ATN International, Inc. [ATNI] Filings

10-Q 1 atni-20220331x10q.htm 10-Q

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, 2022


☐	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)

(978) 619-1300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	ATNI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻		Accelerated filer ⌧

Non-accelerated filer ◻		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ⌧

As of May 10, 2022, the registrant had outstanding 15,744,687 shares of its common stock ($.01 par value).

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ATN INTERNATIONAL, INC.

FORM 10-Q

Quarter Ended March 31, 2022


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, 2022 and December 31, 2021	4

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021	6

	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021	7

	Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2022 and 2021	8

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38-59

Item 3	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4	Controls and Procedures	59

PART II—OTHER INFORMATION		59

Item 1	Legal Proceedings	59

Item 1A	Risk Factors	60

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 5	Other Information	61

Item 6	Exhibits	61

SIGNATURES		62

CERTIFICATIONS

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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; the impact of COVID-19 on the economies of the markets we serve, and on our business and operations; expectations regarding future revenue, operating income, EBITDA and capital expenditures; the competitive environment in our key markets, demand for our services and industry trends; our expectations regarding construction progress under our 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) the general performance of our operations, including operating margins, revenues, capital expenditures, and the retention of and future growth of our subscriber base and ARPU; (3) our ability to realize cost synergies and expansion plans for our newly acquired Alaska Communications business; (4) our ability to satisfy the needs and demands of our major carrier customers; (5) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes in the telecommunications industry; (6) government subsidy program availability and regulation of our businesses, which may impact our revenue, expansion plans and operating costs; (7) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (8) economic, political and other risks and opportunities facing our operations, including those resulting from the pandemic, geopolitical tensions, including the Ukraine invasion, and inflation, including increased costs and supply chain disruptions; (9) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (10) our ability to find investment or acquisition or disposition opportunities that fit the strategic goals of the Company; (11) the occurrence of weather events and natural catastrophes and our ability to secure the appropriate level of insurance coverage for these assets; (12) increased competition; (13) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; and (14) our continued access to capital and credit markets. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” in each of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022, and the other reports we file from time to time with the SEC. The Company undertakes no obligation and has no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.

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.

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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,
	2022		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	75,748	$	79,601
Restricted cash		1,097		1,096
Short-term investments		300		300
Accounts receivable, net of allowances for credit losses of $15.0 million and $13.9 million, respectively		70,109		73,701
Customer receivable		4,336		4,145
Inventory, materials and supplies		9,984		10,177
Prepayments and other current assets		59,267		63,597
Total current assets		220,841		232,617
Fixed Assets:
Property, plant and equipment		1,759,855		1,748,092
Less accumulated depreciation		(825,980)		(804,883)
Net fixed assets		933,875		943,209
Telecommunication licenses, net		113,766		113,766
Goodwill		40,104		40,104
Intangible assets, net		41,067		44,294
Operating lease right-of-use assets		118,091		118,843
Customer receivable - long term		40,206		39,652
Other assets		82,757		76,119
Total assets	$	1,590,707	$	1,608,604
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities:
Current portion of long-term debt	$	3,743	$	4,665
Current portion of customer receivable credit facility		5,280		4,620
Accounts payable and accrued liabilities		113,698		151,463
Dividends payable		2,676		2,672
Accrued taxes		6,680		5,681
Current portion of lease liabilities		16,953		16,201
Advance payments and deposits		35,696		35,642
Total current liabilities		184,726		220,944
Deferred income taxes		21,651		21,460
Lease liabilities, excluding current portion		91,494		91,719
Other liabilities		140,246		142,033
Customer receivable credit facility, net of current portion		36,515		30,148
Long-term debt, excluding current portion		348,463		327,111
Total liabilities		823,095		833,415
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests:
Preferred redeemable noncontrolling interests		51,412		50,296
Common redeemable noncontrolling interests		22,640		22,640
Total redeemable noncontrolling interests		74,052		72,936
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; 17,562,666 and 17,476,542 shares issued, respectively, 15,742,780 and 15,712,941 shares outstanding, respectively		172		172
Treasury stock, at cost; 1,819,885 and 1,763,601 shares, respectively		(73,795)		(71,714)
Additional paid-in capital		193,164		192,132
Retained earnings		470,056		475,887
Accumulated other comprehensive income		5,195		4,773
Total ATN International, Inc. stockholders’ equity		594,792		601,250
Noncontrolling interests		98,768		101,003
Total equity		693,560		702,253
Total liabilities, redeemable noncontrolling interests and equity	$	1,590,707	$	1,608,604

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, 2022 AND 2021

(Unaudited)

(In Thousands, Except Per Share Data)


	Three months ended March 31,
	2022		2021
REVENUE:
Communication services	$	166,543	$	110,636
Construction		1,987		12,306
Other		3,489		1,568
Total revenue		172,019		124,510
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated):
Cost of communication services and other		73,011		49,507
Cost of construction revenue		2,033		12,606
Selling, general and administrative		56,343		37,693
Transaction-related charges		554		730
Depreciation and amortization		33,292		20,111
Amortization of intangibles from acquisitions		3,258		397
Loss on disposition of long-lived assets		3,420		117
Total operating expenses		171,911		121,161
Income from operations		108		3,349
OTHER INCOME (EXPENSE)
Interest income		51		(6)
Interest expense		(3,363)		(1,147)
Other income		4,199		2,375
Other income (expense), net		887		1,222
INCOME BEFORE INCOME TAXES		995		4,571
Income tax provision		2,952		295
NET INCOME (LOSS)		(1,957)		4,276
Net income (loss) attributable to noncontrolling interests, net of tax expense (benefit) of $(0.5) million and $0.1 million, respectively.		1,009		(1,570)
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS	$	(948)	$	2,706
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS:
Basic	$	(0.13)	$	0.17
Diluted	$	(0.13)	$	0.17
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		15,708		15,902
Diluted		15,708		15,952
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.

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Unaudited)

(In Thousands)



	Three months ended March 31,
	2022		2021
Net income (loss)	$	(1,957)	$	4,276
Other comprehensive income (loss):
Foreign currency translation adjustment		256		(40)
Unrealized gain (loss) on derivatives		166		31
Other comprehensive income (loss), net of tax		422		(9)
Comprehensive income (loss)		(1,535)		4,267
Less: Comprehensive income (loss) attributable to noncontrolling interests		1,009		(1,570)
Comprehensive income (loss) attributable to ATN International, Inc.	$	(526)	$	2,697

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, 2022 AND 2021

(Unaudited)

(In Thousands, Except Per Share Data)


	Total Redeemable Noncontrolling Interests						Total Equity
		Redeemable		Redeemable		Total				Treasury		Additional				Redeemable		Other		ATNI		Non-
		Preferred		Common		Redeemable		Common		Stock,		Paid In		Retained		Common		Comprehensive		Stockholders’		Controlling		Total
		Units		Units		Noncontrolling Interests		Stock		at cost		Capital		Earnings		Units		Income/(Loss)		Equity		Interests		Equity
Balance, December 31, 2021	$	50,296	$	22,640	$	72,936	$	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)		—				(1,116)		—		(1,116)
Deemed dividend - redeemable common units		—		1,092		1,092		—		—		—		(1,092)		1,092		—		—		—		—
Comprehensive income:
Net income (loss)		—		(1,092)		(1,092)		—		—		—		(948)		(1,092)		—		(2,040)		83		(1,957)
Other comprehensive income		—		—		—		—		—		—		—		—		422		422		—		422
Total comprehensive income (loss)		—		(1,092)		(1,092)		—		—		—		(948)		(1,092)		422		(1,618)		83		(1,535)
Balance, March 31, 2022	$	51,412	$	22,640	$	74,052	$	172	$	(73,795)	$	193,164	$	470,056	$	—	$	5,195	$	594,792	$	98,768	$	693,560

Balance, December 31, 2020	$	—	$	—	$	—	$	172	$	(59,456)	$	187,754	$	516,901	$	—	$	278	$	645,649	$	108,687	$	754,336
Purchase of 43,978 shares of common stock		—		—		—		—		(2,221)		—		—		—		—		(2,221)		—		(2,221)
Stock-based compensation		—		—		—		—		—		1,262		—		—		—		1,262		74		1,336
Dividends declared on common stock ($0.17 per common share)		—		—		—		—		—		—		(2,710)		—		—		(2,710)		—		(2,710)
Distributions to non-controlling interests		—		—		—		—		—		—		—		—		—		—		(1,530)		(1,530)
Repurchase of noncontrolling interests		—		—		—		—		—		(2,086)		—		—		—		(2,086)		(9,123)		(11,209)
Comprehensive income:
Net income		—		—		—		—		—		—		2,706		—		—		2,706		1,570		4,276
Other comprehensive income (loss)		—		—		—		—		—		—		—		—		(9)		(9)		—		(9)
Total comprehensive income (loss)		—		—		—		—		—		—		2,706		—		(9)		2,697		1,570		4,267
Balance, March 31, 2021	$	—	$	—	$	—	$	172	$	(61,677)	$	186,930	$	516,897	$	—	$	269	$	642,591	$	99,678	$	742,269

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, 2022 AND 2021

(In Thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	(1,957)	$	4,276
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation		33,292		20,111
Amortization of acquisition intangibles		3,258		397
Provision for doubtful accounts		1,913		1,122
Amortization of debt discount and debt issuance costs		501		168
Stock-based compensation		1,461		1,336
Deferred income taxes		191		(2,504)
Gain on equity investments		(4,222)		(2,188)
Loss on disposition of long-lived assets		3,420		117
Unrealized gain on foreign currency		—		(81)
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions:
Accounts receivable		1,677		1,430
Customer receivable		(746)		(12,579)
Materials and supplies, prepayments, and other current assets		(5,330)		(253)
Prepaid income taxes		6,206		—
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities		(27,465)		(7,648)
Accrued taxes		2,763		1,810
Other assets		(325)		(242)
Other liabilities		(3,249)		51
Net cash provided by operating activities		11,388		5,323
Cash flows from investing activities:
Capital expenditures		(34,220)		(19,495)
Reimbursable capital expenditures		(248)		(6,185)
Receipt of capital government grants		—		3,292
Divestiture of businesses, net of transferred cash of $0.9 million		—		18,597
Purchases of strategic investments		—		(4,155)
Net cash used in investing activities		(34,468)		(7,946)
Cash flows from financing activities:
Dividends paid on common stock		(2,672)		(2,703)
Distributions to noncontrolling interests		(263)		(3,530)
Payment of debt issuance costs		—		53
Finance lease payment		(338)		—
Term loan - repayments		(938)		(938)
Revolving credit facility – borrowings		36,500		—
Revolving credit facility – repayments		(15,500)		—
Repayment of customer receivable credit facility		(1,003)		—
Purchases of common stock – stock- based compensation		(1,136)		(1,677)
Purchases of common stock – share repurchase plan		(941)		(540)
Repurchases of noncontrolling interests		(2,481)		(11,522)
Proceeds from customer receivable credit facility		8,000		10,814
Net cash provided by (used in) financing activities of continuing operations		19,228		(10,043)
Net change in cash, cash equivalents, and restricted cash		(3,852)		(12,666)
Total cash, cash equivalents, and restricted cash, beginning of period		80,697		104,997
Total cash, cash equivalents, and restricted cash, end of period	$	76,845	$	92,331
Purchases of property, plant and equipment included in accounts payable and accrued expenses	$	13,221	$	10,075

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 critical infrastructure-based communications and related information technology solutions to remote and historically underserved markets in the United States, Bermuda, and the Caribbean. The Company seeks to invest in its existing and new markets for long term growth led by its Glass and Steel and “fiber first” strategies that enable it to bring new or enhanced communications services to markets often overlooked by larger telecommunications providers.

At the holding company level, the Company oversees the allocation of capital within and among its subsidiaries, affiliates, new investments, and stockholders. The Company also has developed significant operational expertise and resources that it uses to augment the capabilities of its individual operating subsidiaries in its local markets. Over the past 10 years, 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 also provides management, technical, financial, regulatory, and marketing services to its operating subsidiaries and typically receives 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 looks for those that it believes fit the Company’s profile of telecommunications businesses and have the potential to complement its Glass and Steel and “fiber first” 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, 2022, the Company offered the following types of services to its customers:

●

Mobility Telecommunications Services. The Company offers mobile communications services and equipment over our wireless networks to both its business and consumer subscribers. In certain markets, mobility services also includes private network services to business customers and municipalities.

●

Fixed Telecommunications Services. The Company provides fixed data and voice telecommunications services to both its business and consumer subscribers in all of its markets. 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 wholesale roaming, the leasing of critical network infrastructure such as tower and transport facilities, 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.

Through March 31, 2022, 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. 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

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services to business and consumer customers in Alaska and the western United States. In the western United States, the Company also provides mobility services and private network services to enterprise and consumer customers.

●

Renewable Energy. In India, the Company provided distributed generation solar power to commercial and industrial customers through January 27, 2021. See Disposition of International Solar Business for further details.

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, 2022:


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, Geoverse
	Fixed Services	United States	Alaska Communications, Commnet, Choice, Choice NTUA Wireless
	Carrier Services	United States	Alaska Communications, Commnet, Essextel
	Managed Services	United States	Alaska Communications, Choice
Renewable Energy (1)	Solar	India	Vibrant Energy

(1)

See Disposition of International Solar Business for further details.

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.

Acquisition of Alaska Communications

On July 22, 2021, the Company completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company, for approximately $339.5 million in cash, net of cash acquired, (the “Alaska Transaction”). Alaska Communications provides broadband telecommunication and managed information technology services to customers in the state of Alaska and beyond using its statewide and interstate telecommunications network. The Company completed the Alaska Transaction to enter a new market with similar characteristics to its existing operations.

In conjunction with the Alaska Transaction, the Company entered into an agreement with affiliates and investment funds managed by Freedom 3 Capital, LLC as well as other institutional investors (collectively the “Freedom 3 Investors”). The Freedom 3 Investors contributed approximately $71.5 million in conjunction with the Alaska

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Transaction (the “Freedom 3 Investment”). The Freedom 3 Investment consists of redeemable common and preferred equity instruments in a subsidiary of the Company which holds the ownership of Alaska Communications. The Company accounted for the Freedom 3 Investment as redeemable noncontrolling interests in its consolidated financial statements because the instruments contain put options allowing the holders to sell the instruments to a subsidiary of the Company. The put option is solely the obligation of the Alaska Communications subsidiary and is nonrecourse to the Company. The Company also entered into a financing transaction drawing $220 million on a new credit facility to complete the Alaska Transaction. As a result of the Alaska Transaction, the Company owns approximately 52% of the common equity of Alaska Communications and controls its operations and management. The Company incurred $11.0 million of transaction costs in conjunction with the Alaska Transaction. Beginning on July 22, 2021, the results of the Alaska Transaction are included in the Company’s US Telecom segment.

COVID-19

The Company continues to monitor and assess the effects of the ongoing COVID-19 pandemic on its commercial operations, the safety of its employees and their families, its sales force and customers.

The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions, which are evaluated on an ongoing basis, that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. 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 of COVID-19 as of March 31, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, the carrying value of goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.

The Company’s assessment of the impact of COVID-19 on its operations did not indicate that there was a material adverse impact to its consolidated financial statements as of and for the three months ended March 31, 2022. However, future assessments of the impacts of COVID-19, as well as other factors, including the possible reinstatement of certain COVID-19 travel-related and stay-at-home restrictions, could result in material adverse impacts to its consolidated financial statements in future reporting periods. For example, the Company may experience difficulty in procuring network or retail equipment, such as handsets for subscribers, as a result of COVID-19 restrictions. Apart from possible government issued travel restrictions, the Company currently cannot assess how COVID-19 may influence subscribers’ procurement behavior for services or how that behavior will impact revenues in the foreseeable future.

2. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for the periods described therein. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022.

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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Presentation of Revenue

Effective October 1, 2021, the Company’s statement of operations separately reflects Construction Revenue. All periods presented have been adjusted to conform to these presentation updates.

Presentation of Operating Expenses

Effective January 1, 2021, the Company changed its presentation of operating expenses in the Condensed Consolidated Statements of Operations by combining the previously disclosed Termination and Access Fees with Engineering and Operations as the newly represented Costs of communication services and other. In addition, the previously disclosed Sales, Marketing and Customer Service expenses are now combined with the previously disclosed General and Administrative expenses within the newly represented Selling, General and Administrative expenses. The change in presentation was made to better align the Company’s results with industry standards. Cost of construction services continues to be broken out separately and all depreciation and amortization continues to be shown separately.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company prospectively adopted this accounting standard in 2021.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which required entities to make specific annual disclosures about transactions with a government. The new standard is effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of the standard, but we do not expect it to have a material impact on our disclosures.

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 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 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 and May 2021 (the “FirstNet Agreement”). In connection with the FirstNet Agreement, the Company is building a portion of AT&T’s network for the First Responder Network Authority in or near the Company’s current operating area 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

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circumstances. The current portion receivables under this agreement are recorded in customer receivable and the long-term portion is recorded in customer receivable long-term on the Company’s balance sheet.

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

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


	March 31, 2022		December 31, 2021			$ Change	% Change
Contract asset – current	$	4,123	$	4,805	$	(682)	(14)	%
Contract asset – noncurrent		890		900		(10)	(1)	%
Contract liability – current		(23,756)		(25,332)		1,576	6	%
Contract liability – noncurrent		(78,861)		(81,391)		2,530	3	%
Net contract liability	$	(97,604)	$	(101,018)	$	3,414	3	%

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, 2022, the Company recognized revenue of $15.0 million related to its December 31, 2021 contract liability and amortized $0.7 million of the December 31, 2021 contract asset into revenue.

Contract Acquisition Costs

The March 31, 2022 balance sheet includes contract acquisition costs of $5.1 million in other assets. During the three months ended March 31, 2022 and 2021, the Company amortized $0.8 million and $0.6 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 $350 million and $369 million at March 31, 2022 and December 31, 2021, respectively. The Company expects to satisfy approximately 52% 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 Renewable Energy and,

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Managed Services revenue. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

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

At March 31, 2022 the Company had gross accounts receivable of $129.7 million and an allowance for credit losses of $15.0 million. The receivable under the FirstNet Agreement totaled $44.5 million of which $4.3 million was current and $40.2 million was long-term. At December 31, 2021, the Company had gross accounts receivable of $131.4 million and an allowance for credit losses of $13.9 million. The receivable under the FirstNet Agreement totaled $43.8 million, of which $4.1 million was current and $39.7 million was long-term. The Company monitors receivables through the use of historical operating data adjusted for expectation of future performance as appropriate. Activity in the allowance for credit losses is below:


	Three months ended March 31, 2022		Three months ended March 31, 2021

Balance at beginning of period	$	13,885	$	12,121
Current period provision for expected losses		1,913		1,122
Write-offs charged against the allowance		(862)		(354)
Recoveries collected		108		124
Balance at end of period	$	15,044	$	13,013

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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 3 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, 2022		Three months ended March 31, 2021
Operating lease cost:
Operating lease cost	$	6,142	$	4,225
Short-term lease cost		509		408
Variable lease cost		804