Crown Castle International Corp. — Q1 2013 Form 10-Q Summary
Business context and reporting period
The filing covers the quarter ended March 31, 2013. Crown Castle owns, operates, and leases shared wireless infrastructure, principally approximately 31,600 towers, along with distributed antenna systems, small-cell networks, and related land interests in the United States, Puerto Rico, and Australia. The company generates predominantly recurring site-rental revenue under long-term contracts. The filing reflects the effects of the WCP, NextG, and November 2012 T-Mobile acquisitions, which limit comparability with Q1 2012.
Financial performance and key metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net revenues | $740.1 million | $551.7 million | Up 34% |
| Site-rental revenue | $615.4 million | $497.5 million | Up 24% |
| Network services and other revenue | $124.6 million | $54.2 million | Up 130% |
| Operating income | $235.1 million | $202.2 million | Up 16% |
| Net income | $16.7 million | $50.3 million | Down 67% |
| Net income attributable to CCIC stockholders | $15.5 million | $50.0 million | Down 69% |
| Diluted earnings per share | $0.05 | $0.17 | Down $0.12 |
| Adjusted EBITDA | $440.8 million | $360.1 million | Up 22% |
| Net cash from operating activities | $286.6 million | $162.2 million | Up 77% |
Calculated margins were approximately 31.8% for operating income, 2.3% for net income, and 59.6% for Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures used by other companies.
Capital expenditures were $116.4 million, including $109.5 million of discretionary spending and $6.9 million of sustaining capital expenditures. Cash used in investing activities was $129.0 million. Cash used in financing activities was $436.5 million, primarily reflecting debt repayments and redemptions, including $809.4 million of cash paid for debt purchases and repayments.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $160.9 million at March 31, 2013, compared with $441.4 million at December 31, 2012. Restricted cash was $139.5 million.
- Total debt and other obligations were $10.84 billion, compared with $11.61 billion at year-end 2012. Approximately 71% of debt had fixed-rate coupons, while $3.14 billion was floating-rate debt.
- Undrawn revolving-credit availability was $412.0 million. The company reported total equity of $3.0 billion.
- The CCIC consolidated leverage ratio was 6.3x versus a 7.0x restrictive covenant limit. CCOC net leverage was 4.9x, and interest coverage was 4.8x. Management reported no covenant violations.
- Management expects cash on hand, revolving-credit availability, and operating cash flow to cover the next 12 months’ $94.8 million of principal payments and more than $400 million of planned capital expenditures. The company stated that it does not anticipate needing to access capital markets to refinance existing debt until at least 2015.
Material changes versus the prior comparable period
- Revenue growth was driven by the 2012 acquisitions, new tenant additions, customer contract renewals and escalations, carrier network enhancements, and higher network-services activity.
- Network services revenue increased substantially because of carrier LTE upgrades and related installation and development work. This business is more variable and is not generally supported by long-term contracts.
- Operating expenses increased 44%, including higher site-rental and network-services costs, depreciation and amortization associated with acquired assets, and acquisition-related activity.
- Interest expense increased 20% to $164.4 million because of debt used to fund acquisitions and other financing transactions.
- The company recorded $35.9 million of losses on the retirement of long-term obligations, compared with $7.1 million in Q1 2012, primarily from redeeming the remaining 9% Senior Notes and 7.75% Secured Notes. This unusual item materially reduced net income.
- Operating cash flow rose $124.4 million, while cash declined because of debt repayments, debt redemptions, capital expenditures, share repurchases or employee tax-withholding share purchases, and other financing activity.
Guidance, outlook, commentary, and risks
- Management expects continued wireless-carrier investment, demand for additional network capacity, next-generation technologies, smartphone adoption, broader coverage, and available spectrum to support future tenant additions and site-rental growth.
- Management expected approximately 13% of full-year 2013 site-rental revenue growth to come from the 2012 acquisitions. It also expected more than $400 million of 2013 capital expenditures, with sustaining capital expenditures estimated at approximately $34 million to $38 million.
- The company stated that anticipated customer network deployments and potential non-renewal of certain contracts associated with Sprint’s Network Vision and iDEN were not expected to have a material adverse effect on 2013 operations or cash flows.
- Approximately 75% of consolidated revenue came from Verizon Wireless, AT&T, Sprint Nextel, and T-Mobile. Customer concentration and the T-Mobile/MetroPCS merger create exposure to customer consolidation, contract cancellations, and changes in carrier spending.
- Debt refinancing remains a key risk. Certain tower revenue notes and WCP securitized notes may incur approximately 5 percentage points of additional interest and begin accelerated amortization if not repaid or refinanced by their anticipated repayment dates.
- In April 2013, the company refinanced a $1.58 billion Term Loan B, reducing the interest-rate margin by 50 to 75 basis points and the LIBOR floor by 25 basis points.
- The preliminary purchase-price allocation for the T-Mobile acquisition remained subject to change at March 31, 2013. Management stated that ongoing claims, lawsuits, guarantees, and contingencies were not expected to have a material adverse effect, although ultimate outcomes are uncertain.
- The company disclosed no material changes to the risk factors in its 2012 Form 10-K and concluded that its disclosure controls and procedures were effective.
Most important facts for investors to verify
- Separate acquisition-driven growth from organic site-rental and tenant-addition growth.
- Reconcile the strong revenue, Adjusted EBITDA, and operating-cash-flow growth with the sharp decline in net income caused by higher interest expense, taxes, depreciation, and debt-retirement losses.
- Review debt maturities, anticipated repayment dates, refinancing assumptions, covenant headroom, and the effect of floating interest rates.
- Assess the sustainability and margin profile of variable network-services revenue versus recurring site-rental revenue.
- Monitor customer concentration, the T-Mobile/MetroPCS combination, Sprint’s network changes, and potential contract non-renewals.
- Confirm the final accounting for the T-Mobile acquisition and any subsequent effects on goodwill, intangible assets, deferred taxes, and depreciation.