SBA Communications Corporation — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed March 2, 2015. The filing also reports unaudited fourth-quarter results. Financial amounts below are in U.S. dollars.
Business context
SBA owns and operates wireless communications towers, principally in the United States, with international operations in Canada, Central America and Brazil. Site leasing is its core business; it generated 96.3% of segment operating profit in 2014. At year-end, SBA owned 24,292 towers and managed or leased about 5,000 additional actual or potential sites.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Total revenue | $1,527.0 million | $1,304.9 million |
| Site leasing revenue | $1,360.2 million | $1,133.0 million |
| Site development revenue | $166.8 million | $171.9 million |
| Operating income | $336.5 million | $229.6 million |
| Operating margin | 22.0% | 17.6% |
| Net loss | $(24.3) million | $(55.9) million |
| Adjusted EBITDA (non-GAAP) | $998.8 million | $797.2 million |
| Cash from operating activities | $671.6 million | $497.6 million |
| Cash used in investing activities | $(1,760.1) million | $(817.2) million |
| Cash and cash equivalents at year-end | $39.4 million | $122.1 million |
| Total debt, principal amount | $7,870.0 million | $5,910.0 million |
| Shareholders’ equity (deficit) | $(660.8) million | $357.0 million |
FY 2014 capital expenditures were approximately $1,796.5 million, including $1,540.3 million for acquisitions. Cash from operations was therefore well below acquisition and other cash investment outlays. Current assets were $326.9 million and current liabilities $331.1 million; $52.5 million of reported current restricted cash was not freely available for general use.
Fourth-quarter 2014 revenue was $404.7 million and operating income was $96.6 million. SBA reported quarterly net income attributable to the company of $0.4 million, or approximately $0.00 per share, compared with a full-year net loss of $24.3 million.
Material changes versus prior year
- Revenue increased 17.0%, mainly from acquired and newly built towers and organic leasing growth. Domestic site leasing revenue grew 10.3%; international site leasing revenue grew 140.8%, substantially reflecting acquisitions and expansion in Brazil.
- Site development revenue declined 2.9% as customer project timing reduced work volume, although segment operating profit increased 15.3% on a more favorable mix of carrier-direct work.
- Operating income rose 46.5%. Adjusted EBITDA increased 25.3%; both measures benefited from higher site leasing segment profit.
- Net loss narrowed by $31.6 million, but interest expense rose $43.5 million and debt-extinguishment losses increased to $26.2 million. Depreciation, accretion and amortization increased to $627.1 million.
- Debt principal increased by about $2.0 billion, while cash declined by $82.7 million. Accumulated other comprehensive loss worsened, including a $148.8 million foreign-currency translation adjustment.
Outlook, risks and unusual items
- Management expected 2015 organic site leasing revenue growth in both domestic and international segments to be consistent with 2014. It planned 575–595 new tower builds and portfolio growth of 5–10% through builds and acquisitions.
- Planned 2015 discretionary cash capital expenditures were $509–$529 million, plus $30–$40 million of non-discretionary maintenance and general corporate spending. Management expected cash, operating cash flow and available borrowing capacity to fund planned needs and debt service for the following 12 months.
- In February 2015, after year-end, the revolving facility was increased from $770 million to $1.0 billion and extended to February 2020. At December 31, 2014, $125 million was drawn and reported availability was $645 million, subject to covenants and other conditions.
- Leverage is substantial and debt agreements impose restrictive covenants. SBA reported compliance with its senior credit and tower-securitization covenants at year-end. Tower securitization cash may be trapped if debt-service coverage falls to specified thresholds.
- Customer concentration is material: Sprint, AT&T, T-Mobile and Verizon together accounted for 73.9% of total revenue in 2014. International site leasing also depended heavily on Oi S.A. (44.3% of international site leasing revenue) and Telefónica (28.8%). Customer consolidation, network rationalization or lower carrier spending could affect lease demand and renewals.
- Foreign exchange is a notable exposure, particularly in Brazil. SBA recorded a $23.0 million loss on remeasurement of a foreign-currency intercompany loan; international revenue also faced currency headwinds. A Brazilian concession underlying 2,113 towers expires in 2025, creating a land-access risk if not renewed.
- Other unusual 2014 items included $885.0 million spent to settle approximately 87% of warrants associated with the converted 4.0% notes, a $12.5 million gain on sale of an investment, and $26.2 million of losses from debt extinguishments. SBA continued to report annual net losses, chiefly due to depreciation and financing costs.
- The company paid no common dividends and did not expect to do so in the foreseeable future. Ordinary-course litigation was not expected by management to have a material adverse effect.
Most important facts for investors to verify
- Whether acquisition-driven international growth, especially in Brazil, translates into sustained organic leasing growth and returns on invested capital.
- Debt maturities, refinancing needs, interest costs, covenant headroom and the availability of revolving credit under the amended facility.
- Customer concentration, lease renewal and termination trends, and the effects of further wireless-carrier consolidation or reduced network spending.
- Planned 2015 acquisition and construction spending versus operating cash flow, liquidity and target leverage.
- Brazilian real exposure, the intercompany loan balance and the 2025 concession/land rights associated with the Oi tower portfolio.
- Non-GAAP Adjusted EBITDA reconciliation and the extent to which reported growth reflects acquisitions, non-cash adjustments or recurring operations.