American Tower Corporation — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The company is a global owner, operator and developer of multitenant communications sites, with revenue primarily from leasing tower and other site space. Figures below are unaudited; dollar amounts are U.S. dollars.
Financial performance and position
| Metric | Q2 2016 | Six months 2016 | Prior-year comparison |
|---|---|---|---|
| Revenue | $1.442 billion | $2.731 billion | Up 23% and 21%, respectively |
| Operating income | $433 million | $885 million | Up 11% and 9% |
| Operating margin | 30.0% | 32.4% | Approximately 33.2% and 35.9%; calculated as operating income divided by revenue |
| Net income attributable to common stockholders | $161 million | $409 million | Versus $129 million and $313 million |
| Diluted earnings per common share | $0.37 | $0.95 | Versus $0.30 and $0.75 |
| Adjusted EBITDA | $869 million | $1.702 billion | Up 14% and 15%; non-GAAP measure |
| AFFO attributable to common stockholders | $570 million | $1.157 billion | Up 9% and 13%; non-GAAP measure |
- Cash flow: Six-month operating cash flow was $1.311 billion, compared with $1.036 billion in 2015. Investing used $1.543 billion, including approximately $1.1 billion for Viom; financing provided $330 million. Cash and cash equivalents were $411 million at quarter-end.
- Debt and liquidity: Long-term obligations, including current portion, had a carrying value of $18.7 billion, up from $17.1 billion at December 31, 2015. Current portion was $314 million. Reported liquidity was $3.238 billion, including $2.827 billion available under credit facilities, net of letters of credit.
- Distributions: Common distributions declared were $0.53 per share for Q2, versus $0.44 a year earlier. Six-month distributions declared were $1.04 per share, versus $0.86.
Material changes versus the prior comparable period
- The April 21 acquisition of a 51% controlling interest in India’s Viom Networks added more than 42,000 towers and 200 indoor DAS networks. The acquired business materially increased Asia revenue; acquisitions also contributed to growth in EMEA and the U.S.
- Q2 property revenue increased 24%; services revenue decreased 20%. For the six months, property revenue rose 22%, while services revenue was approximately flat.
- Reported growth includes acquisition-related revenue and pass-through revenue. Foreign exchange reduced international revenue, notably in Latin America; six-month Latin America revenue nevertheless rose 6%.
- Operating expenses rose, including depreciation, amortization and accretion, which increased 21% in Q2 and 25% for the six months. Consolidated operating margin declined year over year.
- Interest expense increased $32.5 million in Q2 and $44.5 million for the six months, reflecting higher average debt and borrowing costs. The company issued $2.25 billion of senior notes during the half and used proceeds primarily to repay revolving credit facility borrowings.
- Q2 other expense included foreign currency losses; the prior-year comparison included a large loss on retiring debt. For the six months, net income also benefited from the absence of the prior-year debt-retirement loss.
Outlook, commentary and risks
- Management expects 2016 capital expenditures of $700 million to $800 million, including approximately 2,500 to 3,000 planned communications site builds. Management said operating cash flow and available credit capacity should fund distributions, capital spending, debt service and signed acquisitions in 2016.
- The company reported approximately $32 billion of future non-cancellable tenant lease revenue based on leases in place and exchange rates at June 30, 2016, before straight-line lease accounting. Six-month churn was approximately 1% of property revenue.
- Management cites wireless-data growth, network densification, spectrum deployment, collocations and international network build-outs as potential demand drivers. The filing provides no specific full-year revenue or earnings-per-share guidance.
- Key exposures include foreign currency movements (37% of six-month revenue was denominated in foreign currencies), interest-rate changes, tenant concentration, acquisition integration and refinancing needs. The filing estimates a 10% increase in current interest rates would add $4.3 million of interest expense for the six-month period; a 10% adverse currency move on specified unsettled balances would result in $37.2 million of unrealized losses.
- Viom debt includes variable-rate and short-dated obligations, and some working-capital facilities are payable on demand. Certain Viom noncontrolling shareholders hold put rights exercisable from 2018 through 2021, creating potential future purchase obligations; the recorded redeemable noncontrolling interest was $1.085 billion.
- Management stated it was in compliance with credit-facility covenants at June 30, 2016. It reported no pending litigation expected to materially affect financial position, results or liquidity, and no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much reported growth and future earnings are attributable to Viom and other acquisitions versus organic tenant billings, and how acquired sites perform after integration.
- Viom’s debt maturities, refinancing terms, foreign-exchange exposure and the economics and timing of the noncontrolling shareholders’ put rights.
- Whether operating-margin pressure, higher depreciation and interest costs, and currency effects persist as the acquired portfolio scales.
- Actual 2016 capital expenditures against the $700 million–$800 million outlook, and cash available after distributions, debt service and acquisition spending.
- Tenant concentration, churn, foreign-currency movements, and compliance with debt and securitization cash-trap tests.