SBA Communications Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. SBA owns and operates wireless communications infrastructure, principally multi-tenant towers; site leasing generated 97.4% of segment operating profit for the first nine months. The company reported 39,546 towers at quarter-end.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $682.5 million | $675.6 million | $2.037 billion | $1.947 billion |
| Operating income | $248.6 million | $243.0 million | $714.0 million | $690.7 million |
| Net income attributable to SBA | $87.4 million | $100.0 million | $392.3 million | $358.2 million |
| Diluted EPS | $0.80 | $0.91 | $3.60 | $3.27 |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $1.112 billion | $997.1 million |
- Q3 site-leasing revenue increased 8.5% to $637.4 million, while site-development revenue fell 48.9% to $45.1 million. For the first nine months, site leasing grew 8.9% to $1.881 billion and site development declined 29.3% to $155.7 million.
- Q3 net income attributable to SBA fell 12.6%; the nine-month figure rose 9.5%. Nine-month Adjusted EBITDA, a non-GAAP measure, increased 8.0% to $1.413 billion.
- At September 30, cash and cash equivalents were $190.5 million and restricted cash was $37.2 million. Net cash from operations was $1.112 billion; investing activities used $361.9 million and financing activities used $705.7 million in the first nine months.
- Principal debt was $12.584 billion ($12.515 billion carrying value), versus $12.952 billion principal at December 31, 2022. Total current and long-term lease liabilities were approximately $2.252 billion. The company had $370 million outstanding on its $1.5 billion revolving facility at quarter-end; $285 million was outstanding after a subsequent $85 million repayment.
Material changes and drivers
- Site-leasing growth reflected organic amendments, new leases and contractual escalators, as well as acquired and built towers. International growth also included pass-through expense increases; Brazil accounted for 15.6% of site-leasing revenue in the first nine months.
- Lower carrier activity, mainly from T-Mobile and DISH Wireless, reduced site-development revenue and profit; increased Verizon Wireless activity partly offset the decline.
- Asset impairment and decommission costs rose to $92.3 million for the first nine months from $25.6 million, which management attributed partly to increased churn, including Sprint-related churn. Q3 expense was $33.1 million versus $8.5 million.
- Nine-month interest expense increased to $301.8 million from $253.5 million, reflecting higher average debt balances and rates. A $66.3 million release of the U.S. taxable REIT subsidiary’s deferred-tax valuation allowance contributed to the lower year-to-date tax provision.
Outlook, risks and unusual items
- Management expected organic site-leasing revenue in both domestic and international segments for the remainder of 2023 to exceed 2022 levels, partly due to carrier deployment of unused spectrum. No specific revenue or earnings guidance range is provided in the filing.
- Expected 2023 cash capital expenditures were $54–$59 million for non-discretionary maintenance and general corporate needs, and $335–$345 million for discretionary investment, including acquisitions, new builds, upgrades and ground-lease purchases.
- Management expected interest expense to increase in future periods. A hypothetical 1% increase in variable rates would increase interest expense by approximately 4.6% over the next 12 months, according to the filing’s sensitivity analysis. The company estimated $417.1 million of debt service for the 12 months after September 30 and said available cash, revolver capacity and operating cash flow should be sufficient.
- The LIBOR-to-Term-SOFR transition for the term loan, revolver and related swap was completed without material financial-statement impact. A $1.95 billion interest-rate swap fixes the applicable term-loan rate at 1.90% through maturity. The company was in compliance with stated debt covenants at quarter-end.
- Brazilian tax authorities asserted deficiencies for 2016–2019. SBA disputes the assessment and recorded no liability; reasonably possible losses above accrued amounts were estimated at up to $94.3 million, excluding $95.5 million of potential penalties and interest.
- Management is reviewing tower and intangible-asset useful lives with an independent consultant and expects to conclude the analysis in 2024. Any change would be prospective. The filing also notes exposure to foreign exchange, rising rates, customer consolidation and churn, and international operating conditions.
- After quarter-end, the company bought or contracted to buy 215 communication sites for $74 million, with closing expected by the end of Q2 2024. It declared a $0.85 per-share dividend payable in December 2023.
Investor verification points
- Track whether site-leasing growth offsets continued site-development weakness and Sprint-related churn and impairment charges.
- Review upcoming debt maturities, refinancing costs and interest-rate exposure, including the 2018 Term Loan maturity in 2025 and Tower Securities anticipated repayments beginning in 2024.
- Confirm progress and final purchase price for the 215 pending or acquired sites, and compare actual 2023 capital spending with management’s ranges.
- Monitor the Brazilian tax appeal and any changes to the estimated loss range, and the outcome of the useful-life review expected in 2024.
- Assess dividend and repurchase spending against cash generation: the company paid $278.2 million in dividends and repurchased $53.7 million of shares in the first nine months.