SBA Communications Corporation — FY 2012 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2012; it is an annual report, not a standalone fourth-quarter filing. SBA owns and operates wireless communications towers, principally in the U.S., and also provides U.S. site development services. Site leasing generated 88.7% of revenue and 97.4% of segment operating profit. At year-end, SBA owned 17,491 tower sites and averaged 2.0 tenants per tower.
Key financial results
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Total revenue | $954.1 million | $698.2 million | +36.7% |
| Site leasing revenue | $846.1 million | $616.3 million | +37.3% |
| Site development revenue | $108.0 million | $81.9 million | +31.9% |
| Operating income | $147.1 million | $110.7 million | +33.0% |
| Adjusted EBITDA (non-GAAP) | $587.9 million | $444.9 million | +32.1% |
| Net loss attributable to SBA | $(181.0) million | $(126.5) million | Loss widened |
| Basic and diluted loss per share | $(1.51) | $(1.14) | Loss per share widened |
| Cash from operating activities | $340.9 million | $249.1 million | +36.9% |
| Cash used in investing activities | $(2,275.1) million | $(507.9) million | Higher acquisition spending |
Site leasing segment operating profit was $657.1 million, or approximately 77.7% of site leasing revenue; this is a non-GAAP segment measure, not a consolidated GAAP margin. Adjusted EBITDA was approximately 61.6% of total revenue. Higher depreciation, interest expense, acquisition costs and debt-extinguishment losses more than offset operating growth at the net-income level. The 2012 debt-extinguishment loss was $51.8 million, primarily associated with redeeming higher-coupon notes and repurchasing convertible notes.
Liquidity, debt and material changes
- At December 31, 2012, cash and cash equivalents were $233.1 million; restricted cash was $27.7 million. Total debt principal was $5.44 billion, compared with $3.51 billion a year earlier. Debt carrying value was $5.36 billion. Shareholders’ equity was $653.0 million, versus a deficit of $11.3 million in 2011.
- The $700 million revolving facility had $100 million drawn and $600 million available at year-end, subject to covenants. It was increased to $730 million in January 2013. Management said cash, operating cash flow and revolver availability should cover debt service for the next 12 months. Estimated next-12-month debt service was $719.1 million, including the 1.875% convertible notes due in May 2013.
- Cash capital expenditures, including acquisitions, were reported at $2.37 billion. Investing cash outflow was largely driven by $2.26 billion of acquisitions and related earn-outs; operating cash generation did not fund the acquisition pace without substantial financing.
- SBA acquired Mobilitie in April and TowerCo II in October, adding 6,630 towers in total during 2012. It also acquired 800 towers in Brazil in December for approximately $175.9 million, paid in January 2013. The company sold several DAS networks for approximately $100 million cash plus a $25 million promissory note.
- Financing included $800 million of 5.75% senior notes, $500 million of 5.625% notes, $610 million of tower securities, new term loans, and a $283.9 million net common-stock offering. SBA also redeemed $375 million of 8.0% notes and $131.3 million of 8.25% notes, and repurchased $66.2 million principal amount of 1.875% convertible notes for $107.5 million.
Outlook, commentary and risks
- Management planned 380–400 new towers in 2013 and targeted 5%–10% annual portfolio growth through acquisitions and construction. Planned 2013 discretionary cash capital expenditures were $355–$385 million; non-discretionary maintenance and general corporate spending was estimated at $16–$21 million.
- Management cited rising mobile data use, 4G/LTE deployment, spectrum availability and carrier network investment as potential drivers of tower demand. These are expectations, not assured outcomes.
- Revenue concentration remains material: Sprint contributed 21.2% of 2012 revenue, AT&T 20.4%, T-Mobile 12.7% and Verizon Wireless 12.7%. Customer consolidation, reduced network spending, non-renewals or financial distress could adversely affect results.
- Leverage and refinancing are key risks. The filing identifies restrictive debt covenants, floating-rate exposure and substantial debt-service obligations. The 1.875% notes were convertible and due in 2013; in February 2013 SBA elected cash settlement of conversion obligations. A portion of the related hedge protection had been terminated following the Lehman Brothers OTC Derivatives bankruptcy, potentially increasing cash costs or dilution exposure.
- Other risks include integration and return execution on large acquisitions, competition for towers, land-lease renewal and access, zoning and regulatory delays, international political and currency risks, technology or network-sharing changes that reduce tower demand, natural disasters, environmental liability, and the company’s continuing GAAP losses. Management expects losses to continue.
- Site leasing backlog at year-end included 1,052 executed leases or amendments not yet producing revenue, representing about $8.1 million of annual revenue, excluding the Sprint Network Vision Amendment. Site development backlog was $45.9 million, versus $14.5 million in 2011.
Most important facts for investors to verify
- How the 2012 acquisitions perform against underwriting expectations, including the preliminary purchase-price allocations and integration costs.
- Whether operating cash flow and available financing support the 2013 debt maturities, planned capital spending and continued portfolio expansion.
- Actual cash settlement requirements for the 1.875% convertible notes and any resulting effects from incomplete hedge coverage; also monitor the 4.0% notes, which remained convertible at year-end.
- Lease renewals, customer concentration and the timing and financial effect of early terminations permitted under a major customer lease amendment.
- Compliance with credit and securitization covenants, including the availability of the revolving facility and any cash-trapping provisions.
- Execution of the stated 2013 tower-build, portfolio-growth and capital-expenditure plans, and whether carrier investment sustains organic leasing growth.
The filing reports unqualified independent auditor opinions on the financial statements and internal control over financial reporting. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.