SBA Communications Corporation — 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; selected fourth-quarter figures are also disclosed. SBA owns and operates wireless communications sites, with 32,403 towers at year-end across the U.S. and 13 international markets. Site leasing is the core business, generating 97.7% of segment operating profit.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $2.015 billion | $1.866 billion | +8.0% |
| Site leasing revenue | $1.861 billion | $1.740 billion | +6.9% |
| Site development revenue | $153.8 million | $125.3 million | +22.8% |
| Operating income | $583.5 million | $544.2 million | +7.2%; 29.0% of revenue, versus 29.2% |
| Net income attributable to SBA | $147.0 million | $47.5 million | More than tripled |
| Diluted earnings per share | $1.28 | $0.41 | Increased |
| Adjusted EBITDA (non-GAAP) | $1.411 billion | $1.305 billion | +8.1% reported; +9.0% constant currency |
| Cash from operating activities | $970.0 million | $850.6 million | +14.0% |
| Cash used in investing activities | $947.2 million | $618.3 million | Higher, primarily reflecting tower acquisitions |
| Cash and cash equivalents | $108.3 million | $143.4 million | Decreased |
| Principal debt outstanding | $10.414 billion | $10.028 billion | +$386 million |
Fourth-quarter 2019 revenue was $513.7 million, operating income $153.9 million, and net income attributable to SBA $67.4 million. The filing reports operating lease liabilities separately from debt: $2.524 billion at year-end, following adoption of the new lease accounting standard.
Material changes versus the prior year
- Domestic site leasing revenue rose 6.2%, driven by acquired and newly built towers, lease amendments, new leases, and contractual escalators; non-renewals partly offset growth.
- International site leasing revenue increased 15.9% on a constant-currency basis, supported by acquisitions, builds, and organic leasing growth. Foreign exchange reduced reported growth.
- Site development revenue grew 22.8%, primarily on increased Sprint and T-Mobile network project activity.
- SG&A increased 36.0% on a constant-currency basis, including higher non-cash compensation, personnel, benefits, and support costs. Non-cash compensation was $73.2 million, up from $42.3 million.
- Net income benefited from higher operating income and a reversal in foreign-exchange effects on intercompany loans: 2019 included a $13.1 million gain in other income, while 2018 included an $89.1 million loss. Interest expense increased to $390.0 million from $376.2 million.
- Investing cash outflows included $701.5 million for tower acquisitions and related intangible assets, versus $406.7 million in 2018. SBA acquired 2,443 towers during 2019.
Liquidity, capital allocation, and outlook
- Management stated that cash on hand, revolver availability, and expected operating cash flow were sufficient to service debt over the next 12 months. Year-end revolver borrowings were $490 million against a $1.25 billion facility; SBA reported compliance with its financial covenants.
- Reported 2020 debt service requirements were estimated at $908.1 million based on year-end balances, before giving effect to the subsequent 2020 Senior Notes issuance and related refinancing.
- For 2020, expected cash capital expenditures were $37–47 million for non-discretionary maintenance and general corporate needs, plus $240–260 million of discretionary spending for acquisitions, new builds, tower upgrades, and ground-lease purchases.
- Management expected organic site leasing revenue in both domestic and international segments to increase in 2020, partly as carriers deploy unused spectrum. This is forward-looking and subject to execution and market risks.
- Capital allocation prioritizes investments meeting return criteria, followed by share repurchases when management believes the stock is below intrinsic value, and dividends. SBA repurchased 2.0 million shares for $470.3 million in 2019 and paid $83.4 million in dividends. A $0.465-per-share dividend was declared for payment in March 2020.
Risks, contingencies, and unusual items
- Customer concentration and merger risk: AT&T, T-Mobile, Sprint, and Verizon together generated 72.9% of 2019 revenue. The proposed T-Mobile/Sprint merger was expected to close in 2020 and could lead to lease non-renewals from network overlap. Overlapping Sprint sites represented 6.0% of site leasing revenue, excluding previously disclosed expected consolidation churn.
- Leverage and refinancing: Principal debt was $10.414 billion, and shareholders’ deficit was $3.667 billion. Debt covenants, refinancing needs, interest rates, and the phaseout of LIBOR could affect financial flexibility and debt costs. SBA had hedged $1.95 billion of term-loan notional at a 3.78% fixed rate through the loan’s maturity.
- International exposure: Foreign exchange, inflation, political and regulatory conditions, and land rights can affect results. Brazil accounted for 30.5% of global sites. The Brazilian real weakened 7.9% on average against the U.S. dollar versus 2018.
- Technology and spectrum: Growth depends partly on carrier network investment and spectrum deployment. Network sharing, small cells, alternative architectures, delayed spectrum auctions, or reduced carrier spending could limit demand for tower space.
- Land tenure: Approximately 8.6% of towers had ground leases or other property interests maturing within 10 years. Rights to land underlying 2,113 Brazilian towers acquired from Oi depend on a government concession currently set to expire in 2025; renewal or purchase terms remain uncertain.
- Accounting and unusual items: Adoption of ASC 842 in 2019 added $2.6 billion of right-of-use assets and lease liabilities to the balance sheet, without a material impact on operating results or liquidity, according to the filing. The company recorded $33.1 million of impairment and decommission costs. A $1.0 billion 3.875% Senior Notes issuance and redemption of $750 million of 2014 Senior Notes occurred after year-end.
- The company reported ordinary-course litigation that management did not expect to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the T-Mobile/Sprint merger closed as anticipated and the realized lease churn versus the disclosed overlap exposure.
- Actual organic leasing growth, tenant additions and amendments, renewals, and customer capital spending, especially for 5G and newly deployed spectrum.
- Debt maturities, refinancing terms, covenant headroom, revolver usage, and the effects of interest-rate and LIBOR-transition risks.
- Actual 2020 capital expenditures and acquisition returns compared with management’s stated ranges and investment criteria.
- Brazilian concession and land-right developments, foreign-currency exposure, and the impact of currency movements on reported earnings and cash flows.
- REIT distribution requirements, use of net operating losses, and the sustainability of dividends and share repurchases alongside portfolio investment.