American Tower Corporation — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010; unaudited. Comparisons are with Q1 2009 unless noted. Amounts are in U.S. dollars.
Business context
American Tower owns and operates wireless and broadcast communications sites in the United States, Mexico, Brazil and India. Its primary activity is leasing antenna space; rental and management generated about 98% of Q1 revenue. At quarter-end, the company reported approximately 20,300 U.S. towers and 7,200 international towers, plus about 200 in-building DAS networks.
Financial performance
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Revenue | $454.4 million | $408.7 million | Up 11% |
| Operating income | $178.8 million | $150.3 million | Up 19% |
| Income from continuing operations | $96.4 million | $55.7 million | Up 73% |
| Net income attributable to American Tower | $96.3 million | $58.6 million | Up 64% |
| Diluted EPS | $0.24 | $0.15 | Up $0.09 |
| Cash from operating activities | $253.6 million | $205.7 million | Up $47.9 million |
Rental and management revenue increased 12% to $443.8 million; network development services revenue declined 17% to $10.6 million. Operating margin was approximately 39.4%, versus 36.8%. Interest expense fell 5% to $58.4 million, reflecting lower average debt and borrowing rates. The effective tax rate was 22.7%, compared with 40.0%; a $32.6 million reversal of accrued tax liabilities related to Latin American restructuring reduced the current-period tax rate.
Cash used in investing was $150.7 million, including $88.5 million for 164 U.S. towers and $55.1 million for property, equipment and construction. Financing cash flow was $2.7 million. Cash and cash equivalents were $352.9 million at quarter-end, up from $247.3 million at year-end 2009; restricted cash was $49.8 million.
Balance sheet, debt and liquidity
Total debt obligations were approximately $4.23 billion at March 31, 2010; long-term obligations including current maturities were reported at $4.23 billion. The company had $625 million drawn on its $1.25 billion revolving facility, a fully drawn $325 million term loan and approximately $621.9 million of remaining revolver availability. Reported total liquidity was approximately $974.8 million, comprising cash and revolver availability. The company reported compliance with its revolving-facility and term-loan financial covenants.
Management stated that operating cash flow was expected to cover 2010 operating needs, capital expenditures and cash debt service. It forecast 2010 capital expenditures of approximately $300–$350 million, including about $50 million for ground-lease purchases and $165–$205 million for other discretionary projects, with plans to construct approximately 1,200–1,600 sites. In April 2010, after quarter-end, the company repaid the $76.4 million XCEL credit facility.
Material changes, outlook and risks
- Rental revenue rose $47.9 million: $26.0 million from legacy sites and $21.9 million from sites acquired or built since January 2009. Growth on legacy sites reflected tenant additions, equipment deployments and contractual escalations, partly offset by cancellations and customer-related reserves.
- Acquisition-related investing increased substantially year over year. The company announced a proposed acquisition of approximately 4,450 Indian towers from Essar, estimated at about $430 million, subject to approvals and other closing conditions; it expected to close by the end of Q2 2010 and anticipated using its revolver for cash needs.
- Four U.S. customers generated approximately 61% of revenue. Grupo Iusacell contributed about 4% of revenue and had $17.4 million of net accounts receivable; it was restructuring U.S.-dollar debt, and discussions over collections and future contractual terms were ongoing.
- Interest-rate exposure was partly hedged with 13 swaps totaling $625 million, with rates of 2.86%–4.08% and expirations through March 2011. After swaps, $325 million of debt remained variable-rate; the filing estimated a 10% increase in current rates would add about $0.2 million to quarterly pretax expense and cash outflow.
- Material risk factors include customer concentration and creditworthiness, leverage and refinancing needs, covenant restrictions, acquisition and international expansion risks, foreign exchange exposure, regulation and zoning, competition, technology changes, ground-lease rights, and natural-disaster and environmental liabilities.
- Ongoing matters include government reviews relating to historic stock-option practices (the Department of Labor concluded its review with no action; SEC, U.S. Attorney and IRS reviews remained ongoing) and Mexican litigation for which the company could not estimate potential liability. The company also reported $97.4 million of unrecognized tax benefits.
- Management said results for interim periods may not indicate full-year results. It was considering a possible REIT conversion, but gave no assurance it would proceed. Forward-looking statements are subject to risks and the company undertook no obligation to update them.
Important facts for investors to verify
- Whether the Essar transaction closed on the expected timetable, its final consideration and financing, and the resulting leverage.
- Collections from Grupo Iusacell, adequacy of reserves, and any changes to its lease relationship or receivables.
- Progress against 2010 capital-spending and construction plans, and whether operating cash flow supports investment and shareholder repurchases.
- Debt maturities, revolver availability, covenant compliance and securitization debt-service coverage; quarter-end securitization DSCR was 3.18x.
- The sustainability of earnings growth after considering the $32.6 million tax-liability reversal and the difference in discontinued-operations income from the prior year.
- Developments in the outstanding government reviews, Mexican litigation and uncertain tax positions.