American Tower Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited consolidated results. American Tower is a global owner and operator of multitenant communications sites, with leasing comprising approximately 99% of quarterly revenue.
Key financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $1.616 billion | $1.289 billion | +25% |
| Operating income | $531.4 million | $451.9 million | +18% |
| Net income | $307.4 million | $281.3 million | +9% |
| Net income attributable to common stockholders | $289.3 million | $248.4 million | +16% |
| Diluted EPS | $0.67 | $0.58 | +16% |
| Cash from operating activities | $683.1 million | $563.5 million | +21% |
| Adjusted EBITDA | $997.7 million | $833.1 million | +20% |
| NAREIT FFO attributable to common stockholders | $634.3 million | $545.6 million | +16% |
| AFFO attributable to common stockholders | $680.6 million | $586.8 million | +16% |
Operating margin was approximately 32.9%, compared with 35.0% a year earlier; net margin was approximately 19.0%, versus 21.8%. These percentages are calculated from reported GAAP figures. Common distributions declared were $0.62 per share, up from $0.51.
Growth drivers and period-over-period changes
- Property revenue rose 26%; services revenue rose 4%. Asia revenue increased 336%, primarily reflecting the 2016 Viom acquisition, while U.S. property revenue grew 5%, EMEA 16%, and Latin America 24%.
- Management attributed organic growth to colocations and lease amendments, contractual rent escalations, and new sites. Churn was approximately 2% of tenant billings in the quarter; the company changed its churn calculation methodology during the period.
- Q1 2017 included the acquisition of FPS Towers in France for approximately $771 million, adding nearly 2,500 sites. Acquisitions contributed an estimated $8.3 million of quarterly revenue and $6.8 million of gross margin.
- Depreciation, amortization and accretion increased 23% to $421.1 million, mainly due to acquired, leased and constructed sites. SG&A rose 22% to $164.8 million.
- Interest expense increased 15% to $183.7 million, reflecting higher average debt and borrowing costs. Total other expense rose 39%, principally due to debt-retirement costs.
Cash, debt and liquidity
- Cash and cash equivalents were $712.8 million at March 31, 2017, down from $787.2 million at year-end. Operating cash flow was $683.1 million; investing activities used $920.3 million, including $777.8 million for acquisitions. Financing activities provided $157.9 million.
- Capital expenditures were $177.3 million for the quarter. Management forecast full-year 2017 capital expenditures of $800 million to $900 million, including approximately 2,500 to 3,500 new communications sites.
- Long-term obligations, including current maturities, totaled $18.9 billion; management reported total outstanding indebtedness of approximately $19.0 billion. The current portion was $1.7 billion, including $999 million of notes due in 2018.
- Reported liquidity was $2.48 billion: $712.8 million cash plus $1.77 billion available under credit facilities, net of letters of credit. Management said operating cash flow and borrowing capacity should fund distributions, capital expenditures, debt service and signed acquisitions for 2017.
- At quarter-end the company reported compliance with its debt covenants. Total leverage covenant capacity was approximately $4.1 billion of additional debt at unchanged Adjusted EBITDA; actual borrowing remains subject to covenants and other restrictions.
Outlook, risks and unusual items
- No full-year revenue, earnings or FFO guidance is provided in the supplied filing text; management’s quantified operating outlook is the $800–$900 million capital expenditure plan.
- Management cited continued wireless data growth, network densification and carrier investment as demand drivers. Most tenant leases are long-term; the company estimated more than $34 billion of future non-cancellable tenant lease revenue based on leases in place and then-current exchange rates.
- Foreign currency exposure is material: 43% of revenue and 49% of operating expenses were denominated in foreign currencies. A 10% adverse exchange-rate change on unsettled foreign-currency balances was estimated to produce $88.3 million of unrealized losses; a 10% increase in interest rates was estimated to add $2.9 million of quarterly interest expense.
- The company recorded a $55.4 million loss on retirement of long-term obligations after redeeming its 7.25% notes and repaying securitized debt. Foreign-currency gains partially offset higher interest and debt-retirement expense.
- After quarter-end, American Tower issued €500 million of 1.375% notes due 2025, using proceeds partly to repay its revolving credit facility. It also agreed to acquire up to approximately 1,400 sites in Paraguay for about $125 million, subject to closing conditions.
- Potential obligations and contingencies include put rights over India noncontrolling interests exercisable from 2018 through 2021, long-term site lease and purchase arrangements, and tax matters. Management reported no pending litigation expected to materially affect financial position, results or liquidity, and no material change to the risk factors in its 2016 Form 10-K.
- Series A mandatory convertible preferred stock was scheduled to convert automatically on May 15, 2017, subject to its terms. The company repurchased 1.87 million common shares for $225 million in Q1 and continued buybacks after quarter-end.
Important facts for investors to verify
- How much of reported growth reflects acquisitions, foreign exchange and pass-through revenue versus organic colocations and escalations—particularly in Asia after the Viom acquisition.
- The effect of debt maturities, variable-rate exposure, refinancing activity and debt covenants on cash available for investment and distributions.
- Whether cash flow can support the announced capital expenditure plan, continuing buybacks and REIT distributions without materially increasing borrowing.
- The potential cost and timing of India noncontrolling-interest put options, and the outcome of the India tax assessment and other uncertain tax positions.
- The ongoing impact of currency fluctuations and the company’s tenant concentration on revenue, earnings and liquidity.