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Crown Castle International Inc. (CCI - Analyst Report) declared first quarter 2012 financial results, with the bottom line meeting the Zacks Consensus Estimate but revenues exceeding the same. The company also raised its second quarter and fiscal 2012 guidance mainly based on the acquisition of Wireless Capital Partners and NextG Networks.

Net profit

Quarterly GAAP net income was approximately $50.3 million or 17 cents per share compared with a net income of $40 million or 12 cents per share in the year-ago quarter. First-quarter 2012 adjusted EPS of 17 cents was in line with the Zacks Consensus Estimate.

Revenue

Net revenue in the reported quarter was $551.7 million, up 10.6% year over year and higher than the Zacks Consensus Estimate of $521 million. This was mainly due to improved performance by the Site Rental segment.

Margins

Gross margin in the reported quarter was 72% compared with 70.8% in the year-ago quarter. Operating income was $202.2 million compared with $166.4 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $360 million, up 13% year over year. Recurring cash flow (adjusted EBITDA excluding interest expense and sustaining capital expenditure) in the first quarter of 2012 was roughly $218.4 million, up 15.3% year over year.

Cash Flow

During the first quarter of fiscal 2012, funds flow from operation (FFO) was $191 million compared with $1871 million in the first quarter of fiscal 2011. FFO per share in the reported quarter was 67 cents compared with 59 cents in the earlier quarter. Adjusted funds flow from operation (AFFO) was $198 million compared with $176 million in the previous quarter. AFFO per share in the reported quarter was 69 cents compared with 61 cents in the year-ago quarter.

Balance Sheet

At the end of first quarter of fiscal 2012, Crown Castle had cash & marketable securities of approximately $1,063.7 million on its balance sheet compared with $80.1 million at the end of fiscal 2011. Total debt was approximately $8,343.2 million at the end of the reported quarter versus $6,853.2 million at the end of fiscal 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.75 versus 0.74 at the end of fiscal 2011.

Site Rental Segment

Quarterly revenue was $497.5 million, up 9.1% year over year. Gross margin (site rental revenue excluding site rental cost of operations) for the segment was 75.3% compared with 74% in the prior-year quarter.

Network Services Segment

Quarterly revenue was $54.2 million, up 26.6% year over year. Gross margin for the segment was 41.9% compared with 36.4% in the prior-year quarter.

Management Outlook for the Second Quarter of Fiscal 2012

Crown Castle expects site rental revenue in the range of $519 million to $514 million. Site rental cost of operation is projected in the $130 million to $135 million range. Adjusted EBITDA is anticipated between $360 million and $365 million. Site rental gross margin is anticipated to be in between $378 to $383. Interest expense (inclusive of amortization) is estimated in the $143 million to $147 million range. FFO is estimated in the range of $168 million to $194 million. AFFO is estimated in the $193 million to $198 million range. Net income is expected in the range of $106 million to $132 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $106 million to $132 million or 36 cents to 45 cents per share.

Management Outlook for Fiscal 2012

Crown Castle expects site rental revenue to be in the range of $2,040 million to $2,050 million. Site rental cost of operation is projected in the $510 million to $520 million range. Site rental gross margin is expected between $1,525 to 1,535 million.  Adjusted EBITDA is anticipated between $1,455 million and $1,465 million. Interest expense (inclusive of amortization) is estimated in the $575 million to $580 million range. FFO is estimated in the range of $716 million to $806 million. AFFO is estimated in the $820 million to $835 million range. Net income is expected to be between $185 million and $260 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $185 million to $260 million or 63 cents to 89 cents per share.

Recommendation

We believe that strong financial outlook, continuous acquisition and huge demand for network due to increased usage of smartphones will act as tailwinds for the company going forward. However, huge debt and stiff competition from other tower companies like American Tower Corp. (AMT - Analyst Report) and SBA Communications Corp. (SBAC - Snapshot Report) will act as headwinds going forward. We, thus, maintain our long-term Neutral recommendation on Crown Castle.

Currently, Crown Castle carries a Zacks#3 Rank, implying a short-term Hold rating

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