Crown Castle Inc. 10-Q Summary — Quarter Ended March 31, 2023
Business Context and Reporting Period
Crown Castle owns, operates and leases shared U.S. communications infrastructure, including more than 40,000 towers, approximately 120,000 small cells on air or under contract, and approximately 85,000 route miles of fiber. Operations comprise Towers and Fiber segments. The company operates as a REIT and derives most revenue from recurring, long-term tenant contracts. This unaudited filing covers the three months ended March 31, 2023, compared with the same period in 2022.
Financial Performance and Key Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenues | $1.773 billion | $1.742 billion | +2% |
| Site rental revenue | $1.624 billion | $1.576 billion | +3% |
| Services and other revenue | $149 million | $166 million | -10% |
| Operating income | $628 million | $618 million | +2% |
| Net income | $418 million | $421 million | -1% |
| Diluted earnings per share | $0.97 | $0.97 | Flat |
| Adjusted EBITDA | $1.104 billion | $1.095 billion | +1% |
| Net cash from operating activities | $606 million | $558 million | +9% |
Operating margin was approximately 35.4%, compared with 35.5% in the prior-year quarter. Net margin was approximately 23.6%, compared with 24.2%; Adjusted EBITDA margin was approximately 62.3%, compared with 62.9%.
- Towers site rental revenue increased 1% to $1.081 billion, while Towers operating profit declined 1% to $863 million.
- Fiber site rental revenue increased 8% to $543 million, and Fiber operating profit increased 10% to $323 million.
- Fiber revenue included $48 million of payments satisfying remaining rental obligations related to canceled Sprint leases following the T-Mobile/Sprint network consolidation.
- Interest expense increased 23% to $202 million, primarily due to higher variable interest rates and increased indebtedness.
- Capital expenditures were $341 million, including $326 million of discretionary spending and $15 million of sustaining spending.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $187 million at March 31, 2023; cash, cash equivalents and restricted cash totaled $388 million.
- Total debt and other obligations were $22.332 billion, including $21.513 billion of non-current debt and obligations.
- As reported at quarter-end, undrawn 2016 Revolver availability was $5.5 billion. After giving effect to the April 2023 Senior Notes offering and related repayments, management reported $6.862 billion of undrawn availability.
- Approximately 91% of debt had fixed-rate coupons after giving effect to the April 2023 financing. Floating-rate debt totaled approximately $2.0 billion; a 25-basis-point increase in rates would increase annual interest expense by approximately $5 million.
- The company issued $1.0 billion of 5.0% senior notes due 2028 in January 2023 and used the proceeds primarily to repay Revolver borrowings.
- On April 26, 2023, the company issued $600 million of 4.8% senior notes due 2028 and $750 million of 5.1% senior notes due 2033, using proceeds primarily to repay additional Revolver borrowings.
- Cash dividends paid were approximately $686 million, or $1.565 per share. Management expected dividends over the following 12 months to total at least $6.26 per share, or approximately $2.7 billion, subject to board approval.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by site rental revenue, particularly Fiber, while services and other revenue declined because of lower carrier network-enhancement activity and changes in project mix.
- Fiber performance benefited materially from the $48 million of Sprint cancellation payments; investors should distinguish this item from recurring leasing growth.
- Operating cash flow improved by $48 million, but investing cash outflows increased by $118 million due primarily to higher capital expenditures and acquisitions.
- Interest expense increased by $38 million because of higher floating rates and greater debt balances, largely offsetting operating improvements.
- Asset write-down charges and losses on retirement of long-term obligations recorded in the prior-year quarter were zero in Q1 2023, compared with $14 million and $26 million, respectively, in Q1 2022.
Guidance, Outlook, Commentary and Risks
- Management expected full-year 2023 site rental revenue growth from tenant additions, carrier network investment, fiber solutions demand and Sprint cancellation payments, net of estimated non-renewals.
- Discretionary capital expenditures were expected to remain significant and increase as the company accelerated small-cell deployments. Sustaining capital expenditures were expected to approximate 2% of full-year net revenues.
- Management expected liquidity sources, including operating cash flow, cash on hand, Revolver capacity, commercial paper and potential ATM equity issuance, to fund anticipated debt obligations, dividends and capital expenditures over the next 12 months.
- Near-term contractual debt obligations were approximately $1.5 billion, including commercial paper, the $750 million of 3.15% senior notes and other principal payments.
- Key risks include interest-rate increases, refinancing requirements, leverage and debt covenant compliance, concentration among major wireless carriers, the timing and returns of small-cell and fiber deployments, tenant non-renewals, REIT qualification, and execution of construction projects.
- The company stated that it was in compliance with financial maintenance covenants and that there were no material changes to the risk factors disclosed in its 2022 Form 10-K.
- Existing legal matters were not expected to have a material adverse effect. Claims related to the Durham, North Carolina gas-leak explosion had been resolved without a material company payment.
Investor Verification Items
- Verify the sustainability and recurrence of Fiber growth excluding the $48 million Sprint cancellation payment.
- Reconcile reported debt, Revolver availability and commercial paper balances after the April 2023 notes issuance and repayments.
- Assess the effect of higher interest rates on variable-rate debt and future refinancing costs.
- Evaluate whether discretionary small-cell and fiber capital expenditures generate the expected tenant additions and cash-flow returns.
- Review dividend coverage against operating cash flow, capital expenditures and scheduled debt obligations.
- Monitor tenant concentration, particularly exposure to T-Mobile, AT&T and Verizon Wireless, which together generated approximately three-fourths of site rental revenue.