SBA Communications Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023, unless otherwise stated. Amounts are in U.S. dollars.
Business context
SBA owns and operates wireless communications infrastructure, principally multi-tenant towers. Site leasing is the core business; site development provides network construction and related services. At March 31, 2024, the company owned 39,638 towers. Site leasing generated 98.8% of segment operating profit in the quarter.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $657.9 million | $675.5 million |
| Site leasing revenue | $628.3 million | $617.3 million |
| Site development revenue | $29.6 million | $58.2 million |
| Operating income | $323.4 million | $224.1 million |
| Net income attributable to SBA | $154.5 million | $101.2 million |
| Diluted earnings per share | $1.42 | $0.93 |
| Adjusted EBITDA | $465.4 million | $459.3 million |
| Cash provided by operating activities | $294.5 million | $311.2 million |
Operating margin was approximately 49.2%, versus 33.2% a year earlier; the increase was substantially affected by a change in estimated asset lives (described below). Adjusted EBITDA rose 1.3% reported, or 0.9% on a constant-currency basis. Site leasing revenue increased 1.8%; site development revenue fell 49.2%, reflecting lower carrier activity, primarily from T-Mobile, DISH Wireless, and Verizon Wireless.
Cash used in investing activities was $85.3 million, versus $146.8 million. Cash used in financing activities was $191.4 million, including $106.2 million of share repurchases and $108.1 million of dividends. Cash, cash equivalents, and restricted cash totaled $264.3 million at quarter-end.
Balance sheet, debt, and liquidity
Total debt principal was $12.435 billion at March 31, 2024; carrying value was $12.356 billion. Current maturities were $1.805 billion, compared with $643.1 million at year-end 2023, principally reflecting upcoming tower-security repayments. Long-term debt, net of current maturities, was $10.551 billion. Shareholders’ deficit was $5.223 billion.
In January, SBA refinanced its $2.268 billion 2018 Term Loan with a $2.3 billion term loan due January 2031 and extended its revolving facility maturity to January 2029. Revolver commitments were increased to $2.0 billion; $195 million was drawn at quarter-end. The new term loan’s stated rate was 7.340% before the effect of swaps; a swap fixed $1.95 billion of notional at 2.050% through March 31, 2025. The company reported compliance with applicable financial covenants.
Estimated debt service for the 12 months after March 31, 2024 was $2.185 billion. Management stated that cash on hand, revolver capacity, and operating cash flow should be sufficient to service debt during that period. This includes anticipated repayments of $620 million of 2014-2C Tower Securities in October 2024 and $1.165 billion of 2019-1C Tower Securities in January 2025.
Material changes and management outlook
Effective January 1, 2024, SBA revised estimated useful lives for towers and certain related intangible assets from 15 to 30 years. This prospective accounting-estimate change reduced Q1 depreciation and amortization by approximately $102.7 million pretax, or $93.0 million after tax, increasing diluted EPS by approximately $0.86. The company estimates a full-year 2024 reduction of $411.5 million pretax, or $372.5 million after tax, and an EPS increase of $3.43. This is an accounting benefit, not an equivalent increase in cash generation.
Asset impairment and decommission costs rose to $43.6 million from $26.4 million, primarily due to increased churn and decommissioning costs. Other expense included a $42.3 million loss on remeasurement of U.S.-dollar-denominated intercompany loans; the prior-year quarter included a $41.9 million gain. A $4.4 million debt-extinguishment loss was recorded on the term-loan refinancing.
Management expects organic site leasing revenue in both domestic and international segments to increase over 2023 levels during the remainder of 2024, partly as wireless carriers deploy unused spectrum. For 2024, it forecasts $51–$61 million of non-discretionary cash capital expenditures and $335–$355 million of discretionary cash capital expenditures. SBA also reported 271 communication sites purchased or under contract for $84.5 million, with expected completion by the end of Q3 2024. No specific full-year revenue, earnings, or Adjusted EBITDA guidance is provided in the supplied filing text.
Risks, contingencies, and other notable items
- Higher interest rates may increase refinancing costs and constrain wireless-carrier spending; management also cautioned that long-term lease pricing may not fully adjust to inflation.
- Foreign exchange exposure is meaningful: 22.3% of Q1 revenue and 29.7% of operating expenses were denominated in foreign currencies. A hypothetical 10% adverse move in the Brazilian real was estimated to reduce quarterly revenue by 1.3% and operating income by 1.1%. A 10% move in rates applicable to unsettled intercompany debt could produce approximately $125.5 million of gains or losses.
- A Brazilian tax assessment remains under appeal. SBA recorded no liability, but estimated reasonably possible losses above accrued amounts at up to $94.6 million, excluding $103.7 million of potential penalties and interest.
- Site leasing impairment charges reflect tower-level cash-flow and churn assumptions. Future carrier consolidation, lease non-renewals, technology changes, acquisition execution, and foreign-market conditions could affect results.
- The company paid a $0.98-per-share quarterly dividend and repurchased 495,260 shares at an average $214.33 per share. Subsequent to quarter-end, it declared another $0.98 dividend and reported additional share repurchases.
Important facts for investors to verify
- Assess underlying operating performance separately from the large non-cash depreciation and amortization benefit from the useful-life revision.
- Track site leasing growth, carrier churn, impairments, and the continued weakness in site development activity.
- Review the timing and funding of the $1.785 billion of tower-security repayments anticipated in October 2024 and January 2025, alongside stated 12-month debt-service coverage.
- Monitor variable-rate exposure, refinancing conditions, and the effectiveness and duration of interest-rate hedges.
- Follow the Brazilian tax appeal and the potential exposure, including penalties and interest, as well as foreign-currency effects on intercompany loans.
- Confirm the completion, price, and expected returns of the pending 271-site acquisitions and the execution of 2024 capital-expenditure plans.