SBA Communications Corporation — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are noted where relevant. Amounts are in U.S. dollars.
Business context
SBA owns and operates wireless communications towers, primarily in the United States and its territories, with additional operations in Canada, Costa Rica, El Salvador and Panama. It leases antenna space to wireless carriers and also provides site-development consulting and construction services. At year-end, SBA owned 9,111 tower sites, averaged 2.4 tenants per tower, and managed or leased about 5,300 additional actual or potential sites. Site leasing generated 85.4% of revenue and approximately 97.5% of segment operating profit.
Financial performance and liquidity
| Metric | FY 2010 | FY 2009 | Change |
|---|---|---|---|
| Total revenue | $626.6 million | $555.5 million | Up 12.8% |
| Site-leasing revenue | $535.4 million | $477.0 million | Up 12.3% |
| Site-development revenue | $91.2 million | $78.5 million | Up 16.1% |
| Operating income | $74.3 million | $55.0 million | Up 35.2% |
| Operating margin | 11.9% | 9.9% | Improved |
| Net loss attributable to SBA | $194.7 million | $140.9 million | Loss increased |
| Basic and diluted loss per share | $1.68 | $1.20 | Loss per share increased |
| Adjusted EBITDA (non-GAAP) | $387.4 million | $338.5 million | Up 14.4% |
| Cash from operating activities | $201.2 million | $222.6 million | Down $21.4 million |
| Cash and cash equivalents at year-end | $64.3 million | $161.3 million | Down $97.1 million |
Revenue and operating income growth reflected acquired and newly built towers, new leases, contractual rent escalators and lease amendments. Site-leasing segment operating profit rose 14.0% to $416.3 million. Adjusted EBITDA is a non-GAAP measure defined by the company and should not be treated as a substitute for GAAP results.
Investing activities used $425.0 million of cash; reported cash capital expenditures, including acquisitions, were $394.7 million. Financing activities provided $126.8 million. Current assets were $146.7 million and current liabilities were $130.6 million; current assets include restricted cash, so not all reported current assets were freely available.
Year-end debt principal was $3.05 billion, compared with $2.77 billion a year earlier; balance-sheet debt carrying value was $2.83 billion, reflecting accounting discounts. Shareholders’ equity fell to $317.1 million from $599.9 million. Cash was $64.3 million, and $480.0 million remained available under the $500 million revolving credit facility. Management stated that cash on hand and operating cash flows should be sufficient to service debt over the next 12 months. The company was in compliance with its credit-facility and tower-securitization covenants at year-end.
Material changes and unusual items
- Revenue increased 12.8%, while net loss attributable to SBA widened to $194.7 million. Higher interest and non-cash interest expense, increased depreciation and amortization, and a $49.1 million loss on debt extinguishment were significant factors.
- In April 2010, SBA issued $1.23 billion of secured tower revenue securities at a weighted fixed coupon of 4.6%, using proceeds in part to repay $938.6 million of 2006 CMBS debt. The refinancing generated the reported debt-extinguishment loss, principally related to prepayment costs.
- SBA acquired 712 towers and completed 124 new towers in 2010. It spent $25.0 million on land and perpetual-easement purchases, plus $9.0 million on ground-lease extensions. A $5.9 million impairment charge related to 59 towers that were not expected to meet prior lease-up expectations.
- The company repurchased and retired approximately 3.17 million shares for $107.4 million during 2010; $140.9 million remained authorized under its share-repurchase program. SBA has never paid a common-stock dividend and does not anticipate one in the foreseeable future.
- Fourth-quarter 2010 revenue was $165.5 million and operating income was $16.7 million. The company reported a $39.2 million attributable net loss for the quarter; the fourth quarter included the $5.9 million tower impairment charge.
Outlook, commentary and principal risks
Management expected continued demand for tower sites from wireless network expansion, data traffic and deployment of newer technologies, while emphasizing that these expectations are forward-looking and uncertain. For 2011, SBA planned 5%–10% tower-portfolio growth and at least 390–410 new towers. It forecast discretionary cash capital expenditures of $230–$250 million and non-discretionary expenditures of $10–$14 million, primarily for tower growth, acquisitions, upgrades and ground-lease purchases. These are company plans and estimates, not a stated earnings forecast.
- Customer concentration: AT&T, Sprint, Verizon Wireless and T-Mobile together represented 70.7% of 2010 revenue. Carrier consolidation, reduced network spending, lease non-renewals or financial distress could affect results.
- Leverage and financing: High debt, interest costs, covenant restrictions and refinancing requirements may constrain investment and cash available for other uses. Floating-rate borrowing under the revolver exposes SBA to interest-rate changes.
- Growth execution: Tower acquisition competition, construction costs, zoning and permitting, site availability, and access to capital could prevent planned portfolio growth.
- Industry and regulatory risks: Slower wireless investment, technology that reduces demand for traditional macro towers, competitive pricing, and federal, state, local or foreign rules could impair growth or margins.
- Ground leases and international exposure: Disputes or unfavorable renewals for underlying land, foreign political or legal conditions, and currency movements may affect operations. SBA owned or controlled for at least 50 years the land under 31.1% of its communication sites.
- Convertible securities: A hedge counterparty for 55% of potential shares underlying the 1.875% notes defaulted and its hedge was terminated. Conversion could therefore create dilution or cash costs; other hedge-counterparty defaults and share-price movements are additional risks.
- Other exposures: Natural disasters, environmental remediation, RF-exposure claims, tax examinations and limitations on using net operating losses are identified risks. Ordinary-course litigation was not expected by management to have a material adverse effect; the filing text does not identify a material legal contingency.
The independent auditor issued an unqualified opinion on the financial statements and internal controls over financial reporting; management also concluded the controls were effective as of December 31, 2010.
Most important facts for investors to verify
- Whether site-leasing growth and tenant additions continued, and whether major carriers renewed leases or changed network-spending plans.
- Actual 2011 tower construction, acquisitions, portfolio growth and capital expenditures compared with management’s plans.
- Debt principal, cash interest burden, refinancing needs, revolver availability and compliance with financial and securitization covenants.
- Cash conversion and the effect of restricted cash, acquisition spending, share repurchases and ground-lease purchases on liquidity.
- Whether the tower impairments, customer concentration, land-control exposure, tax-asset valuation and unhedged convertible-note exposure changed materially after year-end.