SBA Communications Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. SBA owns and operates wireless communications sites, with site leasing its primary business; it reported 32,724 towers. Financial amounts below are in U.S. dollars.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $522.9 million | $507.5 million | $1,547.2 million | $1,501.0 million |
| Operating income | $160.3 million | $153.8 million | $468.6 million | $429.6 million |
| Net income (loss) | $22.7 million | $21.8 million | $(82.1) million | $79.7 million |
| Diluted EPS | $0.20 | $0.19 | $(0.73) | $0.69 |
| Adjusted EBITDA (non-GAAP) | $373.3 million | $355.4 million | $1,112.0 million | $1,048.2 million |
| Cash from operating activities | — | — | $882.9 million | $705.0 million |
- Q3 revenue rose 3.0% reported; management reported 7.0% growth on a constant-currency basis. Site leasing revenue increased to $486.8 million from $468.6 million; site development revenue declined to $36.2 million from $39.0 million.
- For the first nine months, revenue grew 3.1% reported (6.7% constant currency). Domestic and international site leasing grew, while site development revenue fell 29.3%, primarily due to lower carrier activity associated mainly with T-Mobile and Sprint.
- Operating margin was approximately 30.7% in Q3 versus 30.3% a year earlier, and 30.3% for the nine months versus 28.6%. Site leasing generated 98.6% of segment operating profit for the nine-month period.
- Nine-month GAAP net loss included $299.9 million of non-cash loss on remeasurement of U.S.-dollar intercompany loans, reflected in other expense. The company also recorded a $76.1 million income-tax benefit. Adjusted EBITDA is a company-defined non-GAAP measure and grew 9.3% for the nine months on a constant-currency basis.
Cash, debt, and capital allocation
- At September 30, cash and cash equivalents were $271.9 million and restricted cash was $61.6 million. Nine-month operating cash flow was $882.9 million; investing cash outflow was $353.4 million and financing cash outflow was $314.3 million.
- Total debt principal was $10.806 billion; long-term debt, net of current maturities, was $10.693 billion. The $1.25 billion revolving credit facility was undrawn, and the company reported compliance with applicable covenants. It estimated next-12-month debt service of $366.6 million and said available cash, revolver capacity, and operating cash flow would be sufficient to service debt over that period.
- Financing activity included $1.5 billion of 3.875% senior notes due 2027 and $1.35 billion of tower securities issued in 2020, used in part to refinance existing debt. In August, SBA paid $176.2 million to terminate an existing interest-rate hedge and entered a replacement swap fixing $1.95 billion of term-loan exposure at 1.874% through maturity.
- Nine-month share repurchases were $376 million on a trade-date basis; cash-flow statements report $379.0 million on a settlement-date basis. The company paid three quarterly dividends of $0.465 per share and declared the same amount for December 2020. On November 2, the board authorized a new $1.0 billion repurchase plan.
- 2020 estimated cash capital expenditures were $32–38 million for non-discretionary items and $356–366 million for discretionary items. After quarter-end, SBA acquired 54 towers for $14.6 million and agreed to purchase another 132 sites for $85.0 million.
Outlook, commentary, and risks
- Management expected organic site leasing revenue in both domestic and international segments to exceed 2019 levels during the remainder of 2020, citing carrier deployment of unused spectrum. This is an outlook statement, not a quantified full-year earnings forecast.
- Management said COVID-19 had had minimal impact on operations through the first nine months, but warned that pandemic duration, economic conditions, customer spending, permitting, financing markets, and foreign exchange could adversely affect future results.
- T-Mobile represented 40.2% of Q3 domestic site leasing revenue and 67.6% of site development revenue; it represented 40.6% and 59.7%, respectively, for the nine months. The filing identifies wireless-carrier consolidation, including the T-Mobile/Sprint merger, as a risk to customer activity and demand.
- International currency exposure materially affected reported results: a 10% adverse move in the Brazilian real was estimated to reduce nine-month revenue by about 1.0% and operating income by about 0.5%. A 10% change in exchange rates on unsettled intercompany debt would have produced an estimated $82.1 million gain or loss.
- Other risks include high debt and refinancing or interest-rate exposure, potential LIBOR replacement, acquisition and integration execution, land rights, tower demand and tenant renewals, and REIT qualification. Management reported disclosure controls were effective as of September 30, 2020.
Investor facts to verify
- Whether site leasing growth and the stated remainder-of-2020 outlook were sustained, particularly after accounting for currency movements and acquired towers.
- Whether the decline in site development activity persisted and how customer concentration—especially T-Mobile—affects revenue and lease amendments.
- How much of the nine-month GAAP loss reflects foreign-exchange remeasurement and other unusual, non-cash or refinancing items, versus recurring operating performance.
- Debt maturities, covenant compliance, the cost and effectiveness of interest-rate hedges, and the company’s ability to fund planned discretionary capital spending, dividends, and repurchases.
- The realized effects of COVID-19, foreign exchange, and tower impairments on cash flows and asset values.