Crown Castle International Corp. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Crown Castle owns, operates and leases shared communications infrastructure in the United States, including approximately 40,000 towers and 80,000 route miles of fiber supporting small cells and fiber solutions. The company operates as a REIT and reports Towers and Fiber segments. This filing covers the three and six months ended June 30, 2021; the financial statements are unaudited.
- Site rental revenue represented approximately 90% of second-quarter consolidated revenue.
- Towers and Fiber represented approximately 67% and 33%, respectively, of second-quarter site rental revenue.
- Approximately 74% of first-half site rental revenue came from T-Mobile, AT&T and Verizon Wireless.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Net revenue | $1.583 billion | $1.440 billion | +10% |
| Site rental revenue | $1.425 billion | $1.319 billion | +8% |
| Operating income | $505 million | $383 million | +32% |
| Income from continuing operations | $333 million | $200 million | +67% |
| Net income attributable to common stockholders | $334 million | $172 million | +94% |
| Diluted EPS | $0.77 | $0.41 | +$0.36 |
| Adjusted EBITDA | $958 million | $831 million | +15% |
Second-quarter operating margin was approximately 31.9%, compared with 26.6% in the prior-year quarter. Net income attributable to common stockholders represented approximately 21.1% of revenue, compared with 11.9% in the prior-year quarter.
| Six-month metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenue | $3.068 billion | $2.861 billion | +7% |
| Site rental revenue | $2.794 billion | $2.629 billion | +6% |
| Operating income | $953 million | $748 million | +27% |
| Income from continuing operations | $455 million | $386 million | +18% |
| Net income attributable to common stockholders | $393 million | $329 million | +19% |
| Diluted EPS | $0.90 | $0.79 | +$0.11 |
| Adjusted EBITDA | $1.856 billion | $1.645 billion | +13% |
First-half net cash provided by operating activities was $1.371 billion, compared with $1.409 billion in the prior-year period. Capital expenditures were $609 million, including $573 million of discretionary spending. Net cash used in investing activities was $616 million. Net cash used in financing activities was $612 million, primarily reflecting debt repayments and redemptions and approximately $1.163 billion of common-stock dividends.
At June 30, 2021, cash and cash equivalents were $339 million and restricted cash was $186 million. Total debt and other obligations were $20.085 billion, including $20.014 billion of long-term debt and other obligations. The company reported approximately $5.0 billion of undrawn revolver availability and was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Towers site rental revenue increased 10% in Q2 and 6% in the first half, driven by tenant additions, escalations, renewals and network-capacity activity.
- Fiber site rental revenue increased 5% in Q2 and 6% in the first half, reflecting demand for small cells and fiber solutions.
- Towers services and other gross margin increased to $54 million in Q2 from $13 million and to $90 million in the first half from $26 million, reflecting higher carrier network-enhancement activity and changes in project mix.
- Interest expense declined to $161 million in Q2 from $178 million and to $330 million in the first half from $353 million, primarily due to refinancing and lower weighted-average interest rates.
- The company recorded a $144 million loss on retirement of long-term obligations in the first half of 2021, primarily related to the redemption of $1.650 billion principal amount of 5.250% Senior Notes.
- First-half discontinued operations included a $62 million after-tax loss related to the Australian Taxation Office settlement concerning the 2015 sale of Crown Castle Australia. Approximately $62 million was paid on July 1, 2021.
- In February 2021, the company issued $3.25 billion of senior unsecured notes. In June 2021, it issued an additional $750 million of 2.500% senior unsecured notes and amended its credit facility, extending its maturity to June 2026.
- The company terminated its 2018 at-the-market offering program and established a new $750 million program in March 2021; no shares had been sold under the new program through the filing date.
Guidance, outlook, risks and unusual items
- Management expects 2021 site rental revenue to benefit from continued tenant additions related to increasing data demand, network expansion and 5G initiatives.
- Management expects 2021 discretionary capital expenditures to decline from 2020, partly because certain large fiber expansion projects were completed in 2020 and small-cell tenant additions are expected to require less capital.
- Sustaining capital expenditures are expected to be approximately 2% of full-year net revenue; the filing does not provide a complete numerical full-year revenue or EBITDA guidance range.
- Management expects common-stock dividends over the following 12 months to total at least $5.32 per share, or approximately $2.3 billion in aggregate. The board declared a quarterly dividend of $1.33 per share payable September 30, 2021.
- Management expects liquidity sources, including operating cash flow, cash on hand, revolver capacity, commercial paper and potential ATM issuance, to cover expected debt obligations, dividends and capital expenditures, although expected liquidity uses exceed anticipated operating cash flow over the next 12 months.
- Approximately 53% of the towers are subject to master leases or similar arrangements with AT&T and T-Mobile, and the company has options to purchase those towers at lease expiration without an obligation to do so.
- Key risks include customer concentration, tenant non-renewals, substantial leverage, interest-rate and refinancing exposure, execution and returns on fiber and small-cell investments, REIT qualification, litigation and regulatory fees related to New York fiber rights-of-way.
- The Durham, North Carolina gas-explosion litigation and potential New York State Department of Transportation fees remain unquantified; management cannot estimate the likelihood or amount of potential losses or fees.
- Management reported no material financial impact from COVID-19 through June 30, 2021, while office reopening plans and operational measures remained subject to changing conditions.
Important facts for investors to verify
- Reconcile reported debt and liquidity after the July 2021 repayment of the Tower Revenue Notes, Series 2015-1; the filing presents both June 30 balances and post-quarter-end adjusted liquidity information.
- Assess whether tenant additions and carrier 5G spending can sustain current Towers and Fiber growth while services revenue remains variable and non-contractual.
- Review customer concentration and the approximately six-year weighted-average remaining tenant-contract term, excluding tenant renewal options.
- Evaluate the sustainability of the dividend relative to operating cash flow, discretionary capital expenditures and refinancing needs.
- Monitor the remaining Tower Revenue Notes, commercial paper borrowings, floating-rate debt and refinancing assumptions.
- Review the $62 million Australian tax settlement, Durham litigation exposure and potential New York fiber right-of-way fees.
- Consider the limitations of Adjusted EBITDA and segment operating measures, which exclude depreciation, interest and other significant costs and are not GAAP measures.