Crown Castle International Inc. (CCI) declared excellent results for the fourth quarter of 2010 significantly exceeding the Zacks Consensus Estimates. The strong results were primarily due to higher revenue, higher adjusted EBITDA and massive increase in recurring cash flow.
For full year 2010, Site Rental revenue increased 10% year over year, Network Services revenue grew 25% year over year, and recurring cash flow increased 22% year over year.
Net profit
Quarterly GAAP net income was approximately $35.7 million or income of 12 cents per share compared with a net income of $13 million or 4 cents in the year-ago quarter. Fourth quarter 2010 EPS of 12 cents was miles ahead of the Zacks Consensus Estimate of 8 cents. GAAP basis, this was the first profitable quarter for Crown Castle in 2010.
Revenue
Net revenue was more than $496.3 million, an improvement of 12% year over year and also above the Zacks Consensus Estimate of $488 million. This was mainly due to improved performance of both Site Rental and Network Services segments.
Gross margin was 69.2% compared with 66.9% in the year-ago quarter. Operating income, in the reported quarter, was $156.2 million compared with $119.5 million in the prior year quarter. Quarterly adjusted EBITDA was $311.4 million, up 18.2% year over year.
Recurring cash flow (adjusted EBITDA less interest expense less sustaining capital expenditures) in the fourth quarter was $175.7 million, up 32.9% year over year.
Cash Flow
During fiscal 2010, Crown Castle generated $603.4 million of cash from operations compared with $571.3 million in fiscal 2009. Free cash flow (cash flow from operation less capital expenditure) during fiscal 2010 was $375.4 million compared with $397.7 million during fiscal 2009.
Balance Sheet
At the end of fiscal 2010, Crown Castle had nearly $112.5 million of cash & marketable securities on its balance sheet compared with $766.2 million at the end of fiscal 2009. Total debt was approximately $6.87 billion at the end of the third quarter 2010 compared with $6.58 billion at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.73 compared to 0.68 at the end of fiscal 2009.
During the fourth quarter of 2010, Crown Castle spent $12.7 million to purchase its common shares at an average price of $42.42.
Site Rental Segment
Quarterly revenue was $447.2 million, up 11.1% year over year. Gross margin of this segment was 72.8% compared with 70.5% in the prior-year quarter.
Network Services Segment
Quarterly revenue was $49.2 million, up 20% year over year. Gross margin of this segment was 36.4% compared with 31.3% in the prior-year quarter.
Management Outlook for the First Quarter of 2011
Management has predicted that site rental revenue during the first quarter 2011 will approximate a range of $445 million to $450 million. Site rental cost of operation is expected to be approximately $115 million to $120 million.
Adjusted EBITDA is forecasted in the $305 million to $310 million range. Interest expense is guided in the range of $125 million to $130 million with capital expenditure between $4 million to $6 million and recurring cash flow in the range of $173 million to $178 million. Net income, on a GAAP basis, after deduction of dividend on preferred stocks, is expected to be $7 million to $33 million or 2 cents to 12 cents per share.
Management Outlook for Full Fiscal 2011
For fiscal 2011, Crown Castle expects site rental revenue to be in the range of $1,815 million to $1,835 million. Site rental cost of operation is expected to be approximately $470 million to $490 million.
Adjusted EBITDA is guided to $1,248 million-$1,268 million. Interest expense is estimated at approximately $499 million to $509 million with sustaining capital expenditure in the range of $20 million to $25 million and recurring cash flow of $721 million to $741 million. Net income, on a GAAP basis, after deduction of dividend on preferred stocks, is expected to be $63 million to $151 million or 22 cents to 53 cents per share.
Recommendation
Major competitors of Crown Castle are American Tower Corp. (AMT) and SBA Communications. We maintain our long-term Neutral recommendation for Crown Castle. It currently has a short-term Zacks #3 Rank (Hold).
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