SBA Communications Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. SBA owns and operates wireless communications towers; site leasing is its principal business, supplemented by site development services. Results are unaudited and compared with Q1 2012 unless otherwise noted. Dollar amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $313.1 million | $192.5 million | Up 62.6% |
| Site leasing revenue | $273.5 million | $172.9 million | Up 58.2% |
| Site development revenue | $39.6 million | $19.6 million | Up 102.2% |
| Operating income | $56.8 million | $40.3 million | Up 40.9% |
| Net loss attributable to SBA | $(22.4) million | $(22.6) million | Loss narrowed slightly |
| Diluted loss per share | $(0.18) | $(0.20) | |
| Adjusted EBITDA (non-GAAP) | $187.7 million | $121.5 million | Up $66.2 million |
| Cash provided by operating activities | $94.2 million | $66.0 million | |
| Cash capital expenditures | $246.0 million | $76.0 million |
Revenue and EBITDA growth primarily reflected towers acquired in 2012, including Mobilitie, TowerCo and Vivo, alongside organic leasing growth, contractual rent escalators and tenant amendments. Site development benefited from higher carrier network deployment activity, particularly Sprint’s Network Vision initiative. Operating costs also increased: depreciation, accretion and amortization rose 53.0% to $125.6 million, while interest expense rose to $59.5 million from $42.2 million. Adjusted EBITDA is a non-GAAP measure as defined by the company.
Balance sheet, debt and liquidity
- At March 31, 2013, cash and cash equivalents were $122.2 million, restricted cash was $26.9 million, and total current assets were $269.9 million. Current liabilities were $675.1 million, including $478.5 million of current debt maturities.
- Total debt principal was $5.43 billion ($5.36 billion carrying value), compared with $5.44 billion principal at year-end 2012. Stockholders’ equity was $696.6 million.
- Cash declined by $110.9 million during the quarter, principally reflecting $244.7 million of investing outflows, including acquisitions and capital expenditures. The company reported $670 million of availability on its $770 million revolving facility at quarter-end, subject to covenant compliance.
- Acquisition and related earnout cash spending was $209.5 million, including $175.9 million related to the Vivo acquisition completed in 2012. SBA acquired 41 completed towers during the quarter.
Material changes, outlook and risks
- Post-quarter financing and debt settlements: In April, SBA issued $1.33 billion of tower revenue securities at a blended 3.218% coupon. Proceeds were used to repay the $100 million revolver balance and $500 million of term loans, with remaining proceeds directed toward obligations on the 1.875% convertible notes. Those notes matured May 1, 2013; most were converted and settled for $794.8 million in cash. The company also received cash from settlement of related note hedges. These are subsequent events, not March 31 balances.
- Management outlook: SBA described its leasing business as recurring and expected continued growth from tenant additions, lease amendments and network demand. It expected portfolio growth of 5%–10% and planned 380–400 new towers in 2013. For the remainder of 2013, it estimated $11–$16 million of nondiscretionary maintenance and general corporate cash capital expenditures; discretionary investment in builds, acquisitions, upgrades and ground-lease purchases was not quantified. Management said it expected to continue incurring losses.
- Key risks: High leverage, refinancing and floating-rate exposure; covenant compliance; carrier consolidation and customer spending; tenant concentration; acquisition integration and returns; international political, currency, tax and land-ownership risks; and the ability to secure leases, build towers and obtain permits. Four wireless carriers—Sprint, AT&T, T-Mobile and Verizon—each represented at least 10% of site leasing revenue in the period. The company reported compliance with the 2012-1 tower securities covenants at quarter-end.
- Unusual items: SBA recorded $2.9 million of long-lived asset impairment and reported decommissioning costs associated with 55 towers. Acquisition-related expenses were $5.8 million, primarily associated with Vivo integration. The company’s U.S. net operating loss carryforwards had a full valuation allowance.
Management concluded that disclosure controls were effective as of March 31, 2013 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the MD&A cash-flow summary, which states a $112.9 million cash decrease, with the cash flow statement and balance sheet, which indicate a $110.9 million decrease.
- Review the final funding and settlement details for the 1.875% convertible notes and related hedges; the filing gives slightly different hedge cash-receipt totals in separate passages.
- Assess the effect of acquisitions on organic leasing growth, operating costs, depreciation and future cash generation.
- Monitor debt maturities, covenant headroom, floating-rate exposure and liquidity following the April financing and repayments.
- Evaluate customer concentration, site-development project concentration, tower impairment assumptions and the returns on planned acquisitions and construction.