Crown Castle Inc. 2022 Form 10-K Summary
Business context and reporting period
Crown Castle owns, operates and leases shared U.S. communications infrastructure through its Towers and Fiber segments. At December 31, 2022, the portfolio included more than 40,000 towers, approximately 120,000 small cells on air or under contract, and approximately 85,000 route miles of fiber. The filing covers the fiscal year ended December 31, 2022; it is an annual report rather than a standalone fourth-quarter filing.
Site rental revenue represented 90% of consolidated revenue and was primarily recurring under long-term tenant contracts. T-Mobile, AT&T and Verizon Wireless together accounted for 74% of consolidated revenue and approximately three-fourths of site rental revenue. Crown Castle operates as a REIT for U.S. federal income tax purposes.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net revenues | $6.986 billion | $6.340 billion | +10% |
| Site rental revenue | $6.289 billion | $5.719 billion | +10% |
| Services and other revenue | $697 million | $621 million | +12% |
| Operating income | $2.425 billion | $2.001 billion | +21% |
| Income from continuing operations | $1.675 billion | $1.158 billion | +45% |
| Net income attributable to CCI stockholders | $1.675 billion | $1.096 billion | +53% |
| Diluted earnings per share | $3.86 | $2.53 | +53% |
| Adjusted EBITDA | $4.340 billion | $3.816 billion | +14% |
| Net cash provided by operating activities | $2.878 billion | $2.789 billion | +3% |
| Capital expenditures | $1.310 billion | $1.229 billion | +7% |
| Common stock dividends paid | $2.602 billion | $2.373 billion | +10% |
Reported operating margin was approximately 34.7%, net margin was approximately 24.0%, and Adjusted EBITDA margin was approximately 62.1%. Site rental gross margin was $4.721 billion, or approximately 75.1% of site rental revenue, based on the company’s segment measure.
Towers site rental revenue increased 14% to $4.322 billion, while Fiber site rental revenue increased 3% to $1.967 billion. Towers operating profit rose 18% to $3.527 billion and Fiber operating profit rose 2% to $1.130 billion.
At December 31, 2022, cash, cash equivalents and restricted cash totaled $327 million. Total debt and other obligations were $21.729 billion, including $20.910 billion of non-current debt. Total equity was $7.449 billion. After giving effect to the January 2023 notes offering, management reported approximately $6.649 billion of undrawn revolving-credit availability, weighted-average debt interest of 3.6%, approximately 87% fixed-rate debt, and an approximately eight-year weighted-average maturity.
Material changes versus the prior comparable period
- Revenue growth was led by tenant additions, contract renewals or extensions, contractual escalators and higher services activity.
- Towers revenue growth materially exceeded Fiber growth. Fiber capital expenditures increased to $1.058 billion from $956 million, reflecting continued investment in small cells and fiber.
- Adjusted EBITDA increased 14%, while operating income increased 21% and net income attributable to stockholders increased 53%.
- Interest expense increased 6% to $699 million, primarily because of higher rates on the Term Loan A, revolver and commercial paper, together with higher debt balances.
- Selling, general and administrative expense increased 10% to $750 million, partly reflecting business growth and the return of travel and facilities costs toward pre-pandemic levels.
- Cash flow from operations increased by $89 million, while cash used in investing activities increased to $1.352 billion and cash used in financing activities increased to $1.665 billion. Year-end cash, cash equivalents and restricted cash declined by $139 million.
- The company increased its quarterly dividend from $1.47 to $1.565 per share during the fourth quarter. The board declared another $1.565 per share dividend in February 2023.
- The 2016 Credit Facility was amended to extend maturity to July 2027, increase revolver commitments to $7.0 billion, and replace LIBOR with Term SOFR. The commercial paper program was increased to $2.0 billion.
Guidance, outlook, risks and unusual items
Management expects 2023 site rental revenue growth from continued tenant additions by wireless carriers and fiber solutions customers. It expects discretionary capital expenditures to increase as small-cell deployments accelerate and sustaining capital expenditures to be approximately 2% of 2023 net revenues. Management expects dividends over the following 12 months to total at least $6.26 per share, or approximately $2.7 billion, subject to board approval.
- The T-Mobile and Sprint network consolidation is expected to increase Towers non-renewals in 2025, reducing site rental revenue by approximately $200 million. Small-cell non-renewals are expected to reduce site rental revenue by approximately $45 million, with approximately half occurring in 2023 and the remainder in 2024 and 2025.
- Management expects annual dividend-per-share growth through 2025 to be below its long-term target because of network-consolidation non-renewals and higher interest rates.
- Approximately $2.1 billion of debt obligations, at least $2.7 billion of dividends and capital expenditures are expected liquidity uses over the next 12 months. Management states that available liquidity sources should be sufficient, although expected uses exceed cash generated by operations.
- The company expects to refinance the $700 million and $750 million Tower Revenue Notes on or before their anticipated repayment dates in 2025 and 2028. Failure to refinance on time could increase the applicable interest rate by approximately 5% and trigger cash-flow-based principal repayments.
- Key risks include dependence on three major tenants, wireless carrier consolidation, slower adoption of small cells and fiber, competition, construction delays and cost overruns, loss of land or rights-of-way, elevated interest rates, refinancing risk, restrictive debt covenants, REIT qualification, cybersecurity incidents, climate events and wildfire liability.
- The company disclosed unresolved lawsuits arising from a 2019 gas-leak explosion near a fiber installation project in Durham, North Carolina. It cannot determine the likelihood or range of potential losses.
- There was no goodwill impairment as of the October 1, 2022 annual test and no material pending legal matter expected by management to adversely affect the company. The 2020 T-Mobile cancellation of approximately 5,700 small cells remained a historical unusual item; it generated $362 million of other operating income in 2020 and did not affect 2022 results.
Most important facts for investors to verify
- Verify the timing and realized revenue impact of the approximately $200 million Towers and $45 million small-cell non-renewals associated with T-Mobile and Sprint network consolidation.
- Monitor tenant additions, carrier capital spending and the pace and returns of the planned acceleration in small-cell construction.
- Reconcile debt maturities, commercial paper balances, revolver availability and refinancing plans, particularly for 2023, 2025, 2027 and 2028 obligations.
- Assess dividend coverage against operating cash flow after capital expenditures, interest expense and required debt repayments.
- Track exposure to interest-rate increases, including the approximately $2.7 billion of floating-rate debt and the stated sensitivity of approximately $7 million of additional annual interest expense for a 0.25 percentage-point rate increase.
- Review the Durham litigation, asset-retirement obligations of approximately $327 million, estimated undiscounted asset-retirement outlays of approximately $1.1 billion, and the company’s ability to renew land, pole, fiber and rights-of-way agreements.
- Consider customer concentration: T-Mobile, AT&T and Verizon Wireless represented 74% of 2022 consolidated revenue.