SBA Communications Corporation — Q1 2018 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2018, SBA owned 28,309 wireless communications towers and operated primarily through site leasing, with a smaller U.S. site development business. Site leasing generated 94% of revenue and 98.5% of segment operating profit. Approximately 29.7% of towers were in Brazil.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $458.3 million | $423.4 million | +8.3% |
| Site leasing revenue | $430.5 million | $397.6 million | +8.3% |
| Site development revenue | $27.8 million | $25.8 million | +7.5% |
| Operating income | $130.0 million | $107.8 million | +20.5% |
| Net income | $31.5 million | $37.6 million | −16.1% |
| Diluted EPS | $0.27 | $0.31 | −12.9% |
| Adjusted EBITDA (non-GAAP) | $318.8 million | $292.2 million | +9.1% |
| Operating cash flow | $178.6 million | $172.3 million | +$6.3 million |
Operating margin was approximately 28.4%, up from 25.5%. Net income declined despite operating growth, principally because interest expense increased $11.3 million and income tax expense increased $5.2 million; foreign-exchange effects also weighed on the comparison. Adjusted EBITDA is a company-defined non-GAAP measure.
Cash and cash equivalents were $109.4 million at quarter-end; restricted cash was $28.4 million on the balance sheet, with additional acquisition escrow cash included in other assets. Current assets were $302.8 million and current liabilities $250.9 million. Operating cash flow was $178.6 million; cash used in investing was $151.6 million, including $117.6 million for acquisitions. Cash capital expenditures reported in MD&A were $148.7 million. The difference between cash capital expenditures and investing cash flow reflects presentation and classification details in the filing.
Debt principal totaled $9.48 billion at March 31, 2018 ($9.36 billion carrying value, net of current maturities and related items). Total assets were $7.41 billion and shareholders’ deficit was $2.59 billion. The company reported compliance with its credit and mortgage covenants at quarter-end.
Material changes versus the prior comparable period
- Revenue and operating income grew, driven by acquired and newly built towers, organic leasing growth from new leases, amendments and contractual escalators, and higher site development activity.
- International site leasing revenue increased 17.1% on a constant-currency basis; Brazil site leasing revenue was $61.2 million, versus $53.2 million a year earlier.
- Interest expense rose to $88.9 million from $77.6 million, reflecting higher average rates and debt balances. Tax provision increased to $8.6 million from $3.4 million, primarily due to foreign tax expense, particularly in Brazil.
- Acquisition cash spending rose to $117.6 million from $42.7 million. The company acquired 334 completed towers in the quarter; after quarter-end it acquired another 190 towers for $119.5 million.
- Operating cash flow increased modestly, while investing outflows increased substantially. Cash and restricted cash combined were $164.8 million at quarter-end, compared with $165.5 million a year earlier.
Outlook, management commentary and risks
- Management expected organic site leasing revenue per tower in both domestic and international segments to increase during the remainder of 2018 compared with 2017, citing carrier spectrum deployment and network activity.
- For 2018, the company estimated nondiscretionary cash capital expenditures of $33–43 million and discretionary expenditures of $565–585 million, inclusive of expenditures made through March 31 and based on current obligations and plans. Further acquisitions not yet under contract could add spending. Management expected to fund investment with cash, operating cash flow and borrowings or other financings.
- Management stated that cash on hand, revolver capacity and operating cash flow were expected to cover debt service over the next 12 months. The filing’s debt-service estimate based on March 31 debt was $383.2 million; it excluded the subsequent 2018 Term Loan, for which projected debt service was $94.0 million.
- On April 11, 2018, after quarter-end, SBA refinanced its term loans with a new $2.4 billion secured loan maturing in 2025, repaid the existing $1.93 billion term loans and reduced the revolver balance. The same amendment increased revolving commitments from $1.0 billion to $1.25 billion, extended maturity to 2023 and lowered applicable margins and fees. The new term loan bears interest at the Eurodollar rate plus 2.00% or the base rate plus 1.00%.
- The company repurchased $38.5 million of shares during Q1 under a new $1.0 billion authorization. After quarter-end it repurchased a further $261.5 million; $700 million of authorization remained as of the filing date.
- Key risks include wireless-carrier consolidation or reduced network investment, acquisition and development execution, foreign-currency and political exposure, rising interest rates and refinancing, land and ground-lease rights, and continued qualification as a REIT. A hypothetical 10% adverse Brazilian real movement was estimated to reduce quarterly revenue by about 1.2% and operating income by about 0.6%; a 10% move in exchange rates affecting unsettled intercompany debt could produce approximately $56.6 million of unrealized gains or losses.
- Adoption of the new revenue standard had no material financial effect. The company expected the lease accounting standard, effective for it in 2019, to materially increase balance-sheet assets and liabilities, without a material income-statement impact.
Important facts for investors to verify
- Post-quarter refinancing terms, resulting debt balances, interest costs and covenant headroom.
- Whether the 2018 discretionary capital-spending plan and acquisition pipeline remain consistent with cash generation and targeted leverage.
- Organic leasing growth, carrier activity and churn, especially any effects from customer consolidation or technology changes.
- Brazil-related currency, tax and intercompany-loan exposures, and the company’s use of non-GAAP constant-currency measures.
- Share repurchase pace and remaining authorization relative to acquisition investment and debt priorities.