What Drove American Tower’s EBITDA Higher in Q2 2018?

Higher adjusted EBITDA

American Tower (AMT) reported adjusted EBITDA of $1.08 billion in the second quarter, coming in ahead of analysts’ expectation of $1.07 billion. Its adjusted EBITDA also marked a YoY (year-over-year) improvement of 6.2% mainly driven by higher revenue and efficient cost management.

What Drove American Tower’s EBITDA Higher in Q2 2018?

However, the company’s adjusted EBITDA margin for the quarter remained flat YoY at 61%. With its ability to generate higher revenue and its prudent cost-control initiatives, the company has been able to maintain an EBITDA margin of over 60% for the last nine quarters.

The industry in which American Tower operates is highly capital intensive. The company has to incur huge capex to build a tower, but the cost of maintaining that same tower is minimal. Therefore, the addition of new tenants doesn’t cost much for the company, but it brings in huge incremental revenue, resulting in higher operating profits.

Revised guidance for the year

Despite reporting a YoY rise in its second-quarter adjusted EBITDA, American Tower has lowered its EBITDA projection for 2018. The company expects unfavorable foreign exchange rates to negatively affect its 2018 adjusted EBITDA by $61 million.

Apart from this, ongoing carrier consolidation in the Indian market could also have a negative impact of $115 million on the company’s 2018 adjusted EBITDA. Note that the Indian telecommunications market is witnessing the massive consolidation of some carriers, including Airtel, Telenor, Vodafone India, and Idea Cellular, the latter two of which are in the process of merging their operations. Some operators, such as Aircel, have exited the marketplace.

Considering all the factors mentioned above, American Tower now expects its adjusted EBITDA to come in the range of $4.255 billion–$4.135 billion, down from its previous guidance range of $4.265 billion–$4.365 billion.

American Tower’s close competitors Crown Castle International (CCI), SBA Communications (SBAC), and Simon Property Group (SPG) reported adjusted EBITDAs of $769 million, $319 million, and $1.06 billion, respectively, in the second quarter. AMT makes up ~8% of the iShares Cohen & Steers REIT ETF (ICF).