CCI - Crown Castle Reports Third Quarter 2023 Results and Provides Outlook for Full Year 2024 | Benzinga

HOUSTON, Oct. 18, 2023 (GLOBE NEWSWIRE) -- Crown Castle Inc. (NYSE:CCI) ("Crown Castle") today reported results for the third quarter ended September 30, 2023 and issued its full year 2024 outlook, as reflected in the table below.

(a)   As issued on October 18, 2023.
(b)   See "Non-GAAP Measures and Other Information" for further information and reconciliation of non-GAAP financial measures to net income (loss), including on a per share basis.

"Our third quarter results continue to demonstrate the resiliency of our business, allowing us to keep our full year 2023 outlook consistent with expectations of 5% tower organic revenue growth and delivering on 10,000 small cell nodes," stated Jay Brown, Crown Castle's Chief Executive Officer. "Based on our customers' continued investments to meet increasing data demand, we expect full year 2024 organic growth excluding the impact of Sprint Cancellations of 4.5% from towers, 13% from small cells, based on plans to deliver approximately 14,000 small cell nodes, and 3% from fiber solutions to generate consolidated organic revenue growth of 5%. To achieve this growth, we plan to deploy discretionary capital, net of prepaid rent additions of $430 million, totaling approximately $1.2 billion which we expect to fund without issuing equity in 2024. As we work through discrete headwinds in 2024 and 2025, the strong underlying growth across our business gives us confidence in our ability to grow our dividend beyond 2025 and maintain our current annualized dividend of $6.26 per share. We expect the low-point of AFFO to occur during the first half of 2024, with growth expected in the second half of the year and beyond."

"We continue to focus on our strategy to deliver the highest risk-adjusted returns for our shareholders and have established a comprehensive portfolio of towers, small cells and fiber, providing unique exposure to growth throughout the entire wireless upgrade cycle. We believe our ability to capture the rising growth in small cell demand while continuing to generate solid tower growth results from the portfolio of assets and core capabilities we have established as the largest operator of shared communications infrastructure in the United States."

RESULTS FOR THE QUARTER
The table below sets forth select financial results for the quarters ended September 30, 2023 and September 30, 2022.

(a)   See "Non-GAAP Measures and Other Information" for further information and reconciliation of non-GAAP financial measures to net income (loss), including on a per share basis.

HIGHLIGHTS FROM THE QUARTER

• Site rental revenues. Site rental revenues grew 1%, or $9 million, from third quarter 2022 to third quarter 2023, inclusive of approximately $53 million in Organic Contribution to Site Rental Billings, a $31 million decrease in straight-lined revenues, and a $14 million decrease in amortization of prepaid rent. The $53 million in Organic Contribution to Site Rental Billings represents 3.9% growth and was not materially impacted by the Sprint Cancellations.
• Net income. Net income for the third quarter 2023 was $265 million compared to $419 million for the third quarter 2022, and included $72 million of charges incurred in the quarter related to our restructuring plan announced in July 2023.
• Adjusted EBITDA. Third quarter 2023 Adjusted EBITDA was $1.05 billion compared to $1.08 billion for the third quarter 2022. The decrease in the quarter was primarily a result of $35 million of lower services contribution, partially offset by lower expenses.
• AFFO and AFFO per share. Third quarter 2023 AFFO was $767 million, or $1.77 per share, representing a decrease from the third quarter 2022 of 5% and 4%, respectively. The decrease in the quarter was primarily a result of the lower contribution from Adjusted EBITDA and higher interest expense compared to third quarter 2022.
• Capital expenditures. Capital expenditures during the quarter were $347 million, comprised of $22 million of sustaining capital expenditures and $325 million of discretionary capital expenditures. Discretionary capital expenditures during the quarter included approximately $273 million attributable to Fiber and approximately $47 million attributable to Towers.
• Common stock dividend. During the quarter, Crown Castle paid common stock dividends of approximately $680 million in the aggregate, or $1.565 per common share, an increase of 6.5% on a per share basis compared to the same period a year ago.
• Financing activity. In July, Crown Castle repaid in full the previously outstanding 3.150% senior unsecured notes upon scheduled maturity. The aggregate principal repayment of $750 million was funded with its revolving credit facility.
  

"With third quarter results in line with expectations, we remain on track with our full year 2023 outlook and are seeing the benefits of our comprehensive offering of domestic shared infrastructure assets in our full year 2024 outlook, highlighted by projected consolidated organic revenue growth of 5%, excluding the impact of payments for Sprint Cancellations," stated Dan Schlanger, Crown Castle's Chief Financial Officer. "The strong organic growth across each of our businesses is expected to contribute approximately $220 million to 2024 Adjusted EBITDA compared to 2023. However, this growth is expected to be more than offset by a combined $240 million reduction to our straight-lined revenues and amortization of prepaid rent and an additional $165 million reduction related to 2023 payments from Sprint Cancellations not recurring in 2024."

"Since achieving an investment grade credit rating in 2015, we have intentionally strengthened our balance sheet to mitigate risk by extending our weighted average debt maturity from 5 years to 8 years, decreasing the percentage of secured debt from 47% to 7% and increasing the percentage of fixed rate debt from 68% to 86%. Further, we ended the third quarter with approximately $5 billion of available liquidity under our revolving credit facility and only $750 million of debt maturities occurring through 2024."

MANAGEMENT CHANGES
Additionally, Crown Castle announced today that Mr. Schlanger, Executive Vice President and Chief Financial Officer, will depart the company effective March 31, 2024. "Dan has been a valuable member of our executive leadership team and has made significant contributions over his seven years with the company," said Mr. Brown. "Dan has been integral to our strategy and the growth of our business, built a strong finance organization, and improved our balance sheet with long-dated maturities. I wish him well in his next endeavors." Crown Castle will begin a search for Mr. Schlanger's replacement. The search will include both internal and external candidates.

OUTLOOK
This Outlook section contains forward-looking statements, and actual results may differ materially. Information regarding potential risks which could cause actual results to differ from the forward-looking statements herein is set forth below and in Crown Castle's filings with the SEC.

Restructuring Plan Update

• Crown Castle has undertaken a significant effort to simplify, streamline and centralize our business processes and operations to reduce our long-term costs and improve our customers' experience, the beginning of which was the restructuring plan we announced in July 2023. Annual run rate savings from that restructuring plan are expected to be $105 million, comprised of $30 million of anticipated savings in 2023, $35 million of expected savings in 2024, and $40 million of expected savings included in the 2024 Outlook for services margin.
• In addition to the previously announced restructuring plan, Crown Castle plans to relocate approximately 1,000 employee positions from several locations nationwide to a centralized location by the end of the third quarter 2024. Crown Castle intends to continue to maintain local offices across the United States to support its customers' deployment activities. Additional long-term cost savings and related restructuring charges, which may be significant, are expected from the expanded consolidation but not included in the full year 2024 Outlook. The additional anticipated cost savings and related restructuring charges will be provided as they become available.

The following table sets forth Crown Castle's current full year 2023 and 2024 Outlook. Changes to the full year 2023 Outlook from the previous full year 2023 Outlook are limited to net income, which has been updated to reflect expected charges related to the restructuring plan announced in July 2023, and a $100 million reduction to expected discretionary capital expenditures in Towers.

(a)   As issued on October 18, 2023.
(b)   See "Non-GAAP Measures and Other Information" for our definition of site rental billings.
(c)   Exclusive of depreciation, amortization and accretion.
(d)   See "Non-GAAP Measures and Other Information" for further information and reconciliation of non-GAAP financial measures to net income (loss), including on a per share basis.
(e)   See "Non-GAAP Measures and Other Information" for the reconciliation of "Outlook for Components of Interest Expense."

• Expected net income for full year 2023 is $1.4 billion to $1.5 billion, as compared to our prior full year outlook of $1.5 billion to $1.6 billion. The reduction in 2023 net income is due to an expected $102 million to $122 million of charges related to the restructuring plan announced in July 2023.
  

• The chart below reconciles the components contributing to the change in site rental revenues from 2023 to 2024 of ($170) million to ($130) million, inclusive of expected Organic Contributions to Site Rental Billings of $70 million to $110 million, or $245 million to $285 million excluding the impact of Sprint Cancellations. Expected full year consolidated site rental billings growth is 2%, inclusive of 4.5% growth from towers, 9% decline from small cells, and 3% decline from fiber solutions. Excluding the expected impact of Sprint Cancellations, full year 2024 growth is expected to be 5%, inclusive of 4.5% from towers, 13% from small cells, and 3% from fiber solutions.
  

• Core leasing activity for full year 2024 is expected to contribute $305 million to $335 million, consisting of $105 million to $115 million from towers (compared to $125 million to $135 million in full year 2023), $55 million to $65 million from small cells (compared to $30 million to $40 million in full year 2023), and $145 to $155 million from fiber solutions (compared to $120 million to $130 million in full year 2023).
• Payments from Sprint Cancellations are expected to be $160 million to $170 million in full year 2023 and are non-recurring, reducing full year Organic Contribution to Site Rental Billings growth by the same amount in 2024.
• Full year 2024 straight-line site rental revenues is expected to be approximately $75 million to $100 million lower than expected full year 2023, reflecting the significant portion of our tower growth that is already contracted.
• Prepaid rent amortization is expected to decrease by approximately $140 million to $165 million, with approximately a $95 million reduction in Towers and $55 million in Fiber, which includes a reduction of approximately $50 million associated with the Sprint Cancellations.
• The chart below reconciles the components contributing to the expected decrease of $240 million to $290 million to 2024 AFFO.
  

• The expected increase in full year 2024 expenses reflects cost increases of approximately 3%, partially offset by approximately $35 million of lower expense growth compared to full year 2023 related to the restructuring plan announced in July 2023.
• The services contribution in full year 2024 is expected to decrease by approximately $40 million to $70 million due to lower Towers activity levels. The exit from the installation services is expected to have a neutral impact on the services contribution for full year 2024 as the decrease in installation services margin is expected to be offset by a $40 million reduction in installation-related indirect costs.
• Interest expense for full year 2024 is expected to be $85 million to $130 million higher than projected in full year 2023 Outlook, primarily related to incremental debt financing to fund discretionary capital expenditures in 2024.
  

Outlook for Discretionary Capital Expenditures and Prepaid Rent Additions

• Full year 2023 discretionary capital expenditures are expected to be $1.3 billion to $1.4 billion, including $1.1 billion to $1.2 billion in the fiber segment and $200 million in the tower segment. Full year 2023 prepaid rent additions are expected to be $400 million, including $300 million from fiber and $100 million from towers.
• Full year 2024 discretionary capital expenditures are expected to be $1.5 billion to $1.6 billion in 2024, including approximately $1.4 billion in the Fiber segment and $180 million in the Towers segment. Full year 2024 prepaid rent additions are expected to be approximately $430 million in 2024, including $350 million from Fiber and $80 million from Towers.
• The increase in discretionary capital expenditures for full year 2024 primarily reflects the expected increase in small cell deployments to approximately 14,000 in 2024 compared to approximately 10,000 expected in 2023, demonstrating further capital efficiency gains as we expect to increase node construction by approximately 40% while increasing capital requirements by only approximately 20%.
  

Additional information is available in Crown Castle's quarterly Supplemental Information Package posted in the Investors section of our website.

CONFERENCE CALL DETAILS
Crown Castle has scheduled a conference call for Thursday, October 19, 2023, at 10:30 a.m. Eastern time to discuss its third quarter 2023 results. A listen only live audio webcast of the conference call, along with supplemental materials for the call, can be accessed on the Crown Castle website at https://investor.crowncastle.com. Participants may join the conference call by dialing 833-816-1115 (Toll Free) or 412-317-0694 (International) at least 30 minutes prior to the start time. All dial-in participants should ask to join the Crown Castle call.

A replay of the webcast will be available on the Investor page of Crown Castle's website until end of day, Saturday, October 19, 2024.

ABOUT CROWN CASTLE
Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 85,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service - bringing information, ideas and innovations to the people and businesses that need them. For more information on Crown Castle, please visit www.crowncastle.com.

Non-GAAP Measures and Other Information

This press release includes presentations of Adjusted EBITDA, Adjusted Funds from Operations ("AFFO"), including per share amounts, Funds from Operations ("FFO"), including per share amounts, Organic Contribution to Site Rental Billings, including as Adjusted for Impact of Sprint Cancellations, and Net Debt, which are non-GAAP financial measures. These non-GAAP financial measures are not intended as alternative measures of operating results or cash flow from operations (as determined in accordance with Generally Accepted Accounting Principles ("GAAP")).

Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies, including other companies in the communications infrastructure sector or other real estate investment trusts ("REITs").

In addition to the non-GAAP financial measures used herein, we also provide segment site rental gross margin, segment services and other gross margin and segment operating profit, which are key measures used by management to evaluate our operating segments. These segment measures are provided pursuant to GAAP requirements related to segment reporting. In addition, we provide the components of certain GAAP measures, such as site rental revenues and capital expenditures.

Our non-GAAP financial measures are presented as additional information because management believes these measures are useful indicators of the financial performance of our business. Among other things, management believes that:

• Adjusted EBITDA is useful to investors or other interested parties in evaluating our financial performance. Adjusted EBITDA is the primary measure used by management (1) to evaluate the economic productivity of our operations and (2) for purposes of making decisions about allocating resources to, and assessing the performance of, our operations. Management believes that Adjusted EBITDA helps investors or other interested parties meaningfully evaluate and compare the results of our operations (1) from period to period and (2) to our competitors, by removing the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation, amortization and accretion) from our financial results. Management also believes Adjusted EBITDA is frequently used by investors or other interested parties in the evaluation of the communications infrastructure sector and other REITs to measure financial performance without regard to items such as depreciation, amortization and accretion, which can vary depending upon accounting methods and the book value of assets. In addition, Adjusted EBITDA is similar to the measure of current financial performance generally used in our debt covenant calculations. Adjusted EBITDA should be considered only as a supplement to net income (loss) computed in accordance with GAAP as a measure of our performance.
• AFFO, including per share amounts, is useful to investors or other interested parties in evaluating our financial performance. Management believes that AFFO helps investors or other interested parties meaningfully evaluate our financial performance as it includes (1) the impact of our capital structure (primarily interest expense on our outstanding debt and dividends on our preferred stock (in periods where applicable)) and (2) sustaining capital expenditures, and excludes the impact of our (1) asset base (primarily depreciation, amortization and accretion) and (2) certain non-cash items, including straight-lined revenues and expenses related to fixed escalations and rent free periods. GAAP requires rental revenues and expenses related to leases that contain specified rental increases over the life of the lease to be recognized evenly over the life of the lease. In accordance with GAAP, if payment terms call for fixed escalations or rent free periods, the revenues or expenses are recognized on a straight-lined basis over the fixed, non-cancelable term of the contract. Management notes that Crown Castle uses AFFO only as a performance measure. AFFO should be considered only as a supplement to net income (loss) computed in accordance with GAAP as a measure of our performance and should not be considered as an alternative to cash flow from operations or as residual cash flow available for discretionary investment.
• FFO, including per share amounts, is useful to investors or other interested parties in evaluating our financial performance. Management believes that FFO may be used by investors or other interested parties as a basis to compare our financial performance with that of other REITs. FFO helps investors or other interested parties meaningfully evaluate financial performance by excluding the impact of our asset base (primarily real estate depreciation, amortization and accretion). FFO is not a key performance indicator used by Crown Castle. FFO should be considered only as a supplement to net income (loss) computed in accordance with GAAP as a measure of our performance and should not be considered as an alternative to cash flow from operations.
• Organic Contribution to Site Rental Billings is useful to investors or other interested parties in understanding the components of the year-over-year changes in our site rental revenues computed in accordance with GAAP. Management uses Organic Contribution to Site Rental Billings to assess year-over-year growth rates for our rental activities, to evaluate current performance, to capture trends in rental rates, core leasing activities and tenant non-renewals in our core business, as well as to forecast future results. Separately, we are also disclosing Organic Contribution to Site Rental Billings as Adjusted for Impact of Sprint Cancellations, which is outside of ordinary course, to provide further insight into our results of operations and underlying trends. Management believes that identifying the impact for Sprint Cancellations provides increased transparency and comparability across periods. Organic Contribution to Site Rental Billings (including as Adjusted for Impact of Sprint Cancellations) is not meant as an alternative measure of revenue and should be considered only as a supplement in understanding and assessing the performance of our site rental revenues computed in accordance with GAAP.
• Net Debt is useful to investors or other interested parties in evaluating our overall debt position and future debt capacity. Management uses Net Debt in assessing our leverage. Net Debt is not meant as an alternative measure of debt and should be considered only as a supplement in understanding and assessing our leverage.
  

Non-GAAP Financial Measures

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus restructuring charges (credits), asset write-down charges, acquisition and integration costs, depreciation, amortization and accretion, amortization of prepaid lease purchase price adjustments, interest expense and amortization of deferred financing costs, net, (gains) losses on retirement of long-term obligations, net (gain) loss on interest rate swaps, (gains) losses on foreign currency swaps, impairment of available-for-sale securities, interest income, other (income) expense, (benefit) provision for income taxes, net (income) loss from discontinued operations, (gain) loss on sale of discontinued operations, cumulative effect of a change in accounting principle and stock-based compensation expense, net.

AFFO. We define AFFO as FFO before straight-lined revenues, straight-lined expenses, stock-based compensation expense, net, non-cash portion of tax provision, non-real estate related depreciation, amortization and accretion, amortization of non-cash interest expense, other (income) expense, (gains) losses on retirement of long-term obligations, net (gain) loss on interest rate swaps, (gains) losses on foreign currency swaps, impairment of available-for-sale securities, acquisition and integration costs, restructuring charges (credits), net (income) loss from discontinued operations, (gain) loss on sale of discontinued operations, cumulative effect of a change in accounting principle and adjustments for noncontrolling interests, less sustaining capital expenditures.

AFFO per share. We define AFFO per share as AFFO divided by diluted weighted-average common shares outstanding.

FFO. We define FFO as net income (loss) plus real estate related depreciation, amortization and accretion and asset write-down charges, less noncontrolling interest and cash paid for preferred stock dividends (in periods where applicable), and is a measure of funds from operations attributable to common stockholders.

FFO per share. We define FFO per share as FFO divided by diluted weighted-average common shares outstanding.

Organic Contribution to Site Rental Billings. We define Organic Contribution to Site Rental Billings as the sum of the change in site rental revenues related to core leasing activity, escalators and payments for Sprint Cancellations, less non-renewals of tenant contracts and non-renewals associated with Sprint Cancellations. Additionally, Organic Contribution to Site Rental Billings as Adjusted for Impact of Sprint Cancellations reflects Organic Contribution to Site Rental Billings less payments for Sprint Cancellations, plus non-renewals associated with Sprint Cancellations.

Net Debt. We define Net Debt as (1) debt and other long-term obligations and (2) current maturities of debt and other obligations, excluding unamortized adjustments, net; less cash, cash equivalents and restricted cash.

Segment Measures

Segment site rental gross margin. We define segment site rental gross margin as segment site rental revenues less segment site rental costs of operations, excluding stock-based compensation expense, net and amortization of prepaid lease purchase price adjustments recorded in consolidated site rental costs of operations.

Segment services and other gross margin. We define segment services and other gross margin as segment services and other revenues less segment services and other costs of operations, excluding stock-based compensation expense, net recorded in consolidated services and other costs of operations.

Segment operating profit. We define segment operating profit as segment site rental gross margin plus segment services and other gross margin, less segment selling, general and administrative expenses.

All of these measurements of profit or loss are exclusive of depreciation, amortization and accretion, which are shown separately. Additionally, certain costs are shared across segments and are reflected in our segment measures through allocations that management believes to be reasonable.

Other Definitions

Site rental billings. We define site rental billings as site rental revenues exclusive of the impacts from (1) straight-lined revenues, (2) amortization of prepaid rent in accordance with GAAP and (3) contribution from recent acquisitions until the one-year anniversary of such acquisitions.

Core leasing activity. We define core leasing activity as site rental revenues growth from tenant additions across our entire portfolio and renewals or extensions of tenant contracts, exclusive of (1) the impacts from both straight-lined revenues and amortization of prepaid rent in accordance with GAAP and (2) payments for Sprint Cancellations, where applicable.

Non-renewals. We define non-renewals of tenant contracts as the reduction in site rental revenues as a result of tenant churn, terminations and, in limited circumstances, reductions of existing lease rates, exclusive of non-renewals associated with Sprint Cancellations, where applicable.

Discretionary capital expenditures. We define discretionary capital expenditures as those capital expenditures made with respect to activities which we believe exhibit sufficient potential to enhance long-term stockholder value. They primarily consist of expansion or development of communications infrastructure (including capital expenditures related to (1) enhancing communications infrastructure in order to add new tenants for the first time or support subsequent tenant equipment augmentations or (2) modifying the structure of a communications infrastructure asset to accommodate additional tenants) and construction of new communications infrastructure. Discretionary capital expenditures also include purchases of land interests (which primarily relates to land assets under towers as we seek to manage our interests in the land beneath our towers), certain technology-related investments necessary to support and scale future customer demand for our communications infrastructure, and other capital projects.

Sustaining capital expenditures. We define sustaining capital expenditures as those capital expenditures not otherwise categorized as discretionary capital expenditures, such as (1) maintenance capital expenditures on our communications infrastructure assets that enable our tenants' ongoing quiet enjoyment of the communications infrastructure and (2) ordinary corporate capital expenditures.

Sprint Cancellations. We define Sprint Cancellations as lease cancellations related to the previously disclosed T-Mobile US, Inc. and Sprint network consolidation as described in our press release dated April 19, 2023.

Reconciliation of Historical Adjusted EBITDA:

Reconciliation of Current Outlook for Adjusted EBITDA:

(a)   See the reconciliation of "Components of Interest Expense" for a discussion of non-cash interest expense.
(b)   See discussion and our definition of Adjusted EBITDA in this "Non-GAAP Measures and Other Information."
(c)   The above reconciliation excludes line items included in our definition which are not applicable for the periods shown.
(d)   See the reconciliation of "Outlook for Components of Interest Expense" for a discussion of non-cash interest expense.
(e)   As issued on October 18, 2023.

Reconciliation of Historical FFO and AFFO:

(a)   See discussion and our definitions of FFO and AFFO in this "Non-GAAP Measures and Other Information."
(b)   The above reconciliation excludes line items included in our definition which are not applicable for the periods shown.

Reconciliation of Historical FFO and AFFO per share:

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