SBA Communications Corp. — Q1 2023 Form 10-Q
Business context and period. The unaudited quarter ended March 31, 2023. SBA owns and operates wireless communications sites, primarily generating recurring revenue from leasing tower space; it also provides U.S. site-development services. It reported 39,362 towers and operated in 16 countries. Site leasing generated 97.2% of segment operating profit.
Financial performance
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share amounts. Comparisons are with Q1 2022.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $675.5 | $619.8 |
| Site leasing revenue | $617.3 | $559.4 |
| Site development revenue | $58.2 | $60.3 |
| Operating income | $224.1 | $216.8 |
| Operating margin | 33.2% | 35.0% |
| Net income attributable to SBA | $101.2 | $188.6 |
| Diluted EPS | $0.93 | $1.72 |
| Adjusted EBITDA (non-GAAP) | $459.3 | $423.8 |
| Cash provided by operating activities | $311.2 | $292.5 |
- Total revenue increased 9.0%; on a constant-currency basis, the company reported growth of 9.4%. Domestic site leasing revenue rose 5.0%, while international site leasing revenue increased 30.5% on a constant-currency basis. Site development revenue declined 3.5%.
- Operating income rose 3.4%, but operating margin declined to 33.2%, reflecting higher SG&A, impairment and depreciation costs. Asset impairment and decommission costs increased to $26.4 million from $8.5 million, primarily due in part to increased Sprint-related churn.
- Net income declined 46.4%. Lower gains on remeasurement of intercompany loans and higher interest and tax expenses more than offset operating-income growth. Other income included a $41.9 million remeasurement gain, compared with $109.6 million in Q1 2022.
- Adjusted EBITDA increased 8.4% as reported (8.7% constant currency), principally due to higher segment operating profit. This is a non-GAAP measure and should be considered alongside GAAP results.
Cash, debt and liquidity
- Operating cash flow was $311.2 million. Investing activities used $146.8 million and financing activities used $160.7 million. Cash, cash equivalents and restricted cash totaled $193.2 million at quarter-end, versus $189.3 million at year-end 2022.
- Investing included $19.9 million of acquisitions and a $78.0 million loan to an unconsolidated joint venture. The company purchased and sold approximately $213 million of short-term investments during the quarter.
- Debt principal was $12.901 billion; carrying value was $12.822 billion, including $675 million drawn on the revolving facility. Long-term debt, net of current maturities, was $12.798 billion. Long-term and current lease liabilities totaled approximately $2.303 billion.
- Current assets of $471.6 million were below current liabilities of $638.8 million. Management said cash on hand, revolver capacity and operating cash flow were expected to be sufficient for debt service over the next 12 months. Estimated debt service for that period was $431.7 million.
- After quarter-end, SBA repaid $80 million on its revolving facility; $595 million was outstanding as of the filing. The facility has a $1.5 billion commitment and matures July 2026. The company reported compliance with applicable financial covenants.
Outlook, commentary and risks
- Management expects organic site leasing revenue in both domestic and international segments to exceed 2022 levels during the remainder of 2023, partly as carriers deploy unused spectrum. No specific consolidated revenue or earnings forecast is stated in the provided filing text.
- 2023 cash capital expenditure expectations: $54–$64 million for non-discretionary maintenance and general corporate spending, and $330–$350 million for discretionary investment, including acquisitions, construction, tower upgrades and ground-lease purchases. Funding is expected from cash, operating cash flow and borrowings or new financings.
- The company purchased or was under contract to purchase 66 sites for $63.7 million after quarter-end, with completion anticipated by year-end 2023. It also declared a $0.85-per-share dividend payable in June.
- Interest expense increased 23.1% to $101.2 million; management expects further increases in future periods amid rising rates. The 2018 Term Loan and associated swap required transition from LIBOR before its cessation in June 2023; the filing notes that the transition amendment had not yet been completed.
- Brazil tax authorities issued assessments related to 2016–2019 purchase-accounting adjustments. SBA disputes the assessments and recorded no liability, judging its position more likely than not to be sustained. Estimated reasonably possible losses above accrued amounts range from zero to $93.1 million, excluding $86.9 million of potential penalties and interest. An adverse outcome could materially affect a period’s results or cash flows.
- Other cited risks include carrier consolidation and Sprint churn, DISH Wireless deployment and spending, foreign-exchange and political risks, refinancing and variable-rate exposure, acquisition execution, and the ability to retain tenants and comply with REIT requirements.
Most important facts for investors to verify
- Whether site-leasing growth and carrier activity—particularly Sprint-related churn and DISH/T-Mobile spending—track management’s expectations.
- How recurring interest expense and the LIBOR transition affect borrowing costs, covenant headroom and the substantial debt-service schedule.
- Whether the $330–$350 million discretionary capital-spending plan and pending acquisitions are completed on expected terms and returns.
- Developments in the Brazil tax dispute, including potential exposure to penalties and interest.
- Underlying earnings and cash generation excluding the material foreign-exchange remeasurement gains, impairment charges and other unusual items.