Crown Castle International Corp. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Crown Castle owns, operates and leases shared communications infrastructure in the U.S., including approximately 40,000 towers and 80,000 route miles of fiber supporting small cells and fiber solutions. The company operates as a REIT and reports Towers and Fiber segments. This unaudited filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
- Site rental revenue represented 92% of consolidated revenue.
- Towers and Fiber represented 65% and 35%, respectively, of site rental revenue.
- Approximately 75% of site rental revenue came from T-Mobile, AT&T and Verizon Wireless.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenues | $1.485 billion | $1.421 billion | +5% |
| Site rental revenue | $1.369 billion | $1.310 billion | +5% |
| Operating income | $448 million | $364 million | +23% |
| Income from continuing operations | $121 million | $185 million | -35% |
| Net income attributable to CCIC stockholders | $58 million | $185 million | -69% |
| Diluted earnings per share | $0.13 | $0.38 | -$0.25 |
| Adjusted EBITDA | $897 million | $814 million | +10% |
| Net cash from operating activities | $584 million | $653 million | -11% |
Operating margin was approximately 30.2%, compared with 25.6% in the prior-year quarter. Adjusted EBITDA margin was approximately 60.4%, compared with 57.3%. Net income margin declined to approximately 3.9% from 13.0%, primarily because of a $143 million loss on retirement of long-term obligations and a $63 million after-tax loss from discontinued operations related to the Australian tax settlement.
- Towers site rental revenue increased 3% to $895 million; Fiber site rental revenue increased 7% to $474 million.
- Segment operating profit increased 8% for Towers and 12% for Fiber.
- Services and other gross margin increased to $37 million from $14 million, driven primarily by higher Towers services activity.
- Capital expenditures were $302 million, including $285 million of discretionary expenditures and $17 million of sustaining expenditures.
- Common dividends declared were $1.33 per share; approximately $588 million was paid during the quarter.
Balance sheet, debt and liquidity
- Cash, cash equivalents and restricted cash totaled $438 million at March 31, 2021.
- Total debt and other obligations were $19.872 billion, including $19.713 billion of non-current debt and obligations.
- Total equity was $8.923 billion.
- The company had approximately $4.4 billion of undrawn Revolver availability at March 31, 2021 and $5.0 billion available as of April 29, 2021.
- Debt had a weighted-average interest rate of approximately 3.1%, an approximately nine-year weighted-average maturity assuming anticipated repayment dates for Tower Revenue Notes, and 91% fixed-rate exposure.
- Operating cash flow of $584 million was less than dividends paid of approximately $588 million before capital expenditures and other financing needs.
In February 2021, the company issued $3.25 billion of senior unsecured notes with maturities in 2026, 2031 and 2041. Proceeds were used to redeem the 5.250% Senior Notes, repay commercial paper and reduce borrowings under the Term Loan A. The refinancing generated a $143 million loss on retirement of long-term obligations.
Material changes versus the prior comparable period
- Revenue increased $64 million, led by growth in both Towers and Fiber site rental activity.
- Operating income improved despite lower cash flow, reflecting revenue growth, relatively fixed infrastructure operating costs and lower selling, general and administrative expenses.
- Income from continuing operations declined because of the debt-retirement loss, while net income also reflected the $63 million Australian tax settlement charge.
- Operating cash flow decreased $69 million, primarily because working-capital changes offset the benefit of core business growth.
- Capital expenditures declined $145 million, primarily because certain large fiber expansion projects were completed in 2020 and the timing and mix of Towers activity changed.
- The company terminated its 2018 at-the-market program and established a new $750 million ATM program. No shares had been sold under the new program as of the filing.
Guidance, outlook, risks and unusual items
- Management expects 2021 site rental revenue to benefit from tenant additions driven by wireless network expansion, 5G initiatives, small cells, fiber solutions and increasing data demand.
- Discretionary capital expenditures are expected to decrease from 2020 levels; sustaining capital expenditures are expected to be approximately 2% of full-year net revenue.
- Management expects common dividends over the following 12 months to total at least $5.32 per share, or approximately $2.3 billion, subject to board declaration.
- Management expects available liquidity sources to cover expected debt service, dividends and capital expenditures over the next 12 months, although expected liquidity uses exceed projected operating cash flow.
- The company targets leverage of approximately five times Adjusted EBITDA and interest coverage of approximately three times, subject to market conditions and investment opportunities. Management stated that debt covenants were satisfied.
- COVID-19 did not have a material impact on first-quarter financial position, results or cash flows, according to management.
- The company recorded an approximately $63 million charge related to an agreement in principle with the Australian Taxation Office concerning the prior sale of Crown Castle Australia. The filing states that the settlement was reflected in the March 31, 2021 financial statements.
- Material contingencies include securities and derivative litigation, lawsuits related to the 2019 Durham, North Carolina gas explosion, and potential New York fiber right-of-way fees. The company could not estimate the likelihood or amount of possible losses for these matters.
- Interest-rate risk remains relevant because approximately $1.9 billion of debt was floating-rate at March 31, 2021. A hypothetical 0.125 percentage-point increase in rates for 12 months would increase interest expense by approximately $2 million.
- The filing reports no material changes to the risk factors in the 2020 Form 10-K.
Investor verification checklist
- Verify the sustainability of tenant additions, renewal rates, escalators and non-renewals, particularly given the concentration among three major wireless carriers.
- Reconcile Adjusted EBITDA growth with GAAP income, interest expense, capital expenditures and debt service; Adjusted EBITDA is a non-GAAP measure.
- Assess whether operating cash flow can support the planned dividend, capital expenditures and debt obligations without additional borrowing or equity issuance.
- Review the refinancing schedule, including 2023-2025 maturities and the anticipated repayment dates for Tower Revenue Notes.
- Monitor the $750 million ATM program for potential dilution and its use for debt repayment, acquisitions or investments.
- Track the Australian tax settlement payment and any remaining effects from discontinued operations.
- Follow developments in shareholder litigation, Durham lawsuits and potential New York fiber right-of-way fees, for which the filing does not provide a clear estimated loss.