01—Abstract
Summary
Summary of the 10-K filed February 19, 2015. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) closed 2014 as its first full year operating as a REIT (effective January 1, 2014), with results driven by the AT&T Acquisition completed in December 2013.
Net revenues grew 22% to $3.69 billiona, site rental revenues rose 20% to $3.01 billion, and Adjusted EBITDA for the company's segments totaled roughly $2.14 billion. Net income attributable to CCIC stockholders was $390.5 million, though 2014 results were flattered by a $132.95 million tax benefit tied to REIT operations, so the earnings improvement is largely a tax story rather than an operating one. Operating cash flow was $1.67 billion, up from $1.24 billion, and the company paid $624.3 million in common dividends during 2014.
The main investor concerns are the company's leverage, roughly $11.9 billionb of debt, and future customer concentration and churn. AT&T, Sprint, T-Mobile and Verizon Wireless together made up 88% of U.S. site rental revenues. Management expects $60-70 million of 2015 site rental impact from Sprint's iDEN shutdown, plus $35-45 million of 2015 non-renewals from the Acquired Networks (Leap, MetroPCS, Clearwire), rising to an expected 60% run-rate loss on those networks through 2018.
The board also raised the quarterly common dividend to $0.82c per share ($3.28 annualized, about $1.1 billion in 2015 cash), which will delay use of the company's roughly $2.2 billion of federal NOLs. Management also announced in February 2015 that it would explore a potential sale of its Australian subsidiary, CCAL. On balance sheet strength, the company reports a 4.3x total net leverage ratio against a 5.5x covenant ceiling, and a 5.9x interest coverage ratio against a 2.5x minimum.
About 79% of debt is secured, and 64% carries fixed-rate coupons. Liquidity includes a 2012 Revolver expanded to about $2.2 billiond, with approximately $1.5 billion undrawn as of February 13, 2015.
02—Key points
Key Highlights
- Net revenues rose 22% to $3.69 billion in 2014, with site rental revenues up 20% to $3.01 billion, driven mainly by the AT&T Acquisition (about 15% of the site rental growth).
- Net income attributable to CCIC stockholders was $390.5 million (about $1.04 per diluted share), up from $76.5 million in 2013, but the increase was largely due to a $132.95 million REIT-related tax benefit rather than operating improvement.
- Operating cash flow reached $1.67 billion (up 35% year over year), while capital expenditures were $780 million, including $599 million in wireless infrastructure construction and improvements.
- Dividend policy changed sharply: the quarterly common dividend rose from $0.35 to $0.82 per share (annualized $3.28), implying about $1.1 billion of 2015 cash payments and delaying utilization of about $2.2 billion of federal NOLs.
- Customer concentration remains high: four carriers (AT&T 29%, Sprint 22%, T-Mobile 22%, Verizon 15% of U.S. site rental revenue) produced 88% of U.S. site rental revenue, and 2015 non-renewals are expected from Sprint iDEN ($60-70 million) and Acquired Networks ($35-45 million).
- Leverage is elevated at about $11.9 billion of total debt, but covenant headroom is reported as comfortable (4.3x net leverage vs. 5.5x maximum; 5.9x interest coverage vs. 2.5x minimum), with 79% of debt secured and 64% fixed-rate.
- Management announced in February 2015 that it will explore a potential sale of CCAL, its 77.6%-owned Australian tower business (about 4% of 2014 net revenues), with no assurance a transaction will occur.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 19, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.54B$2.87B | +23.5% |
| SG&A Expenses | $257.30M$213.52M | +20.5% |
| Operating Expenses | $2.60B$1.99B | +30.9% |
| Operating Income | $940.68M$880.70M | +6.8% |
| Interest Expense | $492.44M$490.38M | +0.4% |
| Net Income | $390.51M$90.11M | +333.4% |
| EPS (Basic) | $1.04$0.26 | +300.0% |
| EPS (Diluted) | $1.04$0.26 | +300.0% |
| Shares Outstanding (Basic) | 332.30M298.08M | +11.5% |
| Shares Outstanding (Diluted) | 333.26M299.29M | +11.4% |
05—Questions
Frequently Asked Questions
Is Crown Castle's higher 2014 net income a sign of stronger underlying operations?
Only partly. Net income attributable to CCIC stockholders rose to $390.5 million from $76.5 million, but the increase was predominantly driven by the REIT conversion, which produced a benefit for income taxes of $10.6 million in 2014 versus a $198.6 million provision in 2013 (that year included a $67.4 million charge from the REIT election). Operating income grew about 8%, to $993.6 million, a more representative measure of core performance.
How much of the company's revenue is exposed to customer losses or consolidation?
Heavily. AT&T, Sprint, T-Mobile and Verizon Wireless accounted for 88% of consolidated U.S. site rental revenues in 2014. The 10-K flags that carrier consolidation, the Sprint iDEN shutdown and the decommissioning of the Acquired Networks (Leap, MetroPCS, Clearwire) could reduce revenue, with Acquired Networks non-renewals expected to be about 60% of their run-rate site rental revenue, mostly from 2015 to 2018.
Can Crown Castle sustain its dividend while carrying heavy debt?
Management expects to pay about $1.1 billion of common dividends in 2015 and roughly $45 million on preferred stock, which it says can be covered by cash on hand, the revolver and operating cash flow after cash interest. Future dividends require board approval, and the 10-K notes that failure to pay preferred dividends would prohibit common dividends and could jeopardize REIT status. Debt maturities are modest through 2016 ($110.8 million in 2015 and $122.6 million in 2016), but tower revenue notes with anticipated repayment dates in 2015 and 2017 would carry an additional interest step-up if not refinanced.
What is the potential impact of the planned CCAL sale?
CCAL is a relatively small part of the business, contributing about 4% of 2014 net revenues, about 5% of operating income, and $29.2 million of net income attributable to CCIC stockholders. A sale would be a strategic portfolio change rather than a major earnings driver, but the 10-K gives no assurance a transaction will occur, and the board has not committed to one.
06—Continue