SBA Communications Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. SBA owns and operates wireless communications sites, with site leasing as its core business; site leasing generated 96.9% of segment operating profit. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $619.8 | $548.7 | Up 13.0% reported; up 12.5% on a constant-currency basis |
| Site leasing revenue | $559.4 | $505.1 | Up 10.7% |
| Site development revenue | $60.3 | $43.6 | Up 38.3% |
| Operating income | $216.8 | $173.6 | Up 24.5%; operating margin was 35.0%, versus 31.6% |
| Net income attributable to SBA | $188.6 | Net loss of $11.7 | 2022 included a large foreign-exchange remeasurement gain |
| Diluted EPS | $1.72 | $(0.11) | — |
| Adjusted EBITDA | $423.8 | $390.1 | Up 8.6% reported; up 8.2% constant currency; non-GAAP measure |
| Cash provided by operating activities | $292.5 | $285.5 | Up $7.0 |
| Cash used in investing activities | $255.9 | $1,076.6 | Prior period included the PG&E transmission-structure transaction |
| Cash used in / provided by financing activities | $(151.8) | $701.3 | 2022 included substantial share repurchases |
At March 31, 2022, cash and cash equivalents were $263.6 million and restricted cash was $69.8 million; combined cash, cash equivalents and restricted cash were $336.4 million, down $99.2 million from year-end. Total debt principal was $12.72 billion ($12.63 billion carrying value). Current maturities were $662.3 million, principally reflecting the anticipated repayment date of Tower Securities due in March 2023. Shareholders’ deficit was $5.43 billion.
The company generated $292.5 million of operating cash flow and spent $215.2 million on acquisitions and $38.0 million on capital expenditures. It repurchased 1.3 million shares for $431.7 million and paid $76.9 million in dividends. The quarterly dividend was $0.71 per share.
Material changes and business developments
- Domestic site leasing revenue increased 7.3%, primarily from acquired and built towers, lease amendments, new leases and contractual escalators, partly offset by non-renewals.
- International site leasing revenue increased 22.3% on a constant-currency basis, reflecting acquisitions, new builds and organic leasing growth. Foreign exchange also affected reported results.
- Site development revenue and operating profit increased with higher carrier activity, primarily from T-Mobile and DISH Wireless.
- SG&A rose 20.7% to $62.1 million, driven in part by non-cash compensation, personnel and support costs associated with new markets. Asset impairment and decommission costs rose to $8.5 million from $4.9 million.
- Other income, net was $108.2 million, compared with expense of $88.4 million a year earlier. The 2022 result included a $109.6 million gain on remeasurement of U.S.-dollar-denominated intercompany loans; the prior-year period included an $86.3 million loss. This materially affected the comparison in net income.
- SBA closed on 1,445 Airtel Tanzania sites for $176.1 million during the quarter. Legal title had transferred for 963 towers; title for the remaining 482 was pending documentation and due diligence, with transfers anticipated in stages through the end of Q2 2023.
Outlook, risks and unusual items
- Management expected organic site leasing revenue in both domestic and international segments to increase during the remainder of 2022, partly as carriers deploy unused spectrum.
- For 2022, management estimated non-discretionary maintenance and general corporate cash capital expenditures of $47–57 million, and discretionary cash capital expenditures of $615–635 million. The latter includes potential acquisitions, new builds, tower upgrades and ground-lease purchases.
- Management stated that cash on hand, revolver availability and operating cash flows were expected to be sufficient to service debt over the next 12 months. Estimated debt service for that period was $993.7 million.
- At quarter-end, $680 million was drawn on the $1.5 billion revolving credit facility; after quarter-end, SBA repaid $110 million, leaving $570 million outstanding as of the filing date. The company reported compliance with its financial covenants and the tower borrowers’ required debt-service coverage covenant.
- Key exposures include rising interest rates and refinancing risk, foreign-currency movements, international-market risks, acquisition execution and integration, carrier consolidation, customer lease non-renewals, and dependence on wireless network investment. SBA also cautioned that LIBOR’s scheduled discontinuation in 2023 and transition to a replacement benchmark could affect interest expense.
- The company reported a $75.4 million potential impact to quarterly other income or expense from a hypothetical 10% adverse exchange-rate move on unsettled intercompany debt. A hypothetical 10% adverse Brazilian real move was estimated to reduce quarterly revenue by about 1.0% and operating income by about 0.6%.
- Subsequent to quarter-end, SBA reported purchases or contracts to purchase 358 communication sites and one data center for $177.1 million. It also declared a $0.71-per-share dividend payable in June 2022.
Important facts for investors to verify
- The extent to which reported earnings relied on volatile intercompany-loan remeasurement gains, and the underlying operating trend excluding that effect.
- The schedule and refinancing or repayment plan for the $662.3 million of current debt maturities, particularly the March 2023 anticipated repayment of Tower Securities.
- Whether forecast 2022 discretionary capital spending and post-quarter acquisition commitments are completed on expected terms and funded without compromising leverage or returns.
- Completion of legal title transfers for the 482 Airtel Tanzania towers and the related operational and financial assumptions.
- Future leasing growth, non-renewals and carrier spending, including customer consolidation and DISH Wireless deployment, alongside foreign-exchange and interest-rate exposure.