American Tower Corporation — Q3 2009 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2009. Unaudited consolidated results; comparisons are with the same 2008 periods. American Tower owns, operates and develops communications sites in the U.S., Mexico, Brazil and India. Its rental and management segment generated about 97% of Q3 revenue.
Key financial results
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $444.1 million | $409.3 million | $1,276.1 million | $1,185.2 million |
| Operating income | $179.1 million | $154.4 million | $495.8 million | $454.0 million |
| Income from continuing operations | $67.6 million | $60.6 million | $174.7 million | $153.6 million |
| Net income attributable to American Tower | $67.4 million | $60.5 million | $182.2 million | $261.4 million |
| Diluted EPS | $0.17 | $0.15 | $0.45 | $0.62 |
- Q3 revenue increased 9%; operating income increased 16%; and income from continuing operations increased 12%. Operating margin was about 40.3%, versus 37.7% a year earlier.
- Nine-month revenue increased 8% and operating income increased 9%. Continuing-operations income rose 14%, while net income attributable to the company fell 30% because 2008 included a substantial tax benefit from discontinued operations related to Verestar.
- Nine-month operating cash flow was $649.4 million, compared with $586.3 million. Investing used $344.4 million, chiefly for acquisitions, construction and capital spending; financing used $218.5 million. Cash increased $86.6 million to $229.7 million.
- Capital expenditures and construction payments were $182.4 million for the nine months. Management forecast 2009 total capital expenditures of approximately $220–255 million, including construction of about 900–1,100 sites and DAS networks.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $229.7 million; restricted cash was $50.8 million. Current assets were $625.9 million and current liabilities $341.0 million.
- Total debt obligations were approximately $4.19 billion. The company reported $625 million drawn on its $1.25 billion revolving facility and approximately $620.3 million of additional borrowing availability; the $325 million term loan was fully drawn. Management reported total liquidity of about $850 million.
- During the nine months, the company issued $300 million of 7.25% notes due 2019 and used proceeds in part to repurchase 7.50% notes and repay revolving debt. It also repurchased 5.9 million shares for $187.2 million.
- Management said operating cash generation was expected to cover capital expenditures and cash debt service over the next 12 months. The company was in compliance with its revolving-credit and term-loan financial covenants at quarter-end.
Changes, outlook and notable items
- Rental and management revenue grew 9% in Q3. Growth reflected same-site leasing, additional tenant equipment, contractual escalators and sites acquired or built; Q3 also included $6.7 million of one-time revenue from a broadcast-customer termination agreement. Network development revenue fell 9% in Q3 but rose 32% for the nine-month period.
- Management attributed increased costs to portfolio growth, international expansion, stock-based compensation, bad debt, discontinued project costs and acquisition-related expenses. Q3 effective tax rate rose to 43.2% from 36.6%; the nine-month rate was 44.5% versus 43.9%.
- Acquisitions included XCEL in India for approximately $96 million, 230 Brazilian tower sites for approximately $51.3 million, and U.S. sites. An additional 114 Brazilian sites, for approximately $18 million, remained subject to regulatory approvals.
- After quarter-end, the company issued $600 million of 4.625% notes due 2015. It planned to use $508.9 million to redeem its 7.125% notes on November 13, 2009, with the balance for general corporate purposes. It also completed the approximately $20 million acquisition of Insight Infrastructure in India on October 28.
- Interest-rate exposure was partly hedged by $775 million notional of swaps. Management estimated that a 10% increase in current rates would have increased annual pre-tax expense and cash outflows by about $0.4 million.
Risks and contingencies
- Revenue is concentrated among a small number of wireless carriers: four customers represented about 60% of Q3 revenue. Grupo Iusacell represented about 5% of nine-month revenue; receivables from it were $30.1 million, alongside about $35.3 million of other related assets. A subsidiary of the customer had suspended U.S.-dollar debt-service payments, though it continued paying American Tower.
- High leverage, refinancing needs, restrictive covenants and securitization cash-trap provisions could constrain investment or distributions. The securitized portfolio’s debt-service coverage ratio was 3.12x at quarter-end; a decline below specified thresholds could trap cash or trigger amortization.
- A Mexican litigation matter remained pending, with potential damages previously identified at approximately $23 million; the company said it could not estimate its share, if any, of liability. SEC, U.S. Attorney and IRS reviews of historical stock-option practices also remained ongoing. Management stated that other pending matters were not expected to materially affect financial position, results or liquidity.
- Key operating risks include reduced carrier demand or spending, customer consolidation and site decommissioning, technology substitution, foreign currency and political risks, regulation and zoning delays, competition, land-right renewal and environmental exposure. The filing contains forward-looking statements subject to these and other risks.
Important facts for investors to verify
- How much recurring same-site leasing growth remains after excluding the $6.7 million Q3 termination-related revenue and acquired or newly built sites.
- Whether the $220–255 million 2009 capital-expenditure forecast and planned site construction were achieved, and the returns on acquisitions and construction.
- Completion and economics of the post-quarter 7.125% note redemption, including the resulting debt balance, interest burden and remaining liquidity.
- Customer credit quality and collection of Grupo Iusacell receivables and related assets; customer concentration and potential effects of carrier mergers.
- Progress and possible financial consequences of the Mexican litigation and ongoing government reviews of stock-option practices.
- Compliance with debt covenants and securitization DSCR thresholds, particularly if operating cash flows weaken.