SBA Communications Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless otherwise noted, dollar amounts are in millions. SBA owns and operates wireless communications sites; recurring site leasing is its principal business, with site development as a smaller, more variable business.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $589.3 | $522.9 | $1,713.7 | $1,547.2 |
| Operating income | $211.8 | $160.3 | $585.1 | $468.6 |
| Net income (loss) | $47.8 | $22.7 | $188.7 | $(82.1) |
| Diluted EPS | $0.43 | $0.20 | $1.70 | $(0.73) |
| Adjusted EBITDA (non-GAAP) | $407.0 | $373.3 | $1,197.2 | $1,112.0 |
- Q3 operating margin was approximately 35.9%, versus 30.7% a year earlier, based on reported operating income and revenue. Adjusted EBITDA increased 8.5% in Q3 and 8.0% for the nine-month period.
- Site leasing generated $535.5 million of Q3 revenue; site development generated $53.8 million. For the nine months, domestic and international site leasing revenue rose 7.2% and 8.5%, respectively, on the company’s reported constant-currency basis; site development revenue rose 73.7%.
- Nine-month cash from operations was $891.3 million, compared with $882.9 million. Investing used $1,277.8 million, including $948.4 million for the right to lease and operate 710 PG&E utility structures. Financing provided $308.6 million. Cash, cash equivalents and restricted cash ended at $254.4 million, including $187.8 million of unrestricted cash.
- At September 30, total debt principal was $11.937 billion and debt carrying value was $11.847 billion. Long-term lease liabilities were $2.013 billion. Current assets of $403.8 million were below current liabilities of $592.0 million. Shareholders’ deficit was $4.958 billion.
Changes versus comparable periods
- Revenue and operating income increased in Q3 and year to date, chiefly from acquired and built sites, organic leasing growth from new leases, amendments and contractual escalators, and higher site-development activity. Management attributed increased development activity primarily to T-Mobile and DISH.
- Q3 net income more than doubled year over year. For the nine months, results improved from a loss to profit, but comparisons were affected substantially by foreign-exchange remeasurement: the company recorded a $42.6 million nine-month loss on U.S.-dollar-denominated intercompany loans in 2021 versus $299.9 million in 2020. Q3 included a $67.6 million loss on those loans.
- Nine-month cash from operations was modestly higher, while investing outflows rose sharply, mainly because of the PG&E transaction. Nine-month stock repurchases and dividends totaled approximately $474.8 million in cash-flow reporting.
Debt, outlook and notable items
- In July, SBA increased its revolving facility commitment from $1.25 billion to $1.5 billion, extended maturity to July 2026, reduced certain margins and fees, added LIBOR-transition provisions, and introduced sustainability-linked pricing adjustments. No amount was drawn at September 30; $70 million was outstanding as of the filing date. The company reported compliance with financial covenants.
- In January, SBA issued $1.5 billion of 3.125% senior notes due 2029, used in part to redeem $750 million of 2017 notes. In May, it issued $1.165 billion of 1.631% tower securities. After quarter-end, it repaid $575 million of 2013-2C securities and issued $1.79 billion of new tower securities at a blended 2.217%; proceeds were intended to repay revolver borrowings and redeem $1.1 billion of 2016 senior notes.
- Management said it expected organic site leasing revenue in domestic and international segments to increase during the remainder of 2021 versus 2020, in part as carriers deployed unused spectrum. For 2021, it estimated non-discretionary cash capital expenditures of $36–$42 million and discretionary expenditures of $1.425–$1.435 billion. It stated that cash, revolver availability and operating cash flow should be sufficient for debt service over the next 12 months.
- After quarter-end, the company purchased or was under contract to purchase approximately 1,700 sites for about $231 million, including approximately 1,400 Airtel Tanzania sites for about $175 million. The board also authorized a new $1.0 billion repurchase plan; the company declared a subsequent quarterly dividend of $0.58 per share.
- Key risks include interest rates and refinancing, LIBOR transition, foreign-exchange movements, customer consolidation and lease churn, acquisition and integration execution, land rights, and wireless-carrier investment levels. A hypothetical 10% adverse move in the Brazilian real was estimated to reduce nine-month revenue by 0.9% and operating income by 0.5%; a 10% move in exchange rates on unsettled intercompany debt could produce approximately $81.2 million of gains or losses.
- Other items: Q3 asset impairment and decommission costs were $9.9 million; nine-month costs were $18.6 million, down from $29.1 million. SBA reported minimal COVID-19 impact to date. Litigation relating to the closing of its acquisition of the remaining 6% Atlas South Africa interest remained unresolved. Management judged disclosure controls effective.
Investor verification priorities
- Confirm the completion and accounting effects of the post-quarter tower-securities issuance, revolver activity, and planned redemption of the 2016 senior notes.
- Track execution, funding and returns from the PG&E asset transaction and the announced site acquisitions, including Airtel Tanzania.
- Assess whether organic leasing growth, carrier activity and Adjusted EBITDA growth persist; review the non-GAAP reconciliation alongside GAAP results.
- Monitor foreign-exchange remeasurement losses, international market exposure, interest-rate and LIBOR-transition risks, covenant compliance, and debt service capacity.
- Review the Atlas South Africa litigation and the company’s large planned capital expenditures, share repurchases and dividend commitments.