Yesterday after closing bell, Crown Castle International Inc. (CCI) declared third quarter 2010 financial results that significantly exceeded the Zacks Consensus Estimate. This excellent result was primarily due to higher revenues, higher adjusted EBITDA and massive increase in recurring cash flow.
Net Profit
GAAP net loss was approximately $135.0 million or a loss of 49 cents per share compared with a net loss of just $31.6 million or a loss of 13 cents per share in the year-ago quarter. However, this includes $104.4 million of net losses from interest rate swap and $71.9 million of net losses from repayments, purchases and early retirement of debt. Excluding these special items, third quarter adjusted EPS was an income of 13 cents, miles above the Zacks Consensus Estimate of 5 cents.
Revenue
Net revenue was more than $481.9 million, an improvement of 12.3% year over year and also above the Zacks Consensus Estimate of $463 million. This was mainly due to an improved performance by the company’s Site Rental segment and Network Services segment.
Gross margin was 70.3% compared with 68.2% in the year-ago quarter. Operating expenses in the same quarter were $143.0 million versus $136.5 million in the prior-year quarter.
Adjusted EBITDA was $306.1 million, up 18% year over year. Recurring cash flow (adjusted EBITDA less interest expense less sustaining capital expenditures) in the same quarter was $143.8 million, up 24% year over year.
Cash Flow
Crown Castle generated $407.7 million cash from operations during the first nine months of fiscal 2010 compared with $393.7 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure) was $259.4 million in the first nine months of fiscal 2010 compared with $282.4 million in the prior-year period.
Balance Sheet
At the end of the third quarter, Crown Castle had nearly $304.0 million of cash & marketable securities on its balance sheet compared with $766.2 million at the end of fiscal 2009. Total debt was approximately $6.62 billion at the end of the third quarter 2010 compared with $6.58 billion at the end of fiscal 2009. At the end of the third quarter 2010, debt-to-capitalization ratio was 0.73 compared with 0.68 at the end of fiscal 2009.
During the third quarter, Crown Castle spent $5.8 million to purchase its common shares at an average price of $42.42 per share.
Site Rental Segment
Revenues were $437.1 million, up 10.2% year over year. Gross margin of this segment was 66.6% compared with 65.6% in the prior-year quarter.
Network Services Segment
Revenues were $44.8 million, up 37.4% year over year. Gross margin of this segment was 40.2% compared with 33.7% in the prior-year quarter.
Newpath Networks Acquisition
During the third quarter, Crown Castle closed the previously announced acquisition of NewPath Networks for $128 million, inclusive of construction-in-progress. NewPath is a leading DAS (Distributed Antenna System) provider to several large wireless operators. NewPath currently has 35 DAS networks in operation or under construction.
Management Outlook for the Fourth Quarter of 2010
Management has estimated that site rental revenues during fourth quarter will approximately be in a range of $442 million to $447 million. Site rental cost of operation is expected to be approximately $118 million to $123 million. Adjusted EBITDA is projected in the $302 million to $307 million range.
Interest expense is guided in the range of $124 million to $128 million, with sustaining capital expenditures between $6 million to $8 million and recurring cash flow in the range of $169 million to $174 million. Net income/loss, on a GAAP basis, after deduction of dividend on preferred stocks, is expected to be $6 million to $31 million or 2 cents to 11 cents per share.
Management Outlook for Full Fiscal 2011
For fiscal 2011, Crown Castle expects site rental revenues to be in a 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 be $1,248–$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/loss, 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.
We maintain our Neutral recommendation for Crown Castle. It is currently a Zacks #3 Rank (Hold) stock.
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