SBA Communications Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; financial statements are unaudited. SBA owns and operates wireless communications sites, with site leasing as its primary business. It reported 36,297 towers at quarter-end. Site leasing generated 96.6% of segment operating profit in the first half.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $652.0 million | $575.5 million | $1,271.8 million | $1,124.3 million |
| Operating income | $231.0 million | $199.8 million | $447.8 million | $373.3 million |
| Net income attributable to SBA | $69.5 million | $152.7 million | $258.1 million | $140.9 million |
| Diluted EPS | $0.64 | $1.37 | $2.36 | $1.27 |
| Adjusted EBITDA | $437.8 million | $400.2 million | $861.5 million | $790.3 million |
Q2 operating margin was approximately 35.4%, versus 34.7% a year earlier. Revenue increased 13.3% in Q2 and 13.1% in the first half. On a constant-currency basis, Adjusted EBITDA increased 8.8% in Q2 and 8.5% in the first half; it is a company-defined non-GAAP measure.
Site leasing revenue rose to $580.2 million in Q2 from $524.1 million; site development revenue rose to $71.8 million from $51.4 million. Growth reflected acquired and newly built sites, organic leasing activity including amendments and rent escalators, and higher carrier demand for development services. Management cited T-Mobile, DISH Wireless, and Verizon as drivers of development activity.
Cash flow, debt and liquidity
- First-half operating cash flow was $664.6 million, compared with $638.3 million. Investing activities used $485.7 million, including $353.6 million of acquisitions; financing activities used $376.0 million.
- Cash, cash equivalents and restricted cash totaled $251.0 million at June 30, down from $435.6 million at year-end 2021. Cash and cash equivalents alone were $183.1 million.
- Debt principal totaled $12.564 billion; debt carrying value was $12.480 billion. The revolving facility had $530 million outstanding at quarter-end, reduced to $480 million after a subsequent $50 million repayment. The company reported covenant compliance.
- Current maturities of long-term debt were $662.7 million, including the $640 million 2018-1C Tower Securities issue with an anticipated repayment date in March 2023. Estimated debt service for the next 12 months was $1.004 billion. Management said cash, revolver capacity and operating cash flows should be sufficient to service debt over that period.
- Total liabilities included substantial lease obligations: $2.304 billion in current and long-term lease liabilities. Shareholders’ deficit was $5.439 billion.
- SBA repurchased $431.7 million of stock and paid $153.4 million in dividends during the first half. It declared a further $0.71 per-share dividend after quarter-end.
Material changes, outlook and risks
- Q2 net income fell despite higher revenue and operating income, primarily because other expense included a $63.7 million loss on remeasurement of U.S.-dollar intercompany loans; the prior-year quarter included a $111.3 million gain. The company reported Q2 net income growth of 42.2% on a constant-currency basis. First-half net income increased 82.7% as reported.
- Asset impairment and decommission costs approximately doubled in the first half to $17.0 million. Management attributed increased impairment charges in part to higher churn from Sprint. SG&A also increased, reflecting non-cash compensation, personnel and support costs, including expansion into new markets.
- Management expected organic site leasing revenue in both domestic and international segments to increase over 2021 for the remainder of 2022, partly as carriers deployed unused spectrum. This is a stated expectation, not quantified revenue guidance.
- For 2022, the company forecast non-discretionary cash capital expenditures of $46–56 million and discretionary cash capital expenditures of $1.410–1.430 billion, funded through cash, operating cash flow and borrowings or new financing.
- After quarter-end, SBA reported purchases or contracts for approximately 200 sites for $85 million and a contract to acquire approximately 2,600 Grupo TorreSur sites in Brazil for $725 million, which it expected to close by year-end 2022. Separately, 340 Airtel Tanzania towers remained pending title transfer, anticipated in tranches through Q2 2023.
- Key risks disclosed include carrier consolidation and lease churn, acquisition execution and integration, foreign currency and political/economic exposures, rising interest rates and refinancing risk, the 2023 LIBOR transition, land rights, and the company’s ability to maintain REIT qualification and meet debt covenants.
Important facts for investors to verify
- Progress and closing conditions for the $725 million Grupo TorreSur acquisition and the separate site purchases; associated funding and leverage implications.
- Upcoming anticipated repayment of the $640 million 2018-1C Tower Securities and the company’s plans to refinance or repay it.
- Whether organic leasing growth and carrier activity offset Sprint-related churn, impairments and higher operating costs.
- Foreign-exchange effects: the filing states a 10% adverse move in exchange rates on unsettled intercompany debt could have produced approximately $75.3 million of unrealized gains or losses for the first half.
- Actual 2022 capital expenditures versus the forecast, and the cash-flow, debt and shareholder-return trade-offs.