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Crown Castle International Corp. Makes a $7.1 Billion Fiber Deal

Wireless tower operator Crown Castle International (NYSE: CCI) delivered its second-quarter 2017 earnings report on Wednesday, July 19. The results came on the heels of a large fiber network acquisition and related financing moves. Read on for a summary of what you need to know about Crown Castle's fiber buyout and quarterly results.

Crown Castle's second-quarter results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Net revenue

$1.04 billion

$962 million

7.9%

Net income

$112 million

$86 million

30%

Adjusted funds from operations (AFFO)

$440 million

$392 million

12%

AFFO per share (diluted)

$1.20

$1.16

4%

Data source: Crown Castle.

What happened with Crown Castle this quarter?

  • Revenue from tower sites rose 3.3% year over year, landing at $876 million.
  • Small cells saw a 42% sales boost over the same period, adding up to $163 million.
  • The high-growth shift toward small cell sites is reducing Crown Castle's operating margin by a modest amount. Small cells generate a 51% operating margin while the same metric for cell tower sites runs at 62%.
  • Separately, the company also announced a $3.25 billion offering of common stock and another $1.5 billion sale of convertible preferred shares. These funds will be used to help finance the $7.1 billion acquisition of privately held metro fiber network operator Lightower, doubling Crown Castle's available route miles of fiber-optic network access to roughly 60,000. That deal was announced on Tuesday.

The company provided the following updates to management's full-year financial guidance:

  • Site rental revenue is now seen rising 9% year over year to $3.52 billion, a $29 million boost over the guidance offered three months ago.
  • AFFO profits should increase 13% over fiscal year 2016, adding a $6 million boost the former $1.82 billion forecast.
  • These targets include contributions from the $600 million acquisition of California fiber network Wilcon, but do not account for the larger Lightower deal.

Image source: Getty Images.

What management had to say

In a prepared statement, Crown Castle CEO Jay Brown noted that the second-quarter results exceeded management's guidance on several profitability metrics, including net income and AFFO.

"We believe we are well-positioned to capitalize on the long-term positive fundamentals for mobile data demand growth with our leading portfolio of shared wireless infrastructure across towers and small cells," Brown said. "As the wireless carriers turn to our infrastructure to improve and enhance their networks to meet what is expected to be a four-fold increase in mobile data demand by 2021, we believe there is a sustained runway of organic growth opportunities on our existing portfolio as well as opportunities for us to make accretive investments that enhance our long-term growth profile."

Looking ahead

The Lightower buyout is expected to increase Crown Castle's earnings and cash flows from the get-go, enabling a dividend increase of roughly 5% in 2018. The expanding fiber network footprint should allow the company to support rising bandwidth demands from telecom customers, who are preparing to roll out next-generation 5G wireless networks of their own in the coming years.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Crown Castle International. The Motley Fool has a disclosure policy.