American Tower Corp. (AMT) announced dismal third quarter 2011 financial results. Despite witnessing significant growth in the top line, the company’s bottom line fell considerably mainly due to unfavorable foreign exchange fluctuation and higher operating expenses.
Quarterly total revenue was $630.4 million, up 22.8% year over year and surpassed the Zacks Consensus Estimate of $614 million. On a GAAP basis, net loss in the third quarter of 2011 was $15.7 million or 4 cents per share compared with a net income of $93.4 million or 23 cents per share in the prior-year quarter. Third quarter 2011 loss of 4 cents was worse than the Zacks Consensus Estimate of a profit of 25 cents per share.
Margins
Adjusted EBITDA in the third quarter of 2011 was $400.6 million, up 14.5% year over year. Adjusted EBITDA margin was 64% compared with 68% in the prior-year quarter. Adjusted EBITDA growth was positively impacted by foreign currency exchange rate fluctuations (0.9%) but affected by straight-line revenues and expense recognition (3%). Excluding these items, core growth of adjusted EBITDA was 16.5%.
Gross margin in the reported quarter was 73.2% compared with 76% in the year-ago quarter. Selling, general & administrative expense was $76.5 million compared with $57.3 million in the year-ago quarter. Quarterly operating income was $228.3 million, up 7% year over year. In the third quarter of 2011, recurring free cash flow per share was 61 cents, up 7% year over year.
Share Repurchase
During the reported quarter, American Tower repurchased 3.2 million shares of its Class A common stock for a total consideration of approximately $168.4 million.
Cash Flow
At the end of third quarter of 2011, American Tower generated around $850 million in cash from operations compared with $774.6 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure) in the reported period was $689.5 million compared with $546.1 million in the year-ago period. In the third quarter of 2011, recurring free cash flow climbed 5.1% year over year to $240.4 million.
Balance Sheet
At the end of the third quarter of 2011, the company had $182.2 million in cash & cash equivalents and around $4,970.5 million in outstanding debt on its balance sheet compared with $883.9 million in cash & cash equivalents and $5,512.5 million in outstanding debt at the end of fiscal 2010. At the end of the reported quarter, debt-to-capitalization ratio was 0.60 compared with 0.61 at the end of fiscal 2010.
Domestic Rental and Management Segment
Quarterly revenue was $436.8 million, up 9.1% year over year. Gross margin came in at 79.1% compared with 79.4% in the year-ago quarter.Quarterly operating profit was $325.2 million, up 7.1% year over year.
International Rental and Management Segment
Quarterly revenue was $178 million, up 78.9% year over year. Gross margin for the segment was 63.6% compared with 70.5% in the year-ago quarter.Quarterly operating profit was $91.5 million, up 60% year over year.
Network Development Services Segment
Quarterly revenue was $15.6 million, up 15.6% year over year. Gross margin was 50% compared with 43.7% in the year-ago quarter.Quarterly operating profit was $5.9 million, up 31.1% year over year.
Tower Count
On September 30, 2011, AmericanTowercontrols 39,927 communications towers, of which 39,196 are for Wireless network, 473 for Broadcasting and the remaining 258 for DAS (Distributed Antenna System). Geographically, the company operates 20,935 wireless towers, 274 broadcast towers and 252 DAS in the United States and 18,261 wireless towers, 199 broadcast towers and 6 DAS outside the U.S.
Future Financial Outlook by Management
For 2011, total revenue from the Rental & Management segment is expected to range from $2,360 million – $2,390 million. Income from continuing operations is expected in the range of $300 million – $340 million. Adjusted EBITDA is anticipated in the $1,580 million – $1,600 million range. Cash flow from operating activities is estimated around $1,110 million – $1,130 million. Capital expenditure is expected in the band of $475 million – $525 million.
Recommendation
We believe the wireless tower industry will continue to perform extremely well, primarily on the back of huge demand for mobile data and video services.
However, stiff competition from Crown Castle International Corp. (CCI) coupled with higher operating expenses and huge debt may act as headwinds for the stock going forward.
We maintain our long-term Neutral recommendation on American Tower. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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