SBA Communications Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparison is with Q1 2011 unless stated otherwise. Amounts below are in U.S. dollars. Financial statements are unaudited.
Business context
SBA owns, operates, and leases wireless communications towers, with site leasing as its principal business, and also provides site-development consulting and construction services. At quarter-end it owned 10,661 towers and managed or leased approximately 4,800 additional actual or potential sites. Site leasing generated 89.8% of Q1 revenue and 98.0% of reported segment operating profit.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Site leasing revenue | $172.9 million | $146.5 million | +18.0% |
| Site-development revenue | $19.6 million | $21.3 million | -8.0% |
| Total revenue | $192.5 million | $167.7 million | +14.7% |
| Operating income | $40.3 million | $23.9 million | +68.6% |
| Operating margin | 20.9% | 14.2% | +6.7 percentage points |
| Net loss attributable to SBA | $(22.6) million | $(34.3) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $121.5 million | $105.6 million | +$15.8 million |
| Cash from operations | $66.0 million | $53.2 million | +$12.9 million |
- Site-leasing growth reflected acquired and newly built towers, new leases, contractual rent escalators, tenant amendments, and increased straight-line revenue associated with Sprint’s Network Vision agreement. Site-development revenue declined as project work volume eased.
- Operating expenses rose 5.8%, less than revenue growth; depreciation, accretion, and amortization increased 9.6% to $82.1 million. Interest expense, including non-cash interest and financing-fee amortization, totaled $61.7 million, versus $55.4 million a year earlier.
- Q1 investing cash outflow was $75.9 million, including $51.1 million for acquisitions and related earn-outs and $24.9 million of capital expenditures. Financing provided $488.1 million, including $283.9 million net proceeds from issuing 6.005 million shares and $200.0 million drawn on the revolving facility.
- Cash and cash equivalents were $525.6 million at March 31, compared with $47.3 million at year-end. Current assets were $604.6 million and current liabilities $113.9 million; restricted cash is not included in cash and equivalents.
- Total debt was $3.57 billion at quarter-end, including $200 million outstanding under the revolving facility; long-term debt net of current maturities was $3.57 billion. Cash less total debt was approximately $3.04 billion, excluding restricted cash. SBA reported compliance with its financial covenants at March 31.
Material changes, outlook, and risks
- Mobilitie acquisition after quarter-end: Closed April 2 for $850 million cash plus 5.25 million newly issued SBA shares. The acquired entities had 2,275 towers, 42 towers in development, and DAS assets. Purchase-price allocation was still being evaluated.
- Related financing and debt actions: At closing, SBA increased its revolving-facility commitment from $500 million to $600 million and borrowed $400 million under a secured bridge loan due April 1, 2013. It subsequently drew another $284 million on the revolver; reported remaining availability was $116 million. On April 13, proceeds from the Q1 share issuance funded redemption of $131.3 million principal each of the 8.0% 2016 and 8.25% 2019 notes, with stated annualized cash-interest savings of $21.3 million. These post-quarter transactions materially changed the company’s financing and share count.
- Management expected cash on hand and operating cash flows to be sufficient to service debt over the next twelve months, and forecast $13–$17 million of non-discretionary cash capital expenditures for the remainder of 2012. It also expected discretionary spending on tower construction, acquisitions, augmentations, and ground-lease purchases. No specific revenue or earnings guidance was provided in the filing text.
- Key risks include substantial leverage and refinancing needs, floating-rate exposure on the term loan and revolver, the bridge loan’s 2013 maturity and 7.0-to-1.0 leverage covenant, acquisition integration and valuation, and reliance on a concentrated tenant base. AT&T, Sprint, Verizon, and T-Mobile together represented 74.2% of site-leasing revenue. The 1.875% convertible notes mature in May 2013; part of their associated hedge was terminated following Lehman Derivatives’ bankruptcy, creating potential dilution or cash settlement costs if conversion occurs above the conversion price.
- Other notable items: SBA recorded a $0.3 million impairment charge on tower assets. It received a $4.6 million partial Lehman-related settlement on April 17, to be recognized as a Q2 gain. Management said inflation had not materially affected operations to date, but long-term lease pricing may limit the ability to pass through higher costs. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Most important facts for investors to verify
- Post-acquisition debt, cash, revolver availability, bridge-loan repayment or refinancing plans, and compliance with applicable covenants.
- The final Mobilitie purchase-price allocation, acquired-asset performance, and integration costs or synergies.
- Near-term repayment or conversion outcomes for the $535 million principal amount of 1.875% notes due May 2013, including potential dilution or cash-settlement exposure.
- Whether site-leasing growth and Sprint-related straight-line revenue translate into recurring cash receipts, and whether tenant concentration or wireless-industry changes affect leasing demand.
- Progress on discretionary capital spending and acquisitions, and the effect of the share issuance and subsequent acquisition shares on per-share results.