The discussion and analysis of our financial condition and results of operations
that follows is based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of our financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ significantly from these estimates under different
assumptions or conditions. This discussion should be read in conjunction with
our condensed consolidated financial statements herein and the accompanying
notes thereto, and our Annual Report on Form 10-K for the year ended
December 31, 2019 (as amended by Amendment No. 1 to the 2019 Annual Report on
Form 10-K filed with the SEC on April 29, 2020, the "2019 Annual Report on
Form 10-K"), and in particular, the information set forth therein under Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Overview
We are a holding company that, directly and through our subsidiaries, owns and
operates telecommunications businesses in North America, the Caribbean and
Bermuda as well as a renewable energy business in India. We were incorporated in
Delaware in 1987, began trading publicly in 1991 and spun off more than a half
of our operations to stockholders in 1998. Since that time, we have engaged in
many strategic acquisitions and investments to help grow our operations using
the cash generated from our established operating units to re-invest in our
existing businesses, to make strategic investments in additional businesses and
to return cash to our investors. We have built, and seek to maintain, resources
to support our operating subsidiaries and to improve their customer acquisition,
retention, and satisfaction while maintaining optimal operating efficiencies. We
look for businesses that offer growth opportunities or potential strategic
benefits but require additional capital investment in order to execute on their
business plans. We hold controlling positions with respect to some of our
investments and non-controlling positions in others. Our investments in earlier
stage businesses frequently offer a product and service development component in
addition to the prospect of generating returns on our invested capital. For a
discussion of the risks involved in our investment strategy, see "Risk
Factors-We are actively evaluating investment, acquisition and other strategic
opportunities, which may affect our long-term growth prospects." in our 2019
Annual Report on Form 10-K.
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We review our operations in three operating segments to facilitate both our
internal and investor presentations of our results. These three operating
segments are as follows:
International Telecom. Our international telecom segment offers services to
other telecom providers ("Carrier Services"), such as international
long-distance, roaming from other carriers' customers traveling into our 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. We also offer 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, we offer 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 our retail and enterprise customers
in the Southwestern United States.
? Renewable Energy. In India, we provide distributed generation solar power to
corporate and industrial customers.
The following chart summarizes the operating activities of our principal
subsidiaries, the segments in which we report our revenue and the markets we
served as of September 30, 2020:
Segment Services Markets Tradenames
International Telecom Mobility Bermuda, Guyana, US GTT+, One,
Virgin Islands Viya
Fixed Bermuda, Cayman
Islands, Guyana, US GTT+, One,
Virgin Islands Logic, Viya
Carrier Services Bermuda, Guyana, US GTT+, One,
Virgin Islands Viya
Managed Services Bermuda, Cayman Fireminds,
Islands, US Virgin One, Logic,
Islands, Guyana Viya, GTT+
US Telecom Mobility United States (rural Commnet,
markets) Choice,
Choice NTUA
Wireless,
WestNet,
Geoverse
Fixed United States Commnet,
Choice,
Choice NTUA
Wireless,
Deploycom,
WestNet
Carrier Services United States Commnet,
Essextel
Managed Services United States Choice
Renewable Energy Solar India Vibrant
Energy
We actively evaluate potential acquisitions, investment opportunities and other
strategic transactions, both domestic and international, that meet our return on
investment and other criteria. In addition, we consider non-controlling
investments in earlier stage businesses that we consider strategically relevant,
and which may offer long-term growth potential for us, either individually, or
as research and development businesses that can support our operating
subsidiaries in new product and service development and offerings. We provide
management, technical, financial, regulatory, and marketing services to our
subsidiaries and typically receive a management fee equal to a percentage of
their revenues, which is eliminated in consolidation. For further information
about our financial segments and geographical information about our operating
revenues and assets see Notes 1 and 12 to the Unaudited Condensed Consolidated
Financial Statements included in this Report.
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COVID-19
In March 2020, the World Health Organization declared a novel strain of
coronavirus, now referred to as COVID-19, as a pandemic, and the virus has now
spread globally to over 200 countries and territories, including the United
States and other countries in which we have substantial operations. We are
continuing to monitor and assess the effects of the COVID-19 pandemic on our
commercial operations, the safety of our employees and their families, our sales
force and customers and any potential impact on our revenue in 2020.
The preparation of the condensed consolidated financial statements requires us
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 we evaluate
estimates, judgments and methodologies. We assessed certain accounting matters
and estimates that generally require consideration of forecasted financial
information in context with the information and estimates reasonably available
to us and the unknown future impacts COVID-19 as of September 30, 2020 and
through the date of this report. The accounting matters assessed included, but
were not limited to, our allowance for credit losses, the carrying value of our
goodwill and other long-lived assets, financial assets, valuation allowances for
tax assets and revenue recognition. We assessed the impacts of COVID-19 on our
consolidated financial statements as of and for the quarter ended September 30,
2020, in particular the impacts on lines of revenues, operating expenses as well
as the deferral and savings on other operating expenses and capital
expenditures. During the three months ended September 30, 2020, while our
International Telecom segment experienced strengthened demand for both its
mobile and fixed services, its carrier services revenue declined as a result of
a reduction in roaming revenue due to pandemic-related travel and stay-at-home
restrictions as compared to the same period of 2019. Such restrictions also
resulted in decreased mobile and carrier services revenues within our US Telecom
segment during the three months ended September 30, 2020 as compared to the same
period of 2019. However, in response to certain anticipated impacts, we were
able to implement operating expense savings, particularly with respect to our
International Telecom segment, that when coupled with Company-wide travel
expense savings and capital expenditure deferrals, acted to offset much of the
revenue loss or additional credit loss allowances caused by anticipated customer
non-payment activity in the quarter. As a result, our assessment did not
indicate that there was a material impact to our consolidated financial
statements as of and for the quarter ended September 30, 2020. However, our
future assessments of the impacts of COVID-19 for the remainder of the year and
into 2021 or our ability to realize continued operational expense savings, as
well as other factors, could result in material impacts to our consolidated
financial statements in future reporting periods. For example, the local
economies of many of our Caribbean markets are tourism-dependent and the decline
in global travel activity resulting from COVID-19 may continue to impact our
revenue and cash flows for certain services in these markets as our retail and
enterprise customers may be unable to pay for services, and our international
roaming revenue may decline as compared to last year. The extent to which the
COVID-19 pandemic ultimately impacts our business, financial condition, results
of operations, cash flows, and liquidity may differ from our 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.
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Presentation of Revenue
Effective January 1, 2020, we changed our 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 our
financial performance with the views of management and 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 our segment information and are included within communications
services revenue within our Statements of Operations. Managed services revenue,
which was previously a component of wireline revenue, is now included in other
revenue along with revenue from our Renewable Energy operations.
FirstNet Agreement
In July 2019 and August 2020, we entered into a Network Build and Maintenance
Agreement (the "FirstNet Agreement") and First Amendment to that agreement with
AT&T Mobility, LLC ("AT&T"), respectively, 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 our current operating area in the Southwestern
United States (the "FirstNet Transaction"). Pursuant to the FirstNet Agreement
and subject to certain limitations contained therein, all cell sites must be
completed and accepted within a specified period of time. We expect to
recognize construction revenue of approximately $80 million to $85 million
through 2021 that will be mainly offset by construction costs as sites are
completed. Revenues from construction are expected to have minimal impact on
operating income. The network build portion of the FirstNet Agreement has
continued during the COVID-19 pandemic but the overall timing of the build
schedule has been delayed. Subject to ongoing delays caused by COVID-19 related
restrictions, we currently expect construction revenues to continue through
2021.
Following acceptance of a cell site, AT&T will own the cell site and we will
assign to AT&T any third-party tower lease applicable to such cell site. If the
cell site is located on a communications tower we own, AT&T will pay us pursuant
to a separate lease agreement for an initial term of eight years. In addition to
building the network, we will provide ongoing equipment and site maintenance and
high capacity transport to and from these cell sites for an initial term ending
2029.
AT&T will continue to use our wholesale domestic mobility network for roaming
services at a fixed rate per site during the construction period until such time
as the cell site is transferred to AT&T. Thereafter, revenue from the
maintenance, leasing and transport services provided to AT&T is expected to
generally offset revenue from wholesale mobility roaming services. We began
receiving revenue from the FirstNet Transaction in the third quarter of 2019 and
expect overall operating income contributions from the FirstNet Transaction to
have a relatively steady impact from 2020 onwards.
For more information about the risks to our business with respect to our
FirstNet Agreement, see "Risks Related to our US Telecom Segment - we may not be
able to timely and effectively meet our obligations to AT&T related to our
partnership with the First Responder Network Authority" in Part I, Item 1A of
our 2019 Annual Report Form 10-K.
See Sources of Cash below for a discussion regarding our March 26, 2020 credit
agreement providing the ability to finance the assets built under the FirstNet
Agreement.
Universal Service Fund
The Federal Universal Service Fund ("USF") is a subsidy program managed by the
Federal Communications Commission ("FCC"). USF funds are disbursed to
telecommunication providers through four programs: the High Cost Program; Low
Income Program ("Lifeline Program"); Schools and Libraries Program ("E-Rate
Program"); and Rural Health Care Program. We participate in the High Cost
Program, Lifeline Program, E-Rate Program, and Rural Health
34
Care Support Program as further described below. All of these funding programs
are subject to certain operational and reporting compliance requirements. We
believe that we are in compliance with all applicable requirements.
During the three and nine month periods ended September 30, 2020, we recorded
$4.1 million and $12.3 million, respectively, of revenue from the High Cost
Program in our International Telecom segment. During the three and nine month
periods ended September 30, 2019, we recorded $4.1 million and $12.3 million,
respectively, of revenue from the High Cost Program in our International Telecom
segment. Also, during the three and nine month periods ended September 30, 2020,
we recorded $0.3 million and $0.9 million, respectively, of High Cost Program
revenue in our US Telecom segment. During the three and nine month periods ended
September 30, 2019, we recorded $0.3 million and $0.9 million of High Cost
Program revenue in our US Telecom segment. We are subject to certain
operational, reporting and construction requirements as a result of this
funding, and we believe that we are in compliance with all of these
requirements.
In August 2018, we were awarded $79.9 million over 10 years under the Connect
America Fund Phase II Auction. The funding began in the second quarter of 2019
and we are required to provide fixed broadband and voice services to certain
eligible areas in the United States. We are subject to operational and reporting
requirements under the program and we expect to incur additional capital
expenditures to comply with these requirements. We determined the award is a
revenue grant, and as a result we will record the funding as revenue upon
receipt. During the three and nine month periods ended September 30, 2020, we
recorded $1.9 million and $5.7 million, respectively, from the Connect America
Fund Phase II program. During the three and nine months ended September 30,
2019, we recorded $1.9 million and $3.4 million of revenue from the program,
respectively, as funding began in the second quarter of 2019.
We also receive construction grants to build network connectivity for eligible
communities. The funding is used to reimburse construction costs and is
distributed upon completion of a project. As of September 30, 2020, we have
been awarded approximately $16.8 million of grants with construction completion
obligations beginning in June 2020. Once these projects are constructed, we are
obligated to provide service to the participants. We receive funds upon
construction completion and are in various stages of constructing the networks.
We did not receive any funds during the nine months ended September 30, 2020.
During 2019, we received $5.4 million, of which $3.1 million was a reimbursement
of capital expenditures and $2.3 million offset operating activities. We expect
to meet all requirements associated with these grants.
We also receive funding to provide discounted telecommunication services to
eligible customers under the E-Rate Program, Lifeline Program, and Rural Health
Care Support Program. During the three and nine months ended September 30, 2020,
we recorded revenue of $2.2 million, and $6.6 million, respectively, in the
aggregate from these programs. During the three and nine months ended September
30, 2019, we recorded revenue of $1.5 million and $4.7 million, respectively, in
the aggregate from these programs. We are subject to certain operational and
reporting requirements under the above mentioned programs and we believe that we
are in compliance with all of these requirements.
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC
implemented a tribal lands bidding credit to encourage deployment of wireless
services utilizing 600 MHz spectrum on the lands of federally recognized
tribes. We received a bidding credit of $7.4 million under this program in
2018. A portion of these funds will be used to offset network capital costs and
a portion will be used to offset the costs of supporting the networks. Our
current estimate is that we will use $5.4 million to offset capital costs and,
consequently, reduce future depreciation expense and $2.0 million to offset the
cost of supporting the network which will reduce future operating expense.
Through September 30, 2020, we have spent $5.1 million on capital expenditures
and have recorded $0.1 million in offsets to the cost of supporting the network.
The credits are subject to certain requirements, including deploying service by
January 2021 and meeting minimum coverage metrics. If the requirements are not
met the funds may be subject to claw back provisions. We currently expect to
comply with all applicable requirements related to these funds.
CBRS Auction
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In September 2020, we secured approximately 1,500 licenses as part of the FCC's
Citizens Broadband Radio Service auction. These licenses are awarded for an
initial ten year period and are subject to meeting a substantial performance
requirement by the end of the initial term. We currently expect to comply with
all applicable requirements related to these licenses.
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