Communication Services revenue is further disaggregated into business and consumer Mobility, business and consumer Fixed, Carrier Services, and Other services. Other revenue is further disaggregated into 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

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accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.

At March 31, 2023, the Company had gross accounts receivable of $152.3 million, an allowance for credit losses of $16.0 million and a receivable under the FirstNet Agreement totaling $51.8 million of which $6.1 million was current and $45.7 million was long-term. At December 31, 2022, the Company had gross accounts receivable of $154.5 million, an allowance for credit losses of $15.2 million and a receivable under the FirstNet Agreement totaling $52.5 million, of which $5.8 million was current and $46.7 million was long-term. The Company monitors receivables through the use of historical operating data adjusted for the expectation of future performance as appropriate. Activity in the allowance for credit losses is below:

Three months ended

    

March 31, 2023

    

March 31, 2022

Balance at beginning of period

 

$

15,171

$

13,885

Current period provision for expected losses

 

1,378

1,913

Write-offs charged against the allowance

 

(591)

(862)

Recoveries collected

74

108

Balance at end of period

$

16,032

$

15,044

4. LEASES

Lessee Disclosure

The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The lease terms are generally between three and 10 years, some of which include additional renewal options.

Supplemental lease information

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

Three months ended

March 31, 2023

    

March 31, 2022

Operating lease cost:

Operating lease cost

$

5,981

$

6,142

Short-term lease cost

677

509

Variable lease cost

662

804

Total operating lease cost

$

7,320

$

7,455

Finance lease cost:

Amortization of right-of-use asset

$

699

$

797

Variable costs

203

248

Interest costs

84

102

Total finance lease cost

$

986

$

1,147

During the three months ended March 31, 2023 and 2022, the Company paid $5.0 million and $5.6 million, respectively, for operating lease liabilities. During the three months ended March 31, 2023 and 2022, the Company recorded $2.9 million and $3.7 million, respectively, of operating lease liabilities arising from ROU assets. During the three months ended March 31, 2023, in conjunction with the restructuring activities the Company terminated $5.0

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million of lease right of use assets, $5.3 million of lease liabilities from its balance sheet, and recorded a gain of $0.3 million in the restructuring expense line of its statement of operations.

At March 31, 2023, finance leases with a cost of $27.5 million and accumulated amortization of $14.1 million were included in property, plant and equipment. During the three months ended March 31, 2023, the Company paid $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, finance leases had a lease liability of $5.1 million, of which $1.0 million was current.

At December 31, 2022, finance leases with a cost of $26.6 million and accumulated amortization of $13.5 million were included in property, plant and equipment.

The weighted average remaining lease terms and discount rates as of March 31, 2023 and December 31, 2022 are noted in the table below:

March 31, 2023

December 31, 2022

Weighted-average remaining lease term

Operating leases

13.1 years

12.4 years

Financing leases

9.3 years

9.3 years

Weighted-average discount rate

Operating leases

6.1%

6.0%

Financing leases

6.9%

6.7%

Maturities of lease liabilities as of March 31, 2023 were as follows (in thousands):

Operating Leases

Financing Leases

2023 (excluding the three months ended March 31, 2023)

12,977

1,045

2024

17,023

1,240

2025

13,897

972

2026

9,771

504

2027

7,708

495

Thereafter

79,134

2,651

Total lease payments

140,510

6,907

Less imputed interest

(53,450)

(1,822)

Total

$

87,060

$

5,085

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Maturities of lease liabilities as of December 31, 2022 were as follows (in thousands):

Operating Leases

Financing Leases

2023

$

19,417

$

1,403

2024

17,836

1,342

2025

14,805

978

2026

10,505

504

2027

8,096