SBA Communications Corporation — FY 2015 Form 10-K
Business and reporting period. Annual report for the year ended December 31, 2015, filed February 26, 2016. SBA owns and operates wireless communications towers, primarily leasing antenna space to carriers; site leasing generated 96.8% of segment operating profit. At year-end it owned 25,465 towers and managed or leased approximately 5,500 additional actual or potential sites.
Key financial metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $1.638 billion | $1.527 billion |
| Site leasing revenue | $1.481 billion | $1.360 billion |
| Site development revenue | $157.8 million | $166.8 million |
| Operating income | $312.5 million | $336.5 million |
| Net loss | $175.7 million | $24.3 million |
| Adjusted EBITDA (non-GAAP) | $1.095 billion | $998.8 million |
| Cash provided by operating activities | $737.2 million | $671.6 million |
| Cash and cash equivalents at year-end | $118.0 million | $39.4 million |
| Total debt, principal amount | $8.555 billion | $7.870 billion |
Operating margin was approximately 19.1%, compared with 22.0% in 2014. Total assets were $7.403 billion and shareholders’ deficit was $1.706 billion at year-end. Cash used in investing activities was $734.5 million; reported cash capital expenditures were $818.2 million, including $525.8 million for acquisitions. The $1.0 billion revolving facility had no year-end borrowings and $1.0 billion of stated capacity, subject to covenants. Estimated debt service for the following 12 months was $353.7 million.
Changes versus prior year
- Revenue increased 7.3%, primarily from acquired and newly built towers and organic leasing growth. Domestic site leasing revenue rose 6.9%; international site leasing revenue rose 20.2%, while site development revenue declined 5.4% on lower project volume.
- Segment operating profit increased to $1.194 billion from $1.099 billion. GAAP operating income nevertheless fell 7.2%, reflecting higher depreciation and substantially higher impairment and decommission costs.
- Net loss widened by $151.4 million. Other expense included a $178.9 million loss from remeasurement of a Brazilian-related intercompany loan, versus a $23.0 million loss in 2014. Foreign-exchange movements reduced year-over-year revenue by $43.2 million, according to management.
- Asset impairment and decommission costs rose to $94.8 million from $23.8 million, including a $56.7 million impairment of fiber assets acquired in the 2012 Mobilitie transaction.
- Debt principal increased by $685 million. SBA issued a $500 million term loan and $500 million of tower revenue securities, while repaying other borrowings and repurchasing shares.
Outlook, risks and other notable items
- Management expected 2016 organic site leasing revenue growth in both domestic and international segments to be consistent with 2015 growth, and planned to build 590–610 towers.
- For 2016, management estimated $220–240 million of discretionary cash capital expenditures and $30–40 million of non-discretionary maintenance and general corporate expenditures. Funding was expected from cash, operating cash flow, and borrowings or new financings.
- Management believed cash, operating cash flow and revolver capacity would cover debt service for the next 12 months. The company reported compliance with Senior Credit Agreement financial covenants at year-end; the agreement includes a maximum 6.5x leverage covenant and minimum 2.0x interest-coverage covenant.
- Customer concentration is significant: AT&T, Sprint, T-Mobile and Verizon Wireless together represented 73.6% of total revenue. Oi S.A. represented 48.8% of international site leasing revenue.
- International currency exposure is material. The Brazilian real depreciated 49.2% against the U.S. dollar during 2015; the $455.8 million intercompany loan balance was subject to remeasurement. A hypothetical 10% adverse real movement was estimated to cause about $46.6 million of unrealized gains or losses on that debt.
- Other principal risks include carrier consolidation or reduced network spending, high leverage and refinancing or interest-rate exposure, acquisition and integration risk, zoning and permitting delays, competition from alternative network technologies, and land-right renewal risk. A concession underlying 2,113 Brazilian towers expires in 2025; the government may renew it on new terms or terminate it.
- The company reported no cash dividends anticipated in the foreseeable future. Ordinary-course legal matters were not expected by management to have a material adverse effect. Management and the auditor concluded internal control over financial reporting was effective as of year-end; the financial-statement audit opinion was unqualified.
Investor verification priorities
- Reconcile the drivers and assumptions behind the $175.7 million net loss, including the fiber impairment, other tower impairments, and Brazilian intercompany-loan foreign-exchange loss.
- Review debt maturities, covenant headroom, refinancing terms and the availability of the $1.0 billion revolver alongside planned buybacks and 2016 investment spending.
- Assess dependence on major U.S. carriers and Oi S.A., including the potential effects of customer consolidation, reduced capital spending or non-renewals.
- Verify the Brazilian concession and ground-lease rights, and sensitivity of reported results and cash flows to currency movements.
- Compare the 2016 growth and tower-build outlook with subsequent results, actual capital spending and acquisition returns.