01—Abstract
Summary
Summary of the 10-K filed February 13, 2012. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International (CCI) reported 2011 net revenues of $2.03 billiona, up 8% year over year, with site rental revenue of $1.85 billion (up 9%) making up 91% of the total.
Site rental gross margin rose 11% to a $127.8 millionb incremental margin, which the company attributes to the high incremental margins of new tenant additions on fixed-cost wireless infrastructure. Adjusted EBITDA reached $1.31 billion, up 11%, and net income attributable to CCIC stockholders swung to $171.1 million from a $310.9 million loss in 2010, which had been driven by $286.4 million of interest rate swap losses and $138.4 million of debt retirement losses that did not recur in 2011. Operating cash flow was $643.5 million, and CCUSA accounted for 94% of consolidated net revenues.
The filing is dominated by two subsequent events that significantly change the capital structure. In January 2012 CCI closed the WCP acquisition for roughly $500 millionc and refinanced its credit facility into a $3.1 billion senior secured package. It also agreed in December 2011 to acquire NextG Networks for about $1.0 billion in cash, expected to close in Q2 2012.
Pro forma for these transactions, total debt rises to roughly $8.0 billiond, with 80% at fixed rates and the company stating no need to access capital markets until at least 2015. Customer concentration is high: AT&T, Sprint, Verizon Wireless and T-Mobile represented 74% of consolidated revenue, and Sprint's Network Vision program is expected to cause some contract non-renewals. For investors, the key tensions are between a stable, long-dated cash flow base (contracts averaging about nine years remaining, roughly $17 billion of expected future cash inflows) and a leveraged balance sheet with heavy customer concentration and a large deferred tax valuation allowance.
The company also flagged that reversing that allowance after NextG closes or as earnings continue could produce a one-time non-cash tax benefit to reported net income. Leverage and coverage metrics are within covenant requirements, though several securitized and senior note ratios sit close to their thresholds.
02—Key points
Key Highlights
- Site rental revenue grew 9% to $1.85 billion in 2011, representing 91% of consolidated net revenues, with a company-stated incremental margin of about 91% on added tenant revenue.
- Net income attributable to CCIC stockholders was $171.1 million in 2011 versus a $310.9 million loss in 2010, which was driven by non-recurring 2010 swap and debt-retirement losses ($286.4 million and $138.4 million).
- Adjusted EBITDA rose 11% to $1.31 billion; operating cash flow was $643.5 million, and capital expenditures were $347.9 million including $196.4 million for land interest purchases.
- Customer concentration is high: AT&T, Sprint, Verizon Wireless and T-Mobile account for 74% of consolidated revenue, and Sprint's Network Vision program is expected to result in some contract non-renewals.
- Pro forma debt rises to about $8.0 billion after the January 2012 WCP acquisition (about $500 million) and $3.1 billion credit facility refinancing, with 80% fixed rate and no capital markets access expected to be needed until at least 2015.
- The pending NextG acquisition (about $1.0 billion cash, expected Q2 2012) adds over 7,000 on-air DAS nodes and is expected to trigger a reversal of a substantial part of the U.S. federal deferred tax valuation allowance.
- Contracted future cash inflows total about $17 billion with a weighted-average remaining term of about nine years, and the company expects 2012 site rental revenue growth of roughly 5%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 13, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.03B$1.88B | +8.2% |
| SG&A Expenses | $173.49M$165.36M | +4.9% |
| Operating Expenses | $1.34B$1.30B | +2.8% |
| Operating Income | $692.30M$575.37M | +20.3% |
| Interest Expense | $404.64M$404.81M | 0.0% |
| Net Income | $171.08M-$310.94M | +155.0% |
| EPS (Basic) | $0.52$-1.16 | +144.8% |
| EPS (Diluted) | $0.52$-1.16 | +144.8% |
| Shares Outstanding (Basic) | 283.82M286.76M | −1.0% |
| Shares Outstanding (Diluted) | 285.95M286.76M | −0.3% |
05—Questions
Frequently Asked Questions
How much of Crown Castle's revenue is stable, recurring site rental income?
Site rental represented 91% of 2011 consolidated net revenues ($1.85 billion of $2.03 billion). Typically over 90% of site rental revenue has been contracted in a prior year, and the company reports about $17 billion of expected future cash inflows under customer contracts with a weighted-average remaining term of roughly nine years, excluding tenant renewal options.
Why did net income swing from a loss in 2010 to a profit in 2011?
The 2010 loss was primarily driven by $286.4 million of net losses on interest rate swaps and $138.4 million of losses on debt purchases and early retirement. Neither item recurred in 2011, and 2011 also benefited from operating income growth of 20% to $692.3 million. Income taxes were minimal because of a large valuation allowance on deferred tax assets.
How concentrated is the customer base and what are the risks?
Very concentrated. AT&T (23%), Sprint (21%), Verizon Wireless (19%) and T-Mobile (11%) make up 74% of consolidated revenue, and CCUSA's four largest customers account for 80%. The loss, consolidation or financial distress of any of them could materially reduce revenue. The filing specifically notes that Sprint's Network Vision program will likely result in Sprint not renewing certain contracts.
What does the debt load look like after the 2012 transactions?
Total debt was about $6.9 billion at year-end 2011 and is expected to be about $8.0 billion after the WCP acquisition and January 2012 refinancing (excluding the NextG purchase). Approximately 80% carries fixed rates. Leverage ratios (e.g., CCIC's 5.9x against a 7.0x covenant) and other covenant ratios were stated as within requirements, though some securitized debt coverage ratios are closer to their thresholds. The company says it does not expect to need the capital markets for refinancing until at least 2015.
Will Crown Castle pay dividends or report a large one-time tax benefit?
The company has never paid common dividends and its policy is to reinvest operating cash flow in discretionary investments such as share buybacks, tower acquisitions and debt repurchases. It has a $2.5 billion federal NOL position and a valuation allowance of $130.2 million for U.S. federal deferred taxes. If it continues generating earnings or completes the NextG acquisition, it expects to reverse a substantial portion of that allowance, which would boost reported net income in the period of reversal but have no effect on cash flow.
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