Crown Castle International Corp. — Q1 2011 Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2011; filed May 6, 2011. Crown Castle owns, leases, and manages approximately 23,800 wireless communications towers and distributed antenna system networks in the United States, Puerto Rico, and Australia. Site rental under long-term contracts is the core business and represented 91% of first-quarter consolidated revenue.
Key financial metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net revenues | $499.0 million | $444.3 million | +12% |
| Site rental revenue | $456.2 million | $406.9 million | +12% |
| Operating income | $166.4 million | $130.4 million | +28% |
| Operating margin | 33.3% | 29.3% | +4.0 percentage points |
| Adjusted EBITDA | $319.3 million | $274.3 million | +16% |
| Adjusted EBITDA margin | 64.0% | 61.7% | +2.3 percentage points |
| Net income attributable to CCIC stockholders | $40.0 million | $(119.3) million | Turned profitable |
| Net income attributable to common stockholders per diluted share | $0.12 | $(0.43) | Improved |
| Cash flow from operations | $127.5 million | $84.3 million | +51% |
| Capital expenditures | $52.7 million | $36.9 million | +$15.8 million |
Cash and cash equivalents were $82.3 million at March 31, 2011, excluding $235.4 million of restricted cash. Debt and other obligations totaled $6.73 billion, including $731.0 million of variable-rate bank debt and approximately $6.0 billion of fixed-rate debt. Revolver availability was $293.0 million, with $107.0 million outstanding. Redeemable preferred stock had a stated liquidation value of approximately $318.1 million.
Net cash decreased by $30.2 million during the quarter to $82.3 million. Financing uses included $42.2 million for common-stock repurchases, $50.0 million of revolver repayment, $8.5 million of principal payments, and $5.0 million of preferred dividends.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by new tenant additions, contractual escalations, renewals, and extensions. Management stated that new tenant additions, including straight-line accounting, contributed approximately 7% growth in site rental revenue.
- Operating leverage expanded margins because tower operating costs were relatively fixed as additional tenants were added. The incremental site rental margin was approximately 91% on a consolidated basis and 93% for CCUSA.
- Q1 2010 included a $66.4 million loss on debt purchases and redemptions and a $73.3 million loss on interest-rate swaps. Neither item recurred in Q1 2011, materially contributing to the change from a loss to net income.
- Interest expense and deferred financing-cost amortization increased 5% to $126.7 million, primarily because interest-rate-swap amortization increased by $6.9 million.
- Capital expenditures increased 43% to $52.7 million, led by land purchases, tower improvements, and construction of towers and distributed antenna system networks.
- The company repurchased approximately 1.0 million common shares for $42.2 million, at an average price of $41.14 per share.
Guidance, outlook, commentary, and risks
- Management expected site rental revenue to grow 7% to 8% from full-year 2010 to full-year 2011.
- Management expected approximately $275 million of 2011 capital expenditures, including sustaining and discretionary spending. Sustaining capital expenditures were expected to be approximately $20 million to $25 million for the year.
- Over the following 12 months, management expected cash on hand and operating cash flow, net of cash interest payments, to cover approximately $29.6 million of principal repayments and the expected capital-expenditure program.
- The company did not expect to need capital-market refinancing before at least 2014, when $624.0 million of term loans mature. Its convertible preferred stock requires redemption in August 2012 for approximately $318 million plus unpaid dividends, unless converted or otherwise addressed.
- Debt covenants were reported in compliance: consolidated leverage was 5.3x versus a maximum of 7.50x, and consolidated interest coverage was 3.1x versus a minimum of 2.00x.
- AT&T entered into an agreement to acquire T-Mobile, subject to regulatory approval and other conditions. AT&T and T-Mobile represented 22% and 11%, respectively, of Q1 consolidated revenue. The transaction could cause network consolidation, contract cancellations, lower revenue, or delayed demand; the filing states that potential cancellations would likely occur over multiple years as contracts expire.
- Customer concentration is significant: AT&T, Verizon Wireless, Sprint, and T-Mobile collectively represented approximately 72% of consolidated revenue. Sprint’s planned network consolidation and broader customer consolidation remain additional risks.
- Approximately 89% of debt had fixed-rate coupons, and another 9% was effectively fixed through December 2011 through interest-rate swaps. The company remained exposed to refinancing, variable-rate, foreign-currency, and credit-market risks.
- Ordinary-course claims and proceedings were disclosed, but management did not expect them to have a material adverse effect. Disclosure controls and procedures were deemed effective, with no material changes in internal control over financial reporting.
Important facts for investors to verify
- Reconcile Adjusted EBITDA to GAAP results and assess the effect of excluded interest, depreciation, stock compensation, write-downs, and other items.
- Monitor the regulatory outcome and operational consequences of the proposed AT&T–T-Mobile transaction, including tower overlap, contract termination, and network-integration effects.
- Review debt maturities, the 2012 preferred-stock redemption, the 2014 term-loan maturity, revolver availability, and the potential 5% interest-rate step-up on certain tower revenue notes if not repaid or refinanced by anticipated repayment dates.
- Assess whether projected 2011 site-rental growth and approximately $275 million of capital expenditures remain supported by tenant additions and operating cash flow.
- Track customer concentration, Sprint’s planned iDEN network phaseout, contract renewals, cancellations, and impairment indicators for tower assets and customer-related intangibles.
- Verify the sustainability of the reported margin expansion and the extent to which future growth depends on discretionary capital expenditures, favorable foreign exchange, or nonrecurring items.