American Tower Corporation — Q2 2017 Form 10-Q
Business context and reporting period
Unaudited results for the quarter and six months ended June 30, 2017, compared with the same 2016 periods. American Tower is a global communications-site REIT; property leasing generated 99% of first-half revenue. It reported U.S., Asia, EMEA, Latin America and services segments. The company completed its acquisition of FPS Towers in France in February 2017.
Key financial metrics
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $1.662bn | $1.442bn | $3.279bn | $2.731bn |
| Operating income | $576.9m | $432.8m | $1.108bn | $884.7m |
| Net income attributable to common stockholders | $344.2m | $160.8m | $633.5m | $409.1m |
| Diluted EPS | $0.80 | $0.37 | $1.47 | $0.95 |
| Operating cash flow | Not provided separately | Not provided separately | $1.478bn | $1.311bn |
- Revenue rose 15% in Q2 and 20% in the first half year over year. Operating income increased 33% and 25%, respectively; calculated operating margins were 34.7% and 33.8%, versus 30.0% and 32.4% in the comparable periods.
- Adjusted EBITDA was $1.021bn for Q2 (+17%) and $2.018bn for the first half (+19%). AFFO attributable to common stockholders was $681.2m for Q2 (+19%) and $1.362bn for the first half (+18%). These are non-GAAP measures and are not substitutes for GAAP results or operating cash flow.
- First-half investing cash outflow was $1.215bn, including $857.2m for acquisitions. Capital expenditures were $387.6m per management’s presentation. Financing cash outflow was $290.6m; cash and cash equivalents ended at $770.0m.
- June 30 balance-sheet long-term obligations, including current maturities, were $19.242bn; management described total outstanding indebtedness as $19.4bn. Cash plus available revolving-credit capacity produced reported liquidity of $3.476bn. Current maturities were $1.732bn.
- Common distributions declared were $0.64 per share for Q2, up from $0.53 a year earlier. First-half distributions declared were $1.26 per share versus $1.04.
Material changes versus the prior comparable period
- Growth reflected organic leasing, acquisitions and foreign exchange. Asia revenue benefited especially from the 2016 Viom acquisition; EMEA growth included FPS Towers. U.S. Q2 revenue grew 8%, Asia 31%, EMEA 18% and Latin America 21%.
- Q2 common-stockholder income more than doubled, aided by higher operating income, favorable foreign-currency results and a lower tax provision. First-half results also included $55.7m of losses on early retirement of debt.
- First-half interest expense increased to $370.7m from $340.9m, with management citing higher average debt and a modestly higher borrowing cost. Depreciation, amortization and accretion rose 11% to $817.5m.
- Current liabilities increased to $3.279bn from $1.631bn, mainly reflecting debt classified as current, including the $999.3m notes scheduled for redemption in July and $499.2m of securitized obligations anticipated to be repaid in 2018.
- The company repurchased 5.2m common shares for $641.3m in the first half. Series A preferred stock converted into common stock during Q2; Series B remained outstanding and is scheduled to convert in February 2018 unless converted or redeemed earlier.
Outlook, commentary, risks and unusual items
- Management expects 2017 capital expenditures of $800m–$900m, including construction of approximately 2,000–3,000 communications sites globally. It said operating cash flow and credit-facility availability should be sufficient for distributions, capital spending, debt service and signed acquisitions.
- No full-year revenue, earnings or AFFO guidance is provided in the supplied filing text. The company expects long-term demand from wireless data growth, network densification and technology deployments; it reported nearly $34bn of expected future non-cancellable tenant lease revenue based on leases in place and exchange rates at June 30.
- A proposed acquisition of up to approximately 1,400 sites in Paraguay, for about $125m, was expected to close in the second half of 2017, subject to customary conditions. A Tanzania acquisition agreement expired in March 2017.
- Debt actions included issuing €500m of 1.375% notes due 2025 and $750m of 3.55% notes due 2027, and redeeming the 7.25% notes. The company gave notice to redeem all $999.3m of 4.50% notes due 2018 on July 31, 2017.
- Unusual items included a $11.6m income-tax benefit from a Ghana tax-law clarification and a $21.5m refund of acquisition costs related to a Brazil acquisition. The company reported no pending litigation expected by management to materially affect its financial position, results or liquidity, and no material changes to previously disclosed risk factors.
- Key exposures include reliance on a relatively small number of tenants, foreign-currency movements, variable-rate debt, acquisition and integration execution, and debt-covenant compliance. A 10% adverse currency move on unsettled intercompany and similar balances was estimated to cause $101.7m of unrealized losses for the six-month period; a 10% interest-rate increase was estimated to add $5.5m of first-half interest expense.
Most important facts for investors to verify
- How much reported growth is organic versus acquisition-related, pass-through charges, straight-line accounting and foreign exchange.
- The cash-flow and debt implications of the July 2017 redemption of the 4.50% notes and the company’s ongoing buyback and distribution commitments.
- Progress and final purchase terms for the Paraguay transaction, and the operating contribution and integration of FPS Towers and Viom.
- Tenant concentration, churn, currency exposure, and continued compliance with leverage and securitization coverage tests.
- The assumptions behind management’s $800m–$900m capital-expenditure outlook and its statement that liquidity is sufficient for planned uses.