Crown Castle Inc. — Form 10-Q Summary
Business Context and Reporting Period
Crown Castle owns, operates and leases shared U.S. communications infrastructure, including more than 40,000 towers and approximately 85,000 route miles of fiber supporting small cells and fiber solutions. The company reports Towers and Fiber operating segments and operates as a REIT for U.S. federal income tax purposes.
This filing covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The company changed its legal name from Crown Castle International Corp. to Crown Castle Inc. effective August 1, 2022; its NYSE ticker remained CCI.
Financial Performance and Key Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Net revenues | $1.734 billion | $1.583 billion | $3.476 billion | $3.068 billion |
| Site rental revenues | $1.567 billion | $1.425 billion | $3.143 billion | $2.794 billion |
| Operating income | $593 million | $505 million | $1.211 billion | $953 million |
| Income from continuing operations | $421 million | $333 million | $842 million | $455 million |
| Net income | $421 million | $334 million | $842 million | $393 million |
| Adjusted EBITDA | $1.078 billion | $958 million | $2.173 billion | $1.856 billion |
| Net cash from operating activities | Not separately provided | Not separately provided | $1.337 billion | $1.371 billion |
Q2 revenue increased 10%, operating income increased 17%, net income increased 26%, and Adjusted EBITDA increased 13%. For the first six months, revenue increased 13%, operating income increased 27%, income from continuing operations increased 85%, net income increased 114%, and Adjusted EBITDA increased 17%.
Calculated operating margins were approximately 34.2% in Q2 2022 versus 31.9% in Q2 2021, and 34.8% for the first six months of 2022 versus 31.1% in the prior-year period. Calculated net margins were approximately 24.3% and 24.2% for Q2 and the first six months of 2022, respectively. Adjusted EBITDA is a non-GAAP measure and is not directly comparable across companies.
- Q2 Towers site rental revenue increased 13% to $1.078 billion; Fiber site rental revenue increased 3% to $489 million.
- Q2 segment operating profit increased 15% for Towers and 5% for Fiber.
- Capital expenditures were $584 million for the first six months, including $542 million of discretionary expenditures and $42 million of sustaining expenditures.
- Cash, cash equivalents and restricted cash totaled $446 million at June 30, 2022, compared with $466 million at December 31, 2021.
- Total debt and other obligations were $21.282 billion at June 30, 2022, compared with $20.629 billion at year-end 2021. Debt fair value was $19.442 billion.
- Undrawn revolver availability was $3.8 billion at June 30, before giving effect to the July amendment, and $5.8 billion after giving effect to that amendment.
- Dividends paid during the first six months totaled approximately $1.3 billion. Dividends declared were $1.47 per share in each of the first two quarters.
Material Changes Versus the Prior Comparable Period
- Growth was led by tenant additions, renewals, contractual escalations and continued wireless-carrier network investment, including 5G-related activity.
- Fiber growth reflected increased demand for small cells and fiber solutions, although the rate of growth was below that of Towers.
- SG&A increased 12% in Q2 and 11% for the first six months, primarily due to business growth. Depreciation, amortization and accretion increased 5% in Q2 and 4% year to date due to the expanded asset base.
- Six-month 2022 results benefited from substantially lower losses on retirement of debt: $26 million versus $144 million in 2021. The 2021 period also included a $62 million loss from discontinued operations.
- In March 2022, the company issued $750 million of 2.9% senior notes due 2027, redeemed $1.0 billion of secured notes and prepaid $250 million of Tower Revenue Notes.
- In July 2022, the company amended its credit facility, extending maturity from June 2026 to July 2027, increasing revolver commitments from $5.0 billion to $7.0 billion, and replacing LIBOR with Term SOFR.
Guidance, Outlook, Commentary and Risks
- Management expects 2022 site rental revenue growth from tenant additions and continued demand for wireless and fiber infrastructure.
- The company expects sustaining capital expenditures to remain approximately 1% of full-year net revenues and expects continued investment in discretionary projects, particularly small cells and fiber. Certain construction projects may take 18 to 36 months.
- Management expects the T-Mobile Agreement to generate at least $250 million of additional straight-lined revenue in 2022. The agreement includes a 12-year term and a commitment for 35,000 new small-cell nodes.
- The company expects common dividends over the next 12 months to total at least $5.88 per share, or approximately $2.5 billion, subject to board declaration.
- Management targets leverage of approximately five times Adjusted EBITDA, subject to capital availability, cost and investment returns. Debt service coverage and leverage ratios were within applicable covenants.
- Approximately three-fourths of site rental revenue came from T-Mobile, AT&T and Verizon Wireless during the first six months, creating customer concentration risk. Approximately 53% of towers are leased, subleased or managed under arrangements with AT&T and T-Mobile.
- Interest-rate risk increased as floating-rate debt rose to approximately $3.3 billion, or 15% of total debt. Management stated that a hypothetical 0.125 percentage-point increase in rates would increase annual interest expense by approximately $4 million.
- Liquidity uses over the next 12 months are expected to include approximately $1.0 billion of debt obligations, at least $2.5 billion of dividends and capital expenditures. Management expects available liquidity sources to be sufficient.
- The company faces lawsuits related to the April 2019 Durham, North Carolina gas-leak explosion. It cannot currently determine the likelihood or estimate the range of potential losses.
- The filing reports no material changes to the risk factors disclosed in the 2021 Form 10-K. Future results remain subject to wireless-carrier spending, tenant cancellations, interest rates, refinancing conditions, construction execution, REIT qualification and litigation outcomes.
Facts Investors Should Verify
- Reconcile reported revenue, Adjusted EBITDA and cash flow growth with tenant additions, contractual escalators and the T-Mobile Agreement.
- Monitor customer concentration and the pace of T-Mobile, AT&T and Verizon spending on towers, small cells and fiber.
- Review debt maturities, commercial paper balances, floating-rate exposure and compliance with financial covenants after the July 2022 credit amendment.
- Assess whether discretionary capital expenditures generate the expected returns, particularly for small-cell and fiber projects with extended construction timelines.
- Confirm the sustainability of the planned $5.88-per-share minimum dividend expectation against operating cash flow, debt needs and REIT distribution requirements.
- Track developments in the Durham litigation and any potential financial exposure.
- Verify continuing qualification as a REIT and the related tax treatment, including the impact of taxable REIT subsidiaries and net operating losses.