01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) closed 2016 with net revenues of $3.92 billiona (up 7% year over year), driven by site rental revenues of $3.23 billion.
Site rental is the core business, representing 82% of revenues and 89% of consolidated gross margin. Adjusted EBITDA rose 5% to $2.23 billionb, and net cash from operations was $1.78 billion. Growth came from both segments: towers site rental revenue grew 4% and small cells site rental revenue grew 42%, reflecting the Sunesys acquisition and newly constructed small cells.
Net income attributable to common stockholders fell sharply to $324 millionc from $1.48 billion, mainly because 2015 included a roughly $1.0 billion gain on the sale of CCAL. The company is positioned for further growth through the January 2017 closing of the ~$1.5 billion FiberNet Acquisition, which adds about 11,500 route miles of fiber in Florida and Texas. It was funded with November 2016 equity and revolver borrowings.
The 2017 outlook calls for site rental growth partly offset by $50d–60 million of expected non-renewals tied to the decommissioning of the Acquired Networks (Leap, MetroPCS, Clearwire), with most of this occurring through 2018. Management expects 2017 capital expenditures at or above 2016 levels, and the quarterly dividend was raised 7% to $0.95 per share, or $3.80 annualized. Key risks for investors are leverage and refinancing exposure.
Total debt was about $13.2 billion as of February 2017, with roughly $2.4 billion of revolver availability. Management targets 4–5x leverage, and the total net leverage covenant was 5.2x against a 6.50x limit. Concentration is high: AT&T, T-Mobile, Verizon Wireless, and Sprint together account for 90% of site rental revenues.
The REIT dividend requirement also limits retained cash and delays NOL utilization. Roughly 53% of towers are under master leases with purchase options, which carry a risk of non-exercise.
02—Key points
Key Highlights
- Revenue growth: Net revenues rose 7% to $3.92 billion in 2016, and site rental revenues reached $3.23 billion (82% of total).
- Small cells momentum: Small cells site rental revenues grew 42% to $402.6 million, while towers grew 4% to $2.83 billion.
- Profitability: Adjusted EBITDA increased 5% to $2.23 billion. Net income attributable to common stockholders fell to $324 million from $1.48 billion because 2015 included a ~$1.0 billion gain on the CCAL sale.
- Cash generation: Operating cash flow was $1.78 billion, and $1.2 billion was returned to shareholders as dividends in 2016.
- Dividend increase: The quarterly dividend rose 7% to $0.95 per share ($3.80 annualized), with at least $1.3 billion expected in cash dividends over the next 12 months.
- Acquisition and financing: The ~$1.5 billion FiberNet acquisition (~11,500 route miles of fiber) closed in January 2017 and was funded with equity and revolver borrowings. The company also issued $500 million of 4.000% notes in February 2017 and extended maturities to 2022.
- Leverage and concentration risk: Total debt is ~$13.2 billion and the leverage covenant is 5.2x against a 6.50x limit. Four customers generate 90% of site rental revenues, and $50–60 million of 2017 non-renewals are expected from Acquired Network decommissioning.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Crown Castle Inc. kept $0.09.
- Revenue$3.92B100.0%
- Cost of revenue−$417.0M10.6%
- Gross profit$3.50B89.4%
- Operating costs−$2.56B65.2%
- Operating income$949.0M24.2%
- Interest, other & tax−$592.0M15.1%
- Net income$357.0M9.1%
Where FY2016 revenue went
$3.92B- Other operating costs: $2.18B, 56% of revenue
- Interest, other & tax: $592.0M, 15% of revenue
- Net income: $357.0M, 9.1% of revenue
- Cost of revenue: $417.0M, 11% of revenue
- SG&A: $371.0M, 9.5% of revenue
Kept 9.1% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.92B$3.66B | +7.0% |
| Cost of Revenue | $417.00M— | — |
| Gross Profit | $3.50B— | — |
| SG&A Expenses | $371.00M$310.92M | +19.3% |
| Operating Expenses | $2.97B$2.72B | +9.4% |
| Operating Income | $949.00M$946.18M | +0.3% |
| Interest Expense | $501.00M$490.00M | +2.2% |
| Net Income | $356.97M$1.52B | −76.5% |
| EPS (Basic) | $0.95$4.44 | −78.6% |
| EPS (Diluted) | $0.95$4.42 | −78.5% |
| Shares Outstanding (Basic) | 340.00M333.00M | +2.1% |
| Shares Outstanding (Diluted) | 341.00M334.06M | +2.1% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2016 despite higher operating performance?
Net income attributable to common stockholders dropped to $324 million from $1.48 billion. The main driver was the roughly $1.0 billion gain on the May 2015 sale of CCAL, the Australian tower business, which was recorded in 2015 and does not recur in 2016. Operating income was roughly flat at $949 million versus $946 million, and Adjusted EBITDA grew 5%. The 2016 results also included $52 million of debt retirement losses and higher depreciation and G&A.
How much debt does Crown Castle carry and when does it mature?
Total debt and other long-term obligations were about $12.2 billion at December 31, 2016, rising to roughly $13.2 billion after the FiberNet acquisition and 2017 refinancings. Scheduled maturities are light in the near term, with about $102 million due in 2017 and $136 million in 2018, but the 2016 Term Loan A and Revolver mature in 2021–2022, and tower revenue notes have anticipated repayment dates in 2020, 2022 and 2025. About 81% of debt is fixed rate after the 2017 refinancings. The company expects to refinance the tower revenue notes before their anticipated repayment dates.
What is the impact of carrier network decommissioning on future revenue?
AT&T, T-Mobile and Sprint are decommissioning the Leap Wireless, MetroPCS and Clearwire networks (the Acquired Networks), which represented about 9% of 2016 net revenues. Management expects $50–60 million of site rental revenue non-renewals in 2017, and potential non-renewals of about 60% of the run-rate revenue from those networks, mostly through the end of 2018. The timing and size could differ depending on carriers' final plans.
Is the dividend sustainable, and how does REIT status affect it?
Crown Castle operates as a REIT and must distribute at least 90% of REIT taxable income each year. The dividend was raised to $3.80 per share annualized, with about $1.3 billion in expected cash payments over the next 12 months. Because dividends are deductible for REIT purposes, the company pays minimal federal income tax, but the payout limits retained cash for growth and may force more borrowing or equity issuance. The company also has about $1.3 billion of federal NOLs, which the dividend delays using. Future dividends remain subject to board approval and debt covenant limits.
06—Continue