SBA Communications Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. SBA owns and operates wireless communications sites; site leasing is its core business and generated 96.3% of segment operating profit in the first nine months.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $675.6m | $589.3m | $1,947.4m | $1,713.7m |
| Operating income | $243.0m | $211.8m | $690.7m | $585.1m |
| Net income attributable to SBA | $100.0m | $47.8m | $358.2m | $188.7m |
| Diluted EPS | $0.91 | $0.43 | $3.27 | $1.70 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $997.1m | $891.3m |
| Adjusted EBITDA (non-GAAP) | $446.8m | $407.0m | $1,308.3m | $1,197.2m |
Q3 revenue rose 14.6% reported; management reported 15.2% growth on a constant-currency basis. Nine-month revenue grew 13.6% reported, or 13.5% constant currency. Operating margin was approximately 36.0% in Q3 versus 35.9% a year earlier. Nine-month net income growth reflected higher operating income and interest income, lower interest expense, and no repeat of 2021 debt-extinguishment losses; higher tax expense partly offset these gains.
Q3 revenue comprised site leasing of $587.3m and site development of $88.3m. Site leasing grew through lease amendments, new leases, contractual escalators, and acquired and built sites. Site development revenue increased 64.1%, primarily with greater carrier activity from T-Mobile and Verizon. Nine-month Adjusted EBITDA increased 9.1% on a constant-currency basis; the measure excludes, among other items, interest, taxes, depreciation and amortization, and certain other expenses.
Cash, debt, and capital allocation
- At September 30, cash and cash equivalents were $201.2m; restricted cash was $75.2m. Current assets were $529.8m and current liabilities $1,338.4m, including $663.2m of current debt maturities.
- Debt principal totaled $12.438bn ($12.359bn carrying value); long-term lease liabilities were a further $2.018bn. Shareholders’ deficit was $5.365bn.
- Nine-month operating cash flow was $997.1m. Investing used $591.3m, including $418.7m of acquisitions and $148.3m of capital expenditures. Financing used $566.1m, including $431.7m of share repurchases and $230.1m of dividends. Cash, cash equivalents, and restricted cash ended at $279.9m.
- The company had $410m drawn on its $1.5bn revolving credit facility at quarter-end and was in covenant compliance. After quarter-end, it borrowed $625m and repaid $40m; $995m was outstanding as of the filing date.
- Debt service estimated for the next 12 months was $1.011bn, including $640m of Tower Securities anticipated to be repaid in March 2023. Management expected cash, revolver capacity, and operating cash flow to cover the next 12 months’ debt service; it expected to refinance the securities, likely at higher rates.
Material changes, outlook, and risks
- Q3 reported operating income grew 14.9%; nine-month operating income grew 17.8%. Growth was led by domestic and international site leasing and stronger site development activity. Nine-month impairment and decommission costs rose to $25.6m from $18.6m, partly reflecting increased churn from Sprint.
- During the first nine months, SBA acquired 2,148 towers and related assets, including 1,445 Airtel Tanzania sites. On October 11, 2022, it completed the acquisition of 2,632 sites from Grupo TorreSur in Brazil for $725m cash, funded with revolver borrowings and cash on hand.
- For 2022, management expected $48m–$53m of non-discretionary cash capital expenditures and $1.380bn–$1.390bn of discretionary expenditures, including acquisitions, construction, tower upgrades, and ground-lease purchases. Management expected organic site leasing revenue in both domestic and international segments to exceed 2021 levels, citing carrier spectrum deployment.
- Management described site leasing as supported by long-term contracts, rent escalators, low churn outside customer consolidation or technology cessations, and relatively predictable operating costs. These are expectations, not guarantees.
- Key exposures include refinancing and rising interest rates, the 2023 LIBOR transition, foreign exchange and international operating risks, carrier consolidation and Sprint-related churn, acquisition execution, and the ability to retain or add tenants. A hypothetical 10% adverse Brazilian real movement would have reduced nine-month revenue by about 1.0% and operating income by about 0.6%; a 10% move in exchange rates on unsettled intercompany debt would have produced approximately $79.6m of unrealized gain or loss.
- Interest-rate swaps hedge $1.95bn of the 2018 Term Loan at a fixed 1.874% swap rate through maturity. The company reported effective disclosure controls as of September 30, 2022.
Most important facts for investors to verify
- Whether the March 2023 $640m Tower Securities are refinanced on schedule and at what cost.
- Post-acquisition leverage, revolver availability, and liquidity following the $725m Grupo TorreSur purchase.
- Organic lease growth, tenant churn—particularly Sprint-related—and carrier demand underlying management’s outlook.
- Delivery of the substantial 2022 discretionary investment program and the returns from acquired sites and ground-lease purchases.
- Exposure of reported earnings and cash flows to foreign exchange, rising rates, and the LIBOR benchmark transition.