Why is American Tower reporting large losses even though revenue is growing quickly?

Most of the loss comes from non-cash and financing costs tied to the acquisition program. Depreciation and amortization of $283.4 million, mostly from goodwill and intangibles on about $1.8 billion of 2000 acquisitions, plus $156.8 million of interest expense, exceed operating profit. Management expects acquired and constructed towers to reach higher utilization over time, which should improve margins.

How is the company funding its growth, and is the balance sheet at risk?

Growth has been funded with a mix of bank debt, convertible notes, and equity. The company had $2.47 billion of debt at year-end 2000, with $1.35 billion under variable-rate credit facilities. In January 2001 it raised about $361 million in equity and $969 million in net proceeds from 9 3/8% senior notes. Leverage remains high, and the filing notes that floating-rate exposure and restrictive covenants could limit flexibility if interest rates rise or cash flow falls short.

What are the largest contracts that could change the company's scale?

The ALLTEL agreement, signed in December 2000, provides a 15-year sublease on up to 2,193 towers for up to $657.9 million in cash, with a purchase option at the end of the term. The AT&T and AirTouch transactions added thousands of towers during 2000, and build-to-suit agreements with carriers such as AT&T Wireless, Verizon and Nextel are expected to add roughly 1,000-plus new towers. These deals are expected to close in stages during 2001.

What regulatory or customer concentration risks should investors consider?

The FCC issued a Notice of Apparent Liability in January 2001 proposing a $212,000 fine for tower registration and lighting violations, and it may conduct further compliance review. Customer concentration is also meaningful: the five largest customers accounted for about 23% of 2000 revenue, and build-to-suit projects increase reliance on a limited number of anchor tenants.

AMT 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 2, 2001. Cited figures are marked; the original filing is the authoritative source.

American Tower Corporation (AMT) reported fiscal 2000 results that show a company in rapid expansion, funded heavily by debt and equity.

Operating revenues rose 185% to $735.3 million^a, driven by more than 60 acquisitions in 2000 (about 4,600 sites for roughly $1.8 billion) and the construction of over 1,600 towers. Revenue mix was 38% rental and management, 42% network development services and 20% satellite and fiber network access (Verestar). The company still posted a net loss of $194.6 million, or $1.15 per share, as depreciation and amortization ($283.4 million) and interest expense ($156.8 million) far exceeded operating profit.

Operating cash flow was negative at $25.0 million^b, while financing activities provided $2.1 billion. The balance sheet grew sharply, with total assets of $5.66 billion and long-term obligations of $2.47 billion, leaving stockholders' equity at $2.88 billion. Management's key metric, EBITDA, was $194.4 million (26.4% margin), down from a 35.4% margin in 1999 as lower-margin services revenue grew.

Subsequent events were significant: a January 2001 equity offering of 10 million shares (about $360.8 million^c net) and a $1.0 billion 9 3/8% senior notes placement. Pending transactions include the ALLTEL sublease of up to 2,193 towers for up to $657.9 million, and management expects roughly $600 million in 2001 capital spending and about $800 million in pending acquisitions. For investors, the central question is whether the tower portfolio's utilization and tenant additions will eventually produce cash flow that covers the heavy leverage.

Management points to fixed-cost tower economics and build-to-suit anchor-tenant contracts as the basis for future margin improvement. Risks highlighted in the filing include dependence on a few large wireless carriers, floating-rate debt, restrictive covenants, a potential slowdown in wireless demand, and a pending FCC Notice of Apparent Liability with a proposed $212,000^d fine.

02—Key points

Key Highlights

Revenue grew 185% to $735.3 million in 2000, with the largest growth in satellite and fiber services (up 349%) and network development services (up 245%).
Net loss widened to $194.6 million ($1.15 per share) from $50.7 million in 1999, largely from $283.4 million of D&A and $156.8 million of interest expense.
EBITDA reached $194.4 million, but its margin fell to 26.4% from 35.4%, reflecting the mix shift toward lower-margin services.
Operating cash flow was negative $25.0 million, while $2.1 billion of financing inflows funded $2.0 billion of investing outflows for acquisitions and construction.
Total debt was about $2.47 billion at year-end 2000, rising to roughly $3.4 billion pro forma for the January 2001 offerings and pending acquisitions; a significant portion carries floating rates.
The company operates about 11,000 sites, with more than 13,600 sites after pending deals, and 2001 tower construction projected at 2,000 towers.
Pending risks include a proposed $212,000 FCC fine, dependence on a few large wireless carriers, and the company's policy of paying no dividends.

03—Questions

Frequently Asked Questions

Why is American Tower reporting large losses even though revenue is growing quickly?
Most of the loss comes from non-cash and financing costs tied to the acquisition program. Depreciation and amortization of $283.4 million, mostly from goodwill and intangibles on about $1.8 billion of 2000 acquisitions, plus $156.8 million of interest expense, exceed operating profit. Management expects acquired and constructed towers to reach higher utilization over time, which should improve margins.
How is the company funding its growth, and is the balance sheet at risk?
Growth has been funded with a mix of bank debt, convertible notes, and equity. The company had $2.47 billion of debt at year-end 2000, with $1.35 billion under variable-rate credit facilities. In January 2001 it raised about $361 million in equity and $969 million in net proceeds from 9 3/8% senior notes. Leverage remains high, and the filing notes that floating-rate exposure and restrictive covenants could limit flexibility if interest rates rise or cash flow falls short.
What are the largest contracts that could change the company's scale?
The ALLTEL agreement, signed in December 2000, provides a 15-year sublease on up to 2,193 towers for up to $657.9 million in cash, with a purchase option at the end of the term. The AT&T and AirTouch transactions added thousands of towers during 2000, and build-to-suit agreements with carriers such as AT&T Wireless, Verizon and Nextel are expected to add roughly 1,000-plus new towers. These deals are expected to close in stages during 2001.
What regulatory or customer concentration risks should investors consider?
The FCC issued a Notice of Apparent Liability in January 2001 proposing a $212,000 fine for tower registration and lighting violations, and it may conduct further compliance review. Customer concentration is also meaningful: the five largest customers accounted for about 23% of 2000 revenue, and build-to-suit projects increase reliance on a limited number of anchor tenants.

04—Continue

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