SBA Communications Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. SBA owns and operates wireless communications sites, with site leasing as its principal business. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context and operating results
At June 30, SBA owned 33,854 towers. Site leasing generated 97.6% of segment operating profit in the first half. The company operates domestically and internationally, with Brazil its largest international market.
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Total revenue | $575.5 | $507.2 | $1,124.3 | $1,024.3 |
| Operating income | $199.8 | $157.1 | $373.3 | $308.3 |
| Net income (loss) | $152.7 | $23.1 | $140.9 | $(104.8) |
| Diluted EPS | $1.37 | $0.20 | $1.27 | $(0.93) |
| Adjusted EBITDA (non-GAAP) | $400.2 | $368.8 | $790.3 | $738.7 |
Q2 revenue rose 13.5% year over year; operating income rose 27.3%. Site leasing revenue increased 8.6% to $524.1 million, while site development revenue more than doubled to $51.4 million, primarily on increased carrier activity, including from T-Mobile and DISH. Management attributed site leasing growth to acquired and built towers, organic leasing, amendments for additional equipment, and contractual rent escalators. GAAP operating margin was approximately 34.7%, versus 31.0% in Q2 2020.
Cash flow, liquidity, and debt
For H1, operating cash flow was $638.3 million, compared with $592.4 million a year earlier. Investing activities used $1,184.8 million, including $947.7 million for the right to lease and operate 699 PG&E utility transmission structures and $168.9 million for tower acquisitions. Financing activities provided $545.4 million. Cash, cash equivalents, and restricted cash totaled $338.8 million at June 30.
Total debt principal was $12.028 billion at quarter-end, up from $11.180 billion at December 31, 2020; carrying value was $11.932 billion. Long-term lease liabilities were $2.065 billion. The balance sheet showed a $4.840 billion shareholders’ deficit. SBA reported compliance with applicable credit and tower-securitization covenants and said available cash, revolver capacity, and operating cash flows were expected to cover debt service for the next 12 months. Estimated debt service for that period was $379.2 million.
Material changes and unusual items
- Q2 other income included a $111.3 million gain on remeasurement of U.S.-dollar-denominated intercompany loans; the prior-year quarter had a $31.2 million loss. This materially affected reported net income. H1 other income included a $25.0 million remeasurement gain, versus a $261.3 million loss in H1 2020.
- In January, SBA issued $1.5 billion of 3.125% senior notes due 2029, using proceeds in part to redeem $750 million of 2017 notes and repay revolver borrowings. In May, it issued $1.165 billion of 1.631% tower securities, refinancing $800 million of older tower securities and for general corporate purposes. H1 loss on debt extinguishment was $13.7 million.
- On July 7, after quarter-end, SBA increased revolving commitments from $1.25 billion to $1.5 billion, extended maturity to July 2026, lowered pricing, added LIBOR-transition provisions, and introduced sustainability-linked pricing adjustments. SBA subsequently repaid the $85 million revolver balance; none was outstanding as of the filing date.
- In March, SBA paid $13.7 million to acquire the remaining 6% interest in its South African joint venture. Litigation concerning the closing remained unresolved, and the related redeemable noncontrolling interest remained recorded.
Outlook, capital allocation, and risks
Management expected organic site leasing revenue in both domestic and international segments to increase over 2020 for the remainder of 2021, citing carrier deployment of unused spectrum. For full-year 2021, it forecast $35–$45 million of non-discretionary cash capital expenditures and $1.450–$1.470 billion of discretionary cash capital expenditures, funded from cash, operations, and financing. Subsequent to quarter-end, SBA purchased or agreed to purchase approximately 1,800 sites for about $270 million, including approximately 1,400 Airtel Tanzania sites for about $175 million.
Management said COVID-19 had had minimal impact to date but noted that future effects remained uncertain. Principal risks include carrier consolidation and network investment decisions, acquisition and integration execution, foreign exchange and international-market exposure, interest rates and refinancing, land rights, and maintaining REIT qualification. SBA estimated that a hypothetical 10% adverse Brazilian real movement would reduce H1 revenue by approximately 0.9% and operating income by 0.5%; a 10% change in exchange rates on unsettled intercompany debt could produce approximately $62.7 million of gains or losses.
SBA paid $0.58 per share in each of two H1 dividends and declared another $0.58 dividend after quarter-end. It repurchased 0.7 million shares for $168.9 million during H1. Future dividends and repurchases remain subject to board discretion and business conditions.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus the large foreign-exchange remeasurement gain, and how constant-currency results compare.
- Expected returns and cash-flow contribution from the PG&E structure lease, subsequent acquisitions, and elevated discretionary capital spending.
- Debt balances, maturity and refinancing exposure, interest-rate sensitivity, and the effects of the amended revolver’s sustainability-linked terms.
- Resolution and potential financial implications of the South African joint-venture litigation and any earnout.
- Execution of management’s 2021 organic leasing outlook and capital expenditure plans, including acquisition funding and REIT distribution requirements.