SBA Communications Corporation — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars unless noted.
Business context
SBA owns and operates wireless communications towers, primarily in the United States, with operations in Canada and Central America. Its core site-leasing business accounted for 88.3% of 2011 revenue and 97.8% of segment operating profit. At year-end, SBA owned 10,524 towers, averaging 2.3 tenants each, and managed or leased approximately 4,800 additional actual or potential sites.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Total revenue | $698.2 million | $626.6 million | +11.4% |
| Site-leasing revenue | $616.3 million | $535.4 million | +15.1% |
| Site-development revenue | $81.9 million | $91.2 million | -10.2% |
| Operating income | $110.7 million | $74.3 million | +49.0% |
| Operating margin | 15.8% | 11.9% | +3.9 percentage points |
| Net loss attributable to SBA | $(126.5) million | $(194.7) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $444.9 million | $387.4 million | +14.9% |
| Cash provided by operating activities | $249.1 million | $201.1 million | +$47.9 million |
Growth in site leasing reflected new leases, contractual rent escalators, lease amendments for additional tenant equipment, and towers acquired or built. Lower site-development activity reduced consulting and construction revenue. Operating income improved despite higher depreciation, amortization, and selling, general and administrative expense. Net loss narrowed partly because the 2010 debt-extinguishment loss did not recur at a comparable scale.
Fourth-quarter 2011 revenue was $183.8 million, versus $165.5 million in Q4 2010. Operating income was $32.0 million versus $16.7 million; net loss attributable to SBA was $29.1 million versus $39.2 million. Basic and diluted loss per share was $0.27, compared with $0.34.
Year-end cash and cash equivalents were $47.3 million, down from $64.3 million; restricted cash was $22.3 million and short-term investments were $5.8 million. Operating cash flow was more than offset by $507.9 million of investing outflows, chiefly acquisitions and capital spending. SBA reported approximately $500 million available under its revolving facility at year-end.
Debt principal was $3.513 billion at year-end, compared with $3.050 billion a year earlier; balance-sheet debt carrying value was $3.354 billion. Shareholders’ equity shifted from $317.1 million to a deficit of $11.3 million. SBA reported compliance with its credit-agreement financial covenants at December 31, 2011.
Material changes and notable items
- SBA acquired 1,085 towers in 2011, up from 712 in 2010, and completed construction of 388 towers, up from 124. Cash capital expenditures, including acquisitions, were $506.3 million.
- The June 2011 refinancing added a $500 million term loan, extended the revolving facility’s maturity, and left the $500 million revolver undrawn at year-end. The new term loan had a $497.5 million principal balance at year-end.
- SBA repurchased 5.9 million shares for $225.1 million during 2011. A further $150 million remained authorized under its repurchase program at year-end.
- A customer lease amendment signed in October 2011 extends lease terms and increases monthly rents, but provides limited early-termination rights beginning in the second half of 2013. For accounting, SBA assumed the maximum permitted terminations, targeting the highest-rent leases at the earliest dates; actual selections and timing may differ.
- After year-end, SBA agreed to acquire approximately 2,300 towers and nine U.S. DAS networks from Mobilitie affiliates for $1.093 billion: $850 million in cash and 5.25 million shares. Closing was expected in Q2 2012. SBA also reported acquiring 64 towers and management rights to two sites for approximately $34.7 million in cash.
Outlook, risks, and contingencies
Management expected continued wireless-network investment and tower demand, and planned to build 415–435 towers in 2012. It forecast $12–$16 million of non-discretionary maintenance and general corporate cash capital expenditures, plus approximately $850 million of cash expenditure for the Mobilitie transaction. Other discretionary spending was expected for construction, acquisitions, augmentations, and ground-lease purchases. SBA stated that cash on hand and operating cash flow should be sufficient to service debt over the next twelve months; this outlook depends on execution, financing availability, and covenant compliance.
- Revenue is concentrated among major wireless carriers: AT&T, Sprint, Verizon Wireless, and T-Mobile represented 69.1% of 2011 total revenue. Consolidation, reduced carrier spending, nonrenewals, or customer financial stress could affect growth and cash flow.
- Substantial leverage, floating-rate borrowings, restrictive covenants, and debt maturities—including $535 million of convertible notes due in 2013 and $500 million due in 2014—create refinancing and liquidity risk. A mortgage-loan debt-service coverage decline could restrict cash released from 3,670 pledged towers.
- More than $1.67 billion of operating lease payments are disclosed over the contractual schedule, including amounts thereafter. Ground-lease renewals, escalators, and site access are important to the tower portfolio.
- Technology shifts toward small cells, DAS, Wi-Fi, or other alternatives; competition for tenants and tower acquisitions; zoning and permitting delays; international political, regulatory, and currency risks; environmental exposure; and natural disasters are identified risks.
- SBA recorded $5.5 million of tower-related impairment charges in 2011. It also disclosed a full valuation allowance against its net operating loss deferred tax assets, citing uncertainty about future taxable income and potential ownership-change limitations.
- Ordinary-course litigation was not expected by management to have a material adverse effect. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Assess whether site-leasing growth, tenant additions, and rent increases offset customer concentration and possible lease terminations under the October 2011 amendment.
- Verify Mobilitie transaction closing, total funding and dilution, integration assumptions, and the planned 2012 tower-build and acquisition pace.
- Review debt maturities, interest-rate exposure, covenant headroom, refinancing plans, and availability of cash from subsidiaries and pledged tower assets.
- Reconcile reported cash flow with acquisition and growth spending, share repurchases, and the continuing shareholders’ deficit.
- Monitor the timing and amount of customer early terminations, tower impairment assumptions, and recoverability of tax-loss carryforwards.