SBA Communications Corporation — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing was signed February 26, 2014. The 10-K reports annual results and unaudited quarterly data, including fourth-quarter results.
Business context
SBA owns and operates wireless communications towers and leases antenna space to wireless carriers. Site leasing is its principal business; site development provides network planning, construction and related services. At year-end, SBA owned 20,079 towers and managed or leased about 4,800 additional actual or potential sites. Site leasing generated 86.8% of 2013 revenue and 96.2% of segment operating profit.
Financial performance
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Total revenue | $1.305 billion | $954.1 million | +36.8% |
| Site leasing revenue | $1.133 billion | $846.1 million | +33.9% |
| Site development revenue | $171.9 million | $108.0 million | +59.1% |
| Operating income | $229.6 million | $147.1 million | +56.1% |
| Net loss | $(55.9) million | $(181.4) million | Loss narrowed |
| Adjusted EBITDA | $797.2 million | $587.9 million | +35.6% |
| Cash from operating activities | $497.6 million | $340.9 million | +46.0% |
Adjusted EBITDA and segment operating profit are non-GAAP measures. Site leasing segment operating profit was $862.2 million; site development segment operating profit was $34.4 million. Derived margins: operating income was 17.6% of revenue and Adjusted EBITDA was 61.1% of revenue. The company remained GAAP-unprofitable, reporting a basic and diluted loss of $0.44 per share.
Fourth-quarter 2013 revenue was $335.4 million, operating income $59.4 million and net loss attributable to SBA $19.2 million. In Q4 2012, revenue was $293.8 million, operating income $31.0 million and net loss $52.5 million.
Liquidity, debt and capital investment
- Year-end cash and cash equivalents were $122.1 million, down from $233.1 million; restricted cash was $47.3 million. The filing said cash, operating cash flow and available revolver capacity were expected to cover debt service over the following 12 months.
- Debt principal was $5.91 billion at year-end, versus $5.44 billion a year earlier; reported carrying value was $5.88 billion. Shareholders’ equity declined to $357.0 million from $653.0 million.
- At December 31, the $770 million revolving facility had $215 million drawn and $555 million available, subject to borrowing conditions. SBA reported compliance with its financial covenants.
- Investing activities used $826.5 million. Cash capital expenditures were $855.6 million, including $637.7 million for acquisitions and related earnouts. Operating cash flow did not cover investing outflows; financing activities provided $220.2 million.
- Debt service estimated for the next 12 months, based on year-end debt, was $762.7 million, including $514.9 million associated with the 4.0% convertible notes due in 2014.
Material changes and unusual items
- Revenue and operating profit growth reflected acquired and newly built towers, organic leasing, contractual rent escalators and lease amendments. SBA acquired 2,502 towers during 2013, including rights to 2,113 Brazilian towers from Oi for $317.0 million.
- 2013 operating expenses included $29.0 million of asset impairment and decommission costs, principally associated with decommissioning 248 towers; $23.1 million was the carrying value written off.
- Other income included a $27.3 million gain from selling a Lehman Brothers bankruptcy claim. The prior-year comparison included $51.8 million of debt-extinguishment losses, versus $6.1 million in 2013.
- Cash flow from operations increased, but interest expense rose to $249.1 million from $196.2 million as average cash-interest-bearing debt increased. Cash interest paid was $244.1 million.
- Foreign currency translation reduced 2013 comprehensive results by $36.5 million. The filing identifies volatility of the Brazilian real as a risk.
Outlook, risks and contingencies
- For 2014, management planned 400–420 new tower builds and targeted 10–15% tower portfolio growth through acquisitions and construction. Expected 2014 cash capital expenditures were $1.12–$1.15 billion discretionary, plus $20–$25 million non-discretionary.
- On February 7, 2014, SBA entered into a delayed-draw $1.5 billion senior secured term loan. Its first $750 million funding repaid the remaining 2011 and 2012-2 term loans and the revolver balance; the second funding was expected to help finance the Oi tower acquisition and general corporate purposes. These are subsequent events, not year-end balances.
- SBA agreed in December 2013 to acquire another 2,007 Oi towers in Brazil, expected to close March 31, 2014. The company also reported acquiring 154 towers for $230.1 million after year-end.
- Major risks include customer concentration and carrier consolidation, substantial leverage and restrictive covenants, refinancing and interest-rate exposure, acquisition integration and returns, competition, foreign exchange and political risks, zoning and regulation, and rights to underlying tower land. Sprint represented 24.9% of total revenue; AT&T 19.0%, T-Mobile 17.3%, and Verizon Wireless 11.1%.
- The 4.0% convertible notes had approximately $499.9 million principal outstanding at year-end, matured October 1, 2014, and were convertible under specified conditions. Conversion could require cash payments or dilute shareholders; hedge and warrant arrangements may not eliminate all exposure.
- Management disclosed no material adverse expected outcome from ordinary-course legal proceedings. SBA had never paid a common-stock dividend and did not anticipate one in the foreseeable future. Management and the auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- How much of 2013 growth came from acquired towers versus organic leasing, escalators and amendments, and whether those drivers persist.
- The cash, dilution and refinancing outcome for the 4.0% convertible notes due in 2014, including the effect of hedge and warrant settlements.
- Funding and expected returns for the planned 2014 investment program and additional Oi acquisition, alongside leverage and covenant headroom.
- Exposure to the four largest carrier customers, including the effects of network rationalization following carrier mergers.
- Brazilian concession and land-use terms underlying the 2,113 Oi towers, foreign-exchange sensitivity, and the timing and value of the additional Oi transaction.
- Whether impairment, decommissioning costs and other one-time gains or losses materially affect comparisons of recurring performance.