American Tower Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. American Tower owns and operates multitenant communications sites and U.S. data centers, and provides U.S. tower-related services.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $2,671.5M | $2,454.3M | $8,006.1M | $6,911.7M |
| Operating income | $652.9M | $827.5M | $2,160.3M | $2,505.4M |
| Net income | $819.7M | $726.2M | $2,413.3M | $2,126.4M |
| Net income attributable to common stockholders | $839.7M | $723.0M | $2,449.6M | $2,114.3M |
| Diluted EPS | $1.80 | $1.58 | $5.31 | $4.68 |
| Adjusted EBITDA | $1,643.0M | $1,552.2M | $4,937.4M | $4,467.5M |
| AFFO attributable to common stockholders | $1,101.6M | $1,139.1M | $3,423.9M | $3,318.4M |
| Cash provided by operating activities | Not separately presented | Not separately presented | $2,511.2M | $4,141.0M |
Revenue grew 9% in Q3 and 16% for the nine-month period. Operating margin, calculated as operating income divided by revenue, was approximately 24.4% in Q3 versus 33.7% a year earlier, and 27.0% for nine months versus 36.3%. Lower operating income reflects, among other items, substantially higher depreciation, amortization and accretion. GAAP net income benefited from foreign-currency gains: $474.5M in Q3 and $1,111.3M for nine months, compared with $180.5M and $422.1M, respectively, in 2021.
Reported growth includes the U.S. data center business acquired through CoreSite in late 2021. Data center revenue was $193.7M in Q3 and $569.1M for nine months, compared with $2.7M and $7.7M in the respective 2021 reported periods. Nine-month revenue also reflects acquisitions, including Telxius in 2021. Regional results varied: Q3 revenue rose in Africa, Europe and Latin America, but fell in Asia-Pacific, partly due to India customer payment shortfalls and currency translation.
Cash flow, debt and liquidity
- Nine-month operating cash flow fell to $2.51B from $4.14B, primarily due to changes in unearned revenue and higher cash interest and taxes. Investing cash use was $1.51B, including $1.22B for property, equipment and construction and $359.1M for acquisitions. Financing cash use was $960.5M.
- At September 30, cash and cash equivalents were $2.12B and restricted cash was $127.8M. Available credit-facility capacity, net of letters of credit, was $4.87B; reported total liquidity was $6.99B.
- Long-term obligations, including current maturities and finance leases, totaled $38.33B, down from $43.25B at December 31, 2021. The current portion was $3.02B. The filing separately describes total outstanding indebtedness as $38.6B.
- Interest expense increased to $294.0M in Q3 from $226.1M and to $833.0M for nine months from $646.8M. Variable-rate borrowings and higher average debt and interest rates contributed. Management reported compliance with credit-facility covenants.
- Nine-month common-stock distributions paid were $1.95B, or $4.22 per share. A $1.47-per-share distribution, totaling $684.4M, was paid in October 2022.
Material changes, outlook and risks
- American Tower issued $1.3B of senior notes in April and raised approximately $2.3B through a June common-stock offering; proceeds helped repay debt. Stonepeak invested $2.5B for an interest in the U.S. data center business in August. A further $570M Stonepeak investment was completed October 20, after quarter-end, and proceeds were used to repay credit-facility borrowings.
- Management expects 2022 capital expenditures of $1.895B–$1.995B, including approximately 6,000–7,000 communications-site builds within discretionary projects. Management stated that expected 2022 operating cash flow and credit capacity should fund distributions, capital expenditures, debt service and signed acquisitions. No full-year revenue or earnings guidance is clearly provided in the supplied filing text.
- India customer Vodafone Idea (VIL) indicated it would make partial contractual payments for the remainder of 2022. The Q3 shortfall was approximately $48M; revenue recognition was deferred until payment, and management expected a similar Q4 deferral pending resolution. VIL stated it intended to meet its full contractual obligations beginning January 1, 2023, but the company cautioned there is no assurance. The proposed convertible-debenture arrangement announced after quarter-end was subject to conditions.
- Management reported nine-month churn of approximately 5% of tenant billings and expects elevated U.S. & Canada churn for several years, primarily from T-Mobile and legacy Sprint lease cancellations and non-renewals. Currency translation also affected international segment results; nine-month foreign-currency translation adjustments reduced comprehensive income by $2.12B.
- Interest-rate and currency exposures are material. The filing estimates that a 10% increase in current interest rates would have added $22.7M to nine-month interest expense; a 10% adverse move in exchange rates on outstanding euro debt would have produced an estimated $0.8B foreign-currency loss. Management said pending litigation was not expected to materially affect results or liquidity. Disclosure controls were considered effective.
Important facts for investors to verify
- Whether VIL pays the deferred amounts and resumes full contractual payments, and the potential effect on Indian assets and goodwill.
- Underlying operating and AFFO trends excluding foreign-currency gains, acquisition effects, straight-line revenue and pass-through cost inflation.
- U.S. & Canada churn and the expected duration and financial impact of T-Mobile-related lease cancellations.
- Debt maturities, variable-rate exposure, refinancing costs, covenant headroom and the uses of post-quarter Stonepeak proceeds.
- Actual 2022 capital expenditures and distributions versus management’s stated expectations, and the continued impact of CoreSite and other acquisitions on margins and cash flow.