SBA Communications Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparisons are with Q1 2010 unless stated otherwise. SBA owns and operates wireless communications towers, with site leasing as its principal business. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial results and key metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Total revenue | $167.7 | $148.0 | +13.4% |
| Site leasing revenue | $146.5 | $128.0 | +14.5% |
| Site development consulting revenue | $4.2 | $4.6 | -8.6% |
| Site development construction revenue | $17.1 | $15.4 | +10.8% |
| Operating income | $23.9 | $16.9 | +41.5% |
| Operating margin | 14.2% | 11.4% | +2.8 percentage points |
| Net loss attributable to SBA | $(34.3) | $(37.3) | Loss narrowed $3.1 |
| Loss per share, diluted | $(0.30) | $(0.32) | |
| Adjusted EBITDA (non-GAAP) | $105.6 | $91.4 | +15.6% |
| Cash from operating activities | $53.2 | $37.4 |
Site leasing generated 87.3% of revenue and 97.8% of segment operating profit. Management attributed its growth to acquired and newly built towers, new leases, contractual rent increases, tenant equipment additions and ground-lease purchases. Operating expenses rose 9.7%, including 11.0% growth in depreciation, accretion and amortization. Total other expense increased to $57.6 million, including $37.8 million of interest expense, $15.4 million of non-cash interest expense and a $1.7 million loss on debt extinguishment.
Cash, liquidity and debt
- Cash and cash equivalents were $95.1 million at quarter-end, up from $64.3 million at December 31, 2010. Restricted cash was $30.1 million on the balance sheet; total restricted cash, including noncurrent amounts, was $42.1 million.
- Investing activities used $108.7 million, including $90.3 million for acquisitions and related earn-outs and $20.2 million of capital expenditures. Financing activities provided $86.4 million, including $175.0 million borrowed on the revolving credit facility, offset in part by $75.0 million of share repurchases and $17.0 million spent to repurchase convertible notes.
- Long-term debt carrying value was $3,005.0 million, up from $2,827.5 million at year-end. The company had $195.0 million outstanding on its $500 million revolving facility, with $305.0 million available and a 2.17% weighted-average rate. It reported compliance with facility covenants.
- Management said cash on hand and operating cash flows were expected to be sufficient to service debt over the next 12 months. Current assets were $173.4 million and current liabilities $120.2 million.
Material changes, outlook and risks
- During Q1, SBA acquired 166 completed towers and related assets for approximately $82.6 million cash, and built 35 towers. After quarter-end, it acquired 88 additional towers for $44.9 million cash.
- For 2011, the company expected $11–$15 million of nondiscretionary cash capital expenditures and $275–$295 million of discretionary cash capital expenditures, principally for tower construction, acquisitions, augmentations and ground-lease purchases. It expected to fund spending from cash, operating cash flow and facility borrowings. These are capital-spending expectations, not earnings guidance.
- SBA repurchased and retired approximately 1.80 million shares for $75.0 million during Q1. On April 27, the board ended the remaining authorization under the former $250 million program and approved a new $300 million repurchase program, effective April 28.
- A key customer-concentration risk is the announced AT&T acquisition of T-Mobile USA. AT&T and T-Mobile had leases on the same SBA tower at about 1,538 sites; their annualized site-leasing revenue at those sites was approximately $94.5 million combined, with a weighted-average remaining lease term of about three years. SBA expected some leases could not be renewed if the merger is completed.
- Other stated risks include wireless-carrier consolidation and reduced network spending, competition for tower acquisitions, execution and permitting challenges, international operating and currency risks, debt covenant compliance, and possible dilution or cash costs on convertible-note settlement. The company also noted that long-term lease pricing may not keep pace with inflation.
- The 1.875% convertible-note hedge does not cover a portion associated with the bankruptcy of Lehman Brothers OTC Derivatives; conversion above the $41.46 conversion price could therefore create dilution or cash costs for that portion. SBA reported no asset impairment in Q1 and stated disclosure controls were effective.
Important facts for investors to verify
- Whether the AT&T–T-Mobile transaction proceeds and how many overlapping tower leases are not renewed or amended.
- Whether projected 2011 capital spending, tower acquisitions and construction are funded without materially increasing leverage or limiting liquidity.
- Debt maturities, interest burden, covenant headroom and potential dilution or cash settlement exposure on convertible notes.
- Whether site-leasing growth and operating cash generation continue to offset rising depreciation, interest and customer-concentration risks.
- How much of the new $300 million repurchase authorization is used and its effect on cash, debt and share count.