SBA Communications Corporation: FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also presents unaudited fourth-quarter results. Dollar amounts are in U.S. dollars.
Business context
SBA owns and operates wireless communications sites, primarily multi-tenant towers, and provides U.S. site development services. At year-end it owned 39,311 towers: 17,416 domestic and 21,895 international. Site leasing generated 96.2% of segment operating profit. Average tenancy was 1.9 tenants per tower. T-Mobile, AT&T and Verizon together represented 70.5% of total revenue.
Key financial metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $2.633 billion | $2.309 billion |
| Operating income | $925.4 million | $782.5 million |
| Net income attributable to SBA | $461.4 million | $237.6 million |
| Diluted earnings per share | $4.22 | $2.14 |
| Adjusted EBITDA (non-GAAP) | $1.769 billion | $1.606 billion |
| Cash provided by operating activities | $1.286 billion | $1.190 billion |
| Cash, cash equivalents and restricted cash at year-end | $189.3 million | $435.6 million |
| Debt principal at year-end | $12.952 billion | $12.396 billion |
FY 2022 revenue increased 14.1%; operating income increased 18.3%. Net income growth also reflected lower debt-extinguishment losses and a favorable change in foreign-currency remeasurement, partly offset by higher income taxes. Approximate operating margin was 35.1%, compared with 33.9% in 2021.
Site leasing revenue was $2.337 billion, up from $2.104 billion; site development revenue was $296.9 million, up from $204.7 million. Cash used in investing activities was $1.394 billion, including substantial tower acquisitions and capital spending. SBA paid $306.8 million in common-stock dividends and repurchased $431.7 million of shares.
Fourth quarter: Revenue was $686.1 million versus $595.3 million in Q4 2021; operating income was $234.7 million versus $197.4 million; net income attributable to SBA was $103.3 million versus $48.9 million; diluted EPS was $0.94 versus $0.44.
Material changes and developments
- International site leasing revenue grew 31.2% on a constant-currency basis, driven principally by acquired sites, new builds, pass-through costs and organic leasing growth. Domestic site leasing revenue rose 5.7%.
- Major portfolio additions included 2,632 Brazilian sites from Grupo TorreSur and 1,445 sites from Airtel Tanzania. The company also acquired 873 domestic towers or related sites and built 19 domestic towers since the start of 2021.
- Site development revenue rose 45.0%, as carrier project activity increased, particularly with T-Mobile, Verizon and DISH.
- SG&A increased 19.3% on a constant-currency basis, reflecting higher compensation, personnel and support costs. Asset impairment and decommission costs rose to $43.2 million from $33.0 million, partly due to Sprint-related churn.
- Total debt principal increased by $556 million. The company issued $850 million of 2022-1C Tower Securities at 6.599%, using proceeds in part to repay $640 million of 2018-1C Tower Securities and repay revolver borrowings.
Outlook, risks and contingencies
- Management expected organic site leasing revenue in both domestic and international segments to increase in 2023, partly as carriers deploy unused spectrum. Estimated 2023 cash capital expenditures were $53–$63 million for non-discretionary maintenance and general corporate costs, plus $283–$303 million of discretionary spending for acquisitions, builds, upgrades and ground-lease purchases.
- Management estimates $140–$190 million of cumulative cash site-leasing revenue churn through 2028 related to the T-Mobile/Sprint combination. It also expects $23–$33 million of churn associated with Oi’s Brazilian wireless asset sale.
- Customer concentration is material: T-Mobile accounted for 36.4% of FY 2022 revenue. Customer consolidation, lower carrier investment, technology or network-sharing changes, and delays in spectrum deployment could weaken leasing demand.
- Debt principal was $12.952 billion; management said cash, revolver capacity and operating cash flow should cover debt service for the next 12 months. Rising rates pose a risk: $720 million was outstanding on the revolving facility at year-end, and the unhedged 2018 Term Loan rate was 6.140%. The company said it needed to transition the term loan and associated swap from LIBOR before June 30, 2023. It reported compliance with financial covenants at year-end.
- International exposure brings foreign-exchange, inflation, political, regulatory and land-rights risks. Brazil generated 12.8% of site-leasing revenue. A Brazilian tax assessment is being contested; reasonably possible losses above accrued amounts were estimated at up to $89.7 million, excluding $79.5 million of potential penalties and interest.
- Approximately 70% of towers were on owned land, perpetual easements or land interests extending beyond 20 years; average remaining ground-lease/property-interest life, including controlled renewal options, was 36 years. About 10.1% of tower structures had interests maturing within 10 years. Certain Brazilian tower sites are subject to land concessions whose future conversion, purchase cost and renewal outcomes remain uncertain.
- The CEO announced retirement effective December 31, 2023; CFO Brendan Cavanagh was named as successor. Two other senior executives retired effective December 31, 2022.
- The company reported ordinary-course litigation not expected to have a material adverse effect. It identified no material environmental liability and reported effective internal controls and an unqualified audit opinion.
Important facts for investors to verify
- How actual 2023 organic leasing growth, carrier activity and site development demand compare with management’s outlook.
- Timing and realized revenue impact of Sprint- and Oi-related lease churn, and the effect of customer concentration on renewals and growth.
- Debt maturities, refinancing costs, covenant headroom, interest-rate exposure and completion of the LIBOR transition.
- Returns and integration progress for the GTS and Airtel Tanzania acquisitions, including transfer of title for the remaining 150 Tanzania towers expected by mid-2023.
- Outcome and potential cash impact of the Brazilian tax dispute, as well as Brazilian land-concession arrangements.
- Actual discretionary capital spending, acquisition returns, share repurchases and dividends relative to the company’s capital allocation priorities.