01—Abstract
Summary
Summary of the 10-K filed February 25, 2019. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported full-year 2018 results that show a company whose growth is increasingly driven by its Fiber segment.
Net revenues rose to $5.42 billiona in 2018 from $4.36 billion in 2017, a 24% increase, with site rental revenues of $4.72 billion (up 29%). Fiber site rental revenues more than doubled to $1.6 billion (up 108%), largely due to the 2017 Lightower, Wilcon and FiberNet acquisitions, while Towers site rental revenues grew a more modest 7% to $3.1 billion. Net income attributable to common stockholders was $558 million, or $1.34 per diluted share, versus $387 million in 2017.
Adjusted EBITDA rose 27% to $3.14 billionb, and net cash from operating activities reached $2.5 billion. The balance sheet carries significant leverage, with total debt and other long-term obligations of $16.7 billion as of year-end 2018 (about $16.7 billion as of February 22, 2019). Management reports a total net leverage ratio of 5.2x against a 6.50x covenant maximum, and its targeted leverage range is roughly four to five times Adjusted EBITDA.
Concentration risk is material: AT&T, T-Mobile, Verizon Wireless and Sprint together represented 73% of 2018 site rental revenues, and the pending T-Mobile/Sprint merger is flagged as a potential source of tenant consolidation, duplicate network overlap and lower demand. Investors should also note that the company operates as a REIT, with a quarterly common dividend raised 7% to $1.125c per share in October 2018 and an expectation of at least $4.50 per share over the next 12 months.
From a valuation and cash-flow standpoint, the key tensions are between the attractive growth profile of Fiber and small cells, the heavy discretionary capex required to sustain that growth ($1.6 billiond in discretionary spending in 2018, with more expected in 2019), and the dividend and debt service obligations that absorb most operating cash flow. Management expects 2019 liquidity uses to exceed operating cash flow, supported by undrawn revolver capacity of about $4.1 billion and the at-the-market equity program.
02—Key points
Key Highlights
- Net revenues grew 24% to $5.42 billion in 2018, driven by a 29% increase in site rental revenues to $4.72 billion.
- Fiber site rental revenues more than doubled (up 108%) to $1.6 billion, reflecting the 2017 Lightower, Wilcon and FiberNet acquisitions and strong small cell and fiber solutions demand; Fiber now accounts for 34% of site rental revenues.
- Towers site rental revenues grew a more modest 7% to $3.1 billion, with Towers operating profit up 9% to $2.43 billion.
- Adjusted EBITDA increased 27% to $3.14 billion, and operating cash flow rose to $2.5 billion, up from $2.0 billion in 2017.
- Net income attributable to common stockholders was $558 million ($1.34 diluted EPS), up from $387 million ($1.01) in 2017.
- Customer concentration is high: AT&T, T-Mobile, Verizon Wireless and Sprint accounted for 73% of 2018 site rental revenues, and the pending T-Mobile/Sprint merger is a flagged risk to tenant demand.
- Total debt was $16.7 billion with a 5.2x net leverage ratio versus a 6.50x covenant, and the quarterly dividend was raised 7% to $1.125 per share, with at least $4.50 per share expected over the next 12 months.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Crown Castle Inc. kept $0.12.
- Revenue$5.37B100.0%
- Cost of revenue−$434.0M8.1%
- Gross profit$4.94B91.9%
- Operating costs−$3.55B66.2%
- Operating income$1.38B25.8%
- Interest, other & tax−$761.0M14.2%
- Net income$622.0M11.6%
Where FY2018 revenue went
$5.37B- Other operating costs: $2.99B, 56% of revenue
- Interest, other & tax: $761.0M, 14% of revenue
- Net income: $622.0M, 12% of revenue
- Cost of revenue: $434.0M, 8.1% of revenue
- SG&A: $563.0M, 10% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 25, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.37B$4.25B | +26.2% |
| Cost of Revenue | $434.00M$399.00M | +8.8% |
| Gross Profit | $4.94B$3.86B | +28.0% |
| SG&A Expenses | $563.00M$426.00M | +32.2% |
| Operating Expenses | $3.99B$3.29B | +21.3% |
| Operating Income | $1.38B$967.00M | +43.0% |
| Interest Expense | $642.00M$591.00M | +8.6% |
| Net Income | $622.00M$366.00M | +69.9% |
| EPS (Basic) | $1.23$0.80 | +53.7% |
| EPS (Diluted) | $1.23$0.80 | +53.7% |
| Shares Outstanding (Basic) | 413.00M382.00M | +8.1% |
| Shares Outstanding (Diluted) | 415.00M383.00M | +8.4% |
05—Questions
Frequently Asked Questions
How much did Crown Castle's revenue and earnings grow in 2018?
Net revenues increased about 24% to $5.42 billion from $4.36 billion in 2017. Net income attributable to common stockholders rose to $558 million, or $1.34 per diluted share, from $387 million, or $1.01 per share, the prior year. Growth was driven mainly by the Fiber segment and the full-year effect of 2017 acquisitions.
What is driving the growth in the Fiber segment?
Fiber site rental revenues rose 108% to $1.6 billion. The increase came largely from the 2017 Lightower, Wilcon and FiberNet acquisitions and from rising tenant demand for small cells, which offload data from towers, and for fiber solutions serving enterprise and government customers. Fiber site rental gross margin more than doubled to $1.08 billion.
How concentrated is Crown Castle's customer base and what is the risk from the T-Mobile/Sprint merger?
Four tenants (AT&T, T-Mobile, Verizon Wireless and Sprint) generated 73% of 2018 site rental revenues, with T-Mobile at about 19% and Sprint at about 14%. The pending merger could lead to overlapping networks, reduced tenant investment, and lease non-renewals or consolidation of co-located equipment, which could lower revenues. Management notes an average remaining lease term of about five years with T-Mobile and six years with Sprint.
Is the dividend safe, and how does the REIT structure affect it?
The company raised its quarterly common dividend 7% to $1.125 per share in October 2018 and expects at least $4.50 per share, about $1.9 billion in aggregate, over the next 12 months. As a REIT it must distribute at least 90% of taxable income, and it expects to pay minimal cash income taxes. Dividends are subject to board approval and to debt covenants and preferred stock terms, and the dividend also delays the use of its roughly $1.5 billion of federal net operating losses.
How leveraged is Crown Castle and how much liquidity does it have?
Total debt and other long-term obligations were $16.7 billion at year-end 2018, with a weighted average interest rate of about 4.0% and average maturity of about seven years after the February 2019 notes offering. The net leverage ratio was 5.2x against a 6.50x covenant maximum, and the company targets four to five times leverage. It had about $4.1 billion of undrawn revolver availability as of February 22, 2019, and it has no significant contractual debt maturities until 2021.
06—Continue