Crown Castle International Corp. — 2009 Q3 Form 10-Q Summary
Business context and reporting period
Crown Castle owns, leases and manages approximately 24,000 wireless communications towers, primarily in the United States and Australia. Its principal business is leasing antenna space to wireless carriers under long-term contracts; complementary network services include antenna installation, site acquisition, construction and network design.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2009, with comparisons to the corresponding 2008 periods. The report was filed November 5, 2009.
Key financial metrics
| Metric | Q3 2009 | Q3 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Net revenues | $429.1 million | $384.3 million | $1,241.9 million | $1,134.5 million |
| Site rental revenue | $396.5 million | $354.0 million | $1,140.6 million | $1,047.5 million |
| Operating income | $118.8 million | $76.0 million | $314.5 million | $213.6 million |
| Operating margin | 27.7% | 19.8% | 25.3% | 18.8% |
| Net income attributable to CCIC stockholders | $(31.6) million | $(32.2) million | $(132.5) million | $15.0 million |
| Net loss per common share | $(0.13) | $(0.13) | $(0.52) | $0.00 |
| Adjusted EBITDA | $260.5 million | $217.7 million | $749.8 million | $641.7 million |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $393.7 million | $345.8 million |
Adjusted EBITDA margin increased to approximately 60.7% in Q3 2009 from 56.6% and to 60.4% for the first nine months from 56.5%. Adjusted EBITDA is a non-GAAP measure and is not necessarily comparable with similarly named measures used by other companies.
At September 30, 2009, cash and cash equivalents were $268.8 million, restricted cash was $187.7 million, total debt and other obligations were $6.14 billion, and interest-rate-swap liabilities were $400.0 million at fair value. Total assets were $10.48 billion and total equity was $2.85 billion.
Material changes versus the prior comparable periods
- Q3 revenue increased 12%, led by a 12% increase in site rental revenue. For the first nine months, revenue increased 9%, while site rental revenue increased 9%.
- Operating income increased 56% in Q3 and 47% for the first nine months, primarily reflecting high incremental margins from additional tenants and relatively fixed tower operating costs.
- Q3 net loss attributable to CCIC stockholders was broadly unchanged year over year, despite stronger operating performance, because interest expense increased $23.0 million and the company recorded a $58.3 million loss on interest-rate swaps. The 2008 quarter included a $23.7 million impairment of available-for-sale securities that did not recur.
- Nine-month results shifted from $15.0 million of net income in 2008 to a $132.5 million net loss in 2009. The 2009 loss included $90.2 million of losses on debt purchases and redemptions and $114.1 million of interest-rate-swap losses. The 2008 period included a $74.9 million federal tax benefit related to completion of an IRS examination.
- Operating cash flow increased 14% to $393.7 million. Capital expenditures declined to $111.3 million from $342.7 million, primarily because land purchases and tower construction were reduced.
- CCUSA generated 95% of consolidated nine-month revenue. CCAL revenue declined 15% for the nine months, substantially due to Australian-dollar depreciation; CCAL represented approximately 5% of consolidated revenue.
Guidance, outlook, risks and unusual items
- Management expected 2010 site rental revenue of $1.645 billion to $1.665 billion, representing estimated growth of 7% to 8% over full-year 2009.
- Management expected $550 million to $600 million of operating cash flow over the next 12 months and planned to prioritize debt retirement and settlement of interest-rate swaps over discretionary investments.
- During 2009, the company issued approximately $2.9 billion of debt and used proceeds and operating cash flow to retire approximately $2.4 billion of debt. In October 2009, it issued an additional $500 million of 7.125% senior notes, generating $490 million net proceeds; this subsequent event is not included in the September 30 balance sheet.
- The revolving credit facility was undrawn at September 30, 2009, with $188 million available, but its maturity was January 2010 and the company planned to renew or replace it.
- Tower Revenue Notes totaling approximately $3.2 billion had anticipated repayment dates in June 2010 and November 2011. If not repaid or refinanced by those dates, interest would increase by approximately 5 percentage points and excess cash flow would be used for principal repayment. Management stated that it expected sufficient liquidity to continue operating if this occurred.
- The company reported no financial covenant violations. Pro forma leverage was 5.3x against an 8.25x credit-agreement limit, and interest coverage was 2.3x against a 2.00x minimum.
- Interest-rate swaps had approximately $421.8 million of cash settlement liabilities and were contractually payable between December 2009 and November 2011. A 100-basis-point decline in LIBOR was estimated to increase the settlement liability by nearly $280 million and reduce earnings by approximately $123 million for swaps marked through earnings.
- Management identified risks from economic and credit-market conditions, customer concentration, wireless-carrier consolidation, refinancing availability and pricing, covenant compliance, foreign-currency volatility, counterparty risk, and potential impairment of towers, goodwill and customer-contract intangibles.
- Four customers accounted for 72% of Q3 revenue and 73% of nine-month revenue: Sprint Nextel, AT&T, Verizon Wireless including Alltel, and T-Mobile.
- The derivative litigation relating to historical stock-option practices was dismissed with prejudice in October 2009, subject to possible appeal. Management stated that other claims and proceedings were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether the company successfully renews or replaces the revolving credit facility and refinances the Tower Revenue Notes by their anticipated repayment dates.
- The cash impact and accounting treatment of interest-rate swaps, including potential reclassification of accumulated other comprehensive losses into earnings.
- Actual 2009 operating cash flow, capital expenditures, debt repayment and swap settlements compared with management’s stated expectations.
- Progress toward the $1.645 billion to $1.665 billion 2010 site rental revenue outlook and the sustainability of tenant additions.
- Exposure to the four major wireless customers, including customer credit quality and effects of carrier consolidation or network overlap.
- Potential impairment or valuation changes involving approximately $4.9 billion of net property and equipment, $2.4 billion of intangible assets and $2.0 billion of goodwill.