SBA Communications Corp. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate. SBA owns and operates wireless communications sites; site leasing is its principal business.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $229.1m | $171.1m | $421.6m | $338.8m |
| Operating income | $34.7m | $27.2m | $75.0m | $51.1m |
| Net loss | $(53.5)m | $(29.9)m | $(76.1)m | $(64.3)m |
| Adjusted EBITDA (non-GAAP) | $142.9m | $109.5m | $264.4m | $215.1m |
- Q2 revenue rose 34.0%; site leasing revenue increased 35.6% to $203.6m. For the first half, revenue rose 24.4%, with site leasing up 26.9% to $376.5m.
- Q2 operating income increased 27.7%, but net loss widened. The main unusual costs included $15.8m of acquisition-related expenses and a $27.1m loss on debt extinguishment. Q2 included $1.4m of income from discontinued operations.
- First-half operating cash flow was $148.8m, versus $122.9m a year earlier. Investing cash outflow was $1.001bn, primarily reflecting acquisitions; financing cash inflow was $890.2m. Cash and equivalents ended June at $86.7m.
- At June 30, total debt was $4.009bn, including $918.0m classified as current, notably $535m principal of convertible notes due May 2013 and a $400m Mobilitie bridge loan. Long-term debt was $3.091bn. Restricted cash was $16.9m current, with additional restricted balances classified in other assets.
- The $700m revolving facility had $416m available at quarter-end; the company reported compliance with its financial covenants. Shareholders’ equity was $480.2m, compared with a deficit of $11.3m at year-end 2011, following equity issuance and acquisition-related share issuance.
Material changes and transactions
- On April 2, SBA completed the $1.1bn Mobilitie acquisition: $850m cash and 5.25m shares. The acquired portfolio included 2,281 towers, 36 towers in development, and DAS assets. From acquisition through June 30, those assets generated $27.4m revenue and a reported $11.2m net loss, including assets later classified as discontinued operations.
- In March, SBA issued 6.005m shares for net proceeds of $283.9m; proceeds helped fund the April redemption of $131.3m principal each of the 2016 and 2019 senior notes. The redemption and related write-offs contributed to the $27.1m extinguishment loss.
- Post-quarter, SBA issued $800m of 5.75% notes due 2020 and used proceeds to repay the $400m Mobilitie bridge loan and $284m revolver balance. It also priced $610m of 2.933% tower securities, intended in part to redeem the remaining $243.8m of 2016 notes.
- SBA agreed to acquire TowerCo’s 3,252 sites for $1.2bn cash and 4.6m shares, with closing expected in Q4 2012, subject to customary conditions. On July 13, it agreed to sell certain acquired DAS assets to ExteNet for $100m cash and a $25m note, with closing expected in Q3.
Outlook, commentary and risks
- No specific full-year revenue or earnings guidance is provided in the filing. Management expects recurring site-leasing revenue to benefit over time from additional tenants, contractual rent escalators, lease amendments, network expansion and data usage. It describes site-level operating costs as relatively predictable and incremental tenant costs as generally low.
- Management expected $13m–$17m of remaining-2012 non-discretionary cash capital expenditures for tower maintenance and general corporate needs. Additional discretionary spending was expected for tower construction, acquisitions, augmentations and ground-lease purchases; funding sources cited include cash, operating cash flow and credit facilities.
- Management stated cash on hand and operating cash flows were expected to be sufficient for debt service over the next 12 months. This assessment preceded the subsequent debt issuance, repayments and planned TowerCo acquisition.
- Risks include substantial leverage and refinancing needs, floating-rate exposure, covenant compliance, integration and returns from acquisitions, customer concentration, wireless-carrier consolidation or reduced network investment, site-lease retention, zoning and permitting, international operating exposure, and possible changes in technology or tenant business models.
- AT&T, Sprint, T-Mobile and Verizon each represented at least 10% of site-leasing revenue in the reported periods. Together they contributed a large majority of Q2 site-leasing revenue, creating tenant concentration exposure. Federal NOLs carried a full valuation allowance; foreign and state tax provisions were recorded.
- Other notable items: $1.0m first-half asset impairment; $4.6m recovery related to the Lehman bankruptcy recorded in other income; and a disclosed unhedged portion of the 1.875% convertible notes that could create dilution or cash-settlement costs. Management said disclosure controls were effective at June 30 and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Completion, final financing and integration results for TowerCo, and whether acquired sites meet expected returns.
- Closing and final proceeds from the ExteNet DAS asset sale, including collection of the $25m promissory note.
- Execution and terms of the planned 2016-note redemption and the resulting debt maturities, interest costs and covenant headroom.
- Whether operating cash flow and tenant growth can support debt service and planned acquisition, construction and ground-lease spending.
- Effects of customer concentration, convertible-note conversion or settlement, and the unhedged 1.875% note exposure.