American Tower Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; amounts are in U.S. dollars unless noted. American Tower owns and operates communications sites and U.S. data centers, with tower-related services primarily in the United States.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $2,771.7m | $2,674.3m | $5,538.9m | $5,334.6m |
| Operating income | $873.7m | $782.3m | $1,649.3m | $1,507.4m |
| Net income | $461.5m | $890.9m | $776.5m | $1,593.6m |
| Net income attributable to common stockholders | $475.7m | $898.2m | $811.5m | $1,609.9m |
| Diluted EPS | $1.02 | $1.95 | $1.74 | $3.51 |
| Adjusted EBITDA | $1,749.4m | $1,670.7m | $3,512.1m | $3,294.4m |
| AFFO attributable to common stockholders | $1,150.6m | $1,155.2m | $2,335.6m | $2,322.3m |
- Revenue mix and segment trends: Property revenue rose 4% in both Q2 and the first half. U.S. & Canada property revenue increased 5% in each period; data centers increased 7% in Q2 and 9% in the first half. Asia-Pacific property revenue fell 12% in Q2 and 14% in the first half, reflecting India customer-related reserves and currency translation. Services revenue fell 28% in Q2 and 20% in the first half.
- Cash flow and investment: First-half operating cash flow was $2,279.9m, versus $1,578.9m. Investing activities used $716.5m; capital expenditures were $890.1m. Financing activities used $1,573.8m, including $1,461.3m of common-stock distributions. Cash and restricted cash totaled $2,149.4m at June 30.
- Debt and liquidity: Long-term obligations, including current maturities, were $38,794.6m; the company separately reported total outstanding indebtedness of $39.1bn, including $3.2bn current. Cash and available credit facilities provided reported liquidity of $8,207.5m. The company was in compliance with its bank-facility financial covenants at quarter-end.
- Distributions: The company paid $3.12 per share, or approximately $1.5bn, during the first half and paid a further $1.57 per share distribution on July 10, 2023.
Material changes and unusual items
- Revenue increased, but GAAP net income and EPS declined sharply year over year. The main drivers were the swing from substantial foreign-currency gains in 2022 to losses in 2023, higher interest expense, and higher other operating expenses. First-half foreign-currency losses were $191.7m, compared with gains of $636.8m in the prior-year period; net interest expense increased $112.1m.
- Other operating expenses were $189.2m for the first half, including an $80.0m loss on the sale of Mexico Fiber and increased impairment charges. Q2 included $37.5m of impairment charges. The Mexico Fiber sale closed in March; the Poland subsidiary sale closed in May.
- Despite lower GAAP net income, Adjusted EBITDA rose 7% and common-stockholder AFFO was broadly flat for the first half. The filing attributes AFFO growth at the consolidated level mainly to operating profit and lower cash taxes, offset by higher cash interest and distributions to noncontrolling interests.
- Debt financing was repriced amid higher rates: the company issued approximately $4.2bn of senior notes, with coupons from 4.125% to 5.650%, and used proceeds largely to repay facility borrowings. It also repaid $1.7bn of maturing senior notes and completed a $1.3bn tower securitization. Credit-facility maturities were extended and LIBOR pricing transitioned to SOFR.
Outlook, commentary and risks
- Management expects 2023 capital expenditures of $1.65bn–$1.76bn. It stated that expected 2023 operating cash flow and credit-facility capacity should be sufficient for required distributions, capital expenditures, debt service and signed acquisitions.
- Management estimates nearly $62bn of future non-cancellable customer lease revenue, based on existing leases and June 30 exchange rates, before straight-line lease accounting. This is a contractual-revenue estimate, not a revenue or cash-flow forecast.
- India remains a significant uncertainty. Vodafone Idea Limited (VIL) continued partial payments rather than resuming full contractual payments. American Tower deferred recognition of approximately $64.7m of revenue related to VIL in the first half and recognized VIL debentures at fair value. Management is exploring strategic alternatives to reduce India exposure; no transaction is assured. Further payment shortfalls could affect cash flows and asset values.
- Customer churn was approximately 4% of tenant billings in the first half. Management expects elevated U.S. & Canada churn through 2025 due to T-Mobile lease cancellations and non-renewals, including legacy Sprint leases.
- Foreign exchange remains a material exposure: 44% of first-half revenue and 50% of operating expenses were denominated in foreign currencies. The filing estimates that a 10% adverse currency move on outstanding euro debt would produce approximately $0.9bn of foreign-currency losses in the six-month-period sensitivity analysis. Higher variable rates and the SOFR transition may also raise financing costs.
- The filing says no currently pending litigation is expected by management to materially affect consolidated financial position, results or liquidity. Disclosure controls were assessed as effective at June 30, 2023.
Investor verification priorities
- Track VIL’s actual payments, deferred revenue, debenture repayments and any further India impairment or strategic transaction.
- Compare reported GAAP earnings with Adjusted EBITDA and AFFO, and assess the effect of foreign exchange, impairments and asset-sale losses.
- Review debt maturities, refinancing costs, variable-rate exposure, covenant headroom and the availability of revolving credit.
- Monitor U.S. churn through 2025, particularly T-Mobile-related cancellations, alongside leasing activity and data-center growth.
- Check whether the 2023 capital-expenditure range, distributions and stated liquidity outlook remain consistent with cash generation and debt service needs.