Crown Castle International Corp. — Q3 2011 Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2011. Crown Castle owns, leases and manages approximately 23,800 wireless communications towers and distributed antenna systems in the United States, Puerto Rico and Australia. Its primary business is leasing antenna space to wireless carriers under long-term contracts; network services and other activities are complementary. The financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Sept. 30, 2011 | Three months ended Sept. 30, 2010 | Nine months ended Sept. 30, 2011 | Nine months ended Sept. 30, 2010 |
|---|---|---|---|---|
| Net revenues | $513.9 million | $481.9 million | $1.513 billion | $1.382 billion |
| Site rental revenue | $468.9 million | $437.1 million | $1.382 billion | $1.254 billion |
| Operating income | $181.9 million | $156.0 million | $515.5 million | $419.2 million |
| Operating margin | 35% | 32% | 34% | 30% |
| Adjusted EBITDA | $332.4 million | $306.1 million | $971.6 million | $860.5 million |
| Net income attributable to CCIC stockholders | $51.3 million | $(135.0) million | $122.2 million | $(351.8) million |
| Net income attributable to common stockholders per diluted share | $0.15 | $(0.49) | $0.36 | $(1.28) |
| Cash flow from operating activities | Not separately provided | Not separately provided | $455.3 million | $407.7 million |
Site rental revenue represented 91% of consolidated revenue in both periods. Adjusted EBITDA increased 9% in the third quarter and 13% for the first nine months. Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures used by other companies.
- Cash and cash equivalents were $75.5 million at September 30, 2011, excluding $228.6 million of restricted cash.
- Total debt and other obligations were $6.937 billion, including $305.0 million drawn on the revolving facility. Fair value of debt was $7.413 billion.
- Undrawn revolver availability was $145.0 million within a $450.0 million total commitment, subject to covenant restrictions.
- Total equity was $2.314 billion, and redeemable convertible preferred stock was $304.8 million.
- Capital expenditures were $265.1 million for the first nine months, including $14.1 million of sustaining capital expenditures and $251.0 million of discretionary expenditures.
- Net cash used in investing activities was $297.5 million; net cash used in financing activities was $195.5 million. Cash and cash equivalents decreased by $37.0 million during the first nine months.
Material changes versus the prior comparable period
- Third-quarter revenue increased 7%, led by a 7% increase in site rental revenue. First-nine-month revenue increased 9%, with site rental revenue up 10%.
- Operating income increased 17% in the quarter and 23% year to date, reflecting revenue growth and high incremental margins from additional tenants.
- The company reported net income in 2011 versus substantial losses in 2010. The 2010 losses included $104.4 million of third-quarter and $292.3 million of nine-month losses on interest rate swaps, as well as $71.9 million of third-quarter and $138.4 million of nine-month losses from debt purchases and redemptions. These unusual 2010 items did not recur in 2011.
- Operating cash flow increased 12% to $455.3 million for the first nine months, primarily due to growth in the site rental business.
- Capital expenditures increased $116.8 million, or approximately 79%, largely due to higher land purchases, tower improvements and tower construction.
- The company repurchased 7.3 million common shares for $301.4 million during the first nine months and purchased $15.0 million of convertible preferred stock. Common shares outstanding declined to 284.5 million from 290.8 million at December 31, 2010.
- Debt increased from $6.779 billion at December 31, 2010 to $6.937 billion at September 30, 2011, primarily reflecting net revolver borrowings and other obligations.
Guidance, outlook, risks and unusual items
- Management expected site rental revenue to grow approximately 9% from full-year 2010 to 2011 and approximately 5% from 2011 to 2012. New tenant additions, including expected Sprint Network Vision activity, were expected to contribute approximately 5% year-over-year growth in both 2011 and 2012.
- The 2012 outlook assumed no net growth contribution from the existing customer base because contractual escalations and straight-line renewal effects were expected to be offset by higher customer contract cancellations.
- Management expected approximately $300 million of capital expenditures over the following 12 months, including sustaining and discretionary spending. Sustaining capital expenditures for 2012 were expected to be approximately $22 million to $27 million.
- Management expected cash on hand, operating cash flow after cash interest payments and available revolver capacity to cover the next 12 months' expected $33.6 million of principal repayments, approximately $300 million of capital expenditures and the potential August 2012 redemption of approximately $306 million of convertible preferred stock.
- The company had no financial covenant violations. Its consolidated leverage ratio was 5.2 against a maximum requirement of 7.5, and its consolidated interest coverage ratio was 3.2 against a minimum requirement of 2.0.
- Approximately 74% of nine-month revenue came from AT&T, Verizon Wireless, Sprint and T-Mobile. AT&T and T-Mobile accounted for 23% and 11%, respectively, of consolidated revenue for the period.
- AT&T's proposed acquisition of T-Mobile was subject to regulatory approval and could reduce or delay demand through network integration and elimination of duplicate sites. The companies were co-resident on approximately 4,000 towers, and T-Mobile revenue from those towers represented approximately 6% of consolidated nine-month revenue.
- Approximately 87% of debt had fixed-rate coupons. The company had $925.8 million of variable-rate debt, of which $600.0 million was hedged through December 2011. Failure to repay or refinance certain tower revenue notes by their anticipated repayment dates could trigger additional interest of approximately 5% per year and cash-flow-based principal repayments.
- The company adopted amended goodwill impairment guidance and expected to perform a qualitative assessment during the fourth quarter of 2011. A potential AT&T/T-Mobile transaction could also trigger a review of long-lived assets for impairment.
- Management stated that ordinary-course claims, lawsuits and proceedings were not expected to have a material adverse effect, although ultimate outcomes remain uncertain.
Important facts for investors to verify
- Whether site rental growth, tenant additions and Sprint Network Vision activity met the stated 2011 and 2012 expectations.
- The effect of any AT&T/T-Mobile transaction, customer consolidation or Sprint network changes on tower occupancy, cancellations and revenue.
- The planned treatment and funding source for the approximately $306 million preferred-stock redemption due in August 2012.
- Debt refinancing requirements, revolver usage, interest-rate exposure and compliance with leverage, coverage and cash-trap covenants.
- Whether the fourth-quarter 2011 goodwill assessment or any related long-lived-asset review resulted in impairment charges.
- The sustainability of operating cash flow after discretionary capital expenditures, common-stock repurchases and preferred-stock purchases.
- The company’s reliance on Adjusted EBITDA, including reconciliation to GAAP results and the impact of interest, depreciation, amortization and capital requirements excluded from that measure.