SBA Communications Corporation — Q1 2015 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2015; comparisons are with the three months ended March 31, 2014. SBA owns and operates wireless communications sites, principally in the United States, with international operations including Brazil and Canada. At quarter-end it owned 24,393 sites and managed or leased approximately 5,000 additional actual or potential sites. Site leasing generated 96.8% of segment operating profit.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $410.1 million | $345.6 million | +18.7% |
| Operating income | $89.1 million | $67.1 million | +32.7% |
| Operating margin | 21.7% | 19.4% | +2.3 percentage points |
| Net income (loss) | $(79.0) million | $1.4 million | $(80.4) million |
| Basic and diluted EPS | $(0.61) | $0.01 | — |
| Adjusted EBITDA (non-GAAP) | $271.0 million | $226.7 million | +$44.4 million |
| Cash from operations | $178.4 million | $160.2 million | +$18.2 million |
| Cash and cash equivalents at period-end | $62.4 million | $322.9 million | — |
Site leasing revenue was $369.7 million, up 19.5%; site development revenue was $40.4 million, up 11.4%. Management attributed growth primarily to acquired and newly built towers, organic leasing activity, contractual escalators, and lease amendments. Foreign exchange movements reduced year-over-year revenue by $3.5 million. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
Investing activities used $121.6 million, including $68.1 million of capital expenditures and $53.3 million of acquisitions. Financing activities used $31.5 million. Restricted cash was $41.4 million on the balance sheet; additional restricted cash of $5.9 million was included in other assets. The filing reports $7.97 billion of debt principal ($7.96 billion carrying value), versus $7.87 billion principal at December 31, 2014. Current maturities were $33.8 million. The company had $235 million drawn on its $1.0 billion revolver and reported $765 million available under specified covenants. It was in compliance with credit-facility covenants.
Material changes versus the prior comparable period
- International site leasing revenue rose 86.2%, largely reflecting the Oi S.A. tower acquisitions; domestic site leasing revenue rose 11.2%.
- Operating income increased despite higher depreciation, amortization, and interest expense. Depreciation, accretion, and amortization rose 19.0% to $171.9 million, primarily due to acquired and built towers.
- Net results swung to a loss chiefly because other expense included an $84.0 million foreign-exchange loss on remeasurement of a U.S.-dollar intercompany loan. Q1 2014 included an $17.9 million gain on foreign currency contracts.
- Foreign currency translation adjustments were a loss of $174.5 million, contributing to comprehensive loss of $253.5 million.
- Acquisition-related adjustments and expenses declined to $1.3 million from $8.6 million; impairment and decommission costs increased to $6.8 million from $3.6 million.
- Operating cash flow improved, while cash declined substantially year over year; the comparison is affected by Q1 2014’s large Oi acquisition and related financing activity.
Outlook, management commentary, and risks
- Management expects long-term leasing growth from wireless data usage, network expansion, new tenants, and equipment upgrades; these are expectations, not specific revenue or earnings guidance.
- For full-year 2015, the company estimated non-discretionary cash capital expenditures of $29–39 million and discretionary expenditures of $540–560 million, with potential additional acquisitions. Planned funding sources include cash, operating cash flow, revolver borrowings, or new financings.
- Management estimated next-12-month debt service at $343.7 million and believed cash, operating cash flow, revolver capacity, and future financings would be sufficient to service debt over that period.
- On February 5, 2015, the revolver was increased from $770 million to $1.0 billion, extended to February 2020, and repriced at lower margins and commitment fees.
- Interest-rate exposure includes floating-rate term loans and revolver borrowings, as well as the risk of refinancing debt. The company also faces foreign-currency exposure; a hypothetical 10% adverse Brazilian real movement was estimated to affect quarterly revenue and operating results by approximately 1%. A 10% change in exchange rates on unsettled intercompany debt could have produced approximately $46.6 million of unrealized gains or losses.
- Other disclosed risks include wireless-carrier consolidation and reduced network spending, acquisition integration and returns, international political, legal, tax and currency conditions, tower competition, land rights, permitting and construction delays, and changes in technology or tenant business models.
- Management reported effective disclosure controls as of March 31, 2015, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether leasing growth and the expected contribution from acquired towers translate into sustained organic growth and cash generation.
- The size, timing, and funding of the planned $540–560 million of discretionary 2015 capital expenditures and any additional acquisitions.
- Debt levels, refinancing needs, covenant headroom, and the availability and cost of future financing.
- The effect of Brazilian currency movements and intercompany-loan remeasurement on reported earnings and equity.
- The assumptions behind Adjusted EBITDA and the non-cash and unusual items affecting the GAAP net loss.
- The status and potential cost of the remaining warrant settlement payments and accrued acquisition earnouts.