American Tower Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; amounts in USD unless stated otherwise. American Tower is a global owner and operator of communications sites and U.S. data centers, with additional tower-related services.
Financial performance
- Q3 revenue: $2.819 billion, up 6% year over year. Property revenue increased 7% to $2.792 billion; services revenue declined 57% to $26.2 million.
- Q3 earnings: Operating income was $658.7 million versus $652.9 million. Net income attributable to common stockholders was $586.9 million, down 30%; diluted EPS was $1.26 versus $1.80. Results included a $322 million India goodwill impairment.
- Nine-month revenue and earnings: Revenue was $8.358 billion, up 4%. Net income attributable to common stockholders was $1.398 billion, down 43%, and diluted EPS was $2.99 versus $5.31.
- Non-GAAP measures: Q3 Adjusted EBITDA was $1.814 billion, up 10%; AFFO attributable to common stockholders was $1.206 billion, up 9%. For nine months, Adjusted EBITDA was $5.326 billion, up 8%, and AFFO was $3.542 billion, up 3%. These measures are not GAAP cash flow or liquidity measures.
- Margins and costs: Q3 property segment gross margin was $1.989 billion, up 10%; services gross margin fell 60% to $13.7 million. Consolidated operating margin was approximately 23.4%, versus 24.4% a year earlier, reflecting the impairment and other expense mix.
- Cash flow and investment: Nine-month operating cash flow was $3.581 billion, versus $2.511 billion. Investing used $1.166 billion, including $1.274 billion of property and construction payments; reported total capital expenditures were $1.298 billion. Financing used $2.282 billion. Cash and restricted cash ended at $2.232 billion.
- Debt and liquidity: Outstanding indebtedness was $38.9 billion, including $3.2 billion current. Cash and cash equivalents were $2.119 billion; total available liquidity, including undrawn facilities, was $9.736 billion. Total liabilities were $54.419 billion. Interest expense for nine months rose to $1.048 billion from $833 million.
- Distributions: The company paid $4.69 per share during the first nine months and declared $1.62 per share for payment in October 2023.
Changes versus prior comparable periods
- Q3 revenue growth was led by U.S. & Canada property (+5%), Asia-Pacific (+21%), Latin America (+9%), Europe (+9%), and data centers (+9%). Foreign exchange materially affected international segment comparisons.
- Q3 net income declined despite higher revenue and Adjusted EBITDA, mainly because of the India goodwill impairment, lower foreign-currency gains, higher interest expense, and higher taxes. Nine-month comparisons were also affected by much larger foreign-currency gains in 2022.
- Operating cash flow rose year over year, while cash used for investing and financing increased. The prior-year period included $2.5 billion of Stonepeak investment proceeds and $2.3 billion of common-stock issuance proceeds; 2023 financing instead included substantial senior-note issuance and repayments.
- Debt was refinanced and extended through multiple 2023 note offerings, a $1.3 billion securitization, and amendments to revolving credit facilities. Interest costs increased with higher weighted-average borrowing rates.
Outlook, commentary, and risks
- Capital expenditure outlook: Management expects 2023 total capital expenditures of $1.65–$1.76 billion, including construction of approximately 2,650–3,750 communications sites globally and about $360 million of anticipated data-center spending. The filing provides no clear full-year revenue or earnings guidance in the supplied text.
- Management expects operating cash flow and available credit capacity to fund distributions, capital expenditures, debt service, and signed acquisitions. It reported compliance with debt covenants and expects to remain compliant over the next 12 months based on current expectations.
- India: VIL paid its contractual obligations in full in Q3, after earlier partial-payment concerns. The company is considering strategic alternatives, including a potential sale of equity interests in its India operations, with no assurance a transaction will occur. Further impairments remain possible; the India unit recorded a $322 million goodwill impairment. The company also deferred approximately $61.9 million of revenue related to an Indian customer during the first nine months.
- Other operating risks: Churn was approximately 3% of tenant billings for the nine months. U.S. & Canada churn is expected to remain elevated through 2025 due to T-Mobile lease cancellations and non-renewals. Customer concentration, international currency movements, customer credit, and energy and ground-rent costs remain relevant risks.
- Rates and currency: Variable-rate debt exposes the company to higher interest costs. The filing estimates that a 10% increase in current rates would have added $19.4 million of interest expense for the nine-month period. An adverse 10% exchange-rate move on outstanding euro debt could produce approximately $0.9 billion of foreign-currency losses; 44% of revenue and 52% of operating expenses were foreign-currency denominated.
- Accounting and other items: The company is reviewing tower useful lives and expects to conclude in 2024; preliminary analysis suggests lives may be extended, potentially materially reducing future depreciation and increasing right-of-use assets and lease liabilities. Mexico Fiber was sold at an $80 million loss; the Poland subsidiary sale generated a $1.1 million gain. The CEO announced retirement effective February 1, 2024, with Steven Vondran appointed as successor.
- Management said there were no pending legal matters expected to materially affect financial position, results, or liquidity, and no material changes to previously disclosed risk factors.
Investor verification priorities
- Review India customer collections, deferred revenue, strategic-alternative progress, and potential further asset impairments.
- Validate the effect of higher interest rates and foreign-exchange movements on debt service, reported earnings, and cash flows.
- Track T-Mobile-related churn through 2025 and compare leasing growth with tenant cancellations and non-renewals.
- Assess the 2023 capital-spending range against operating cash generation, distributions, and refinancing needs.
- Follow the 2024 tower useful-life review and any resulting prospective changes to depreciation and lease accounting.
- Reconcile GAAP earnings with Adjusted EBITDA and AFFO, including impairment, currency gains, interest costs, and noncontrolling interests.