SBA Communications Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 28, 2024. This is an annual filing, with fourth-quarter results also disclosed. SBA owns and operates 39,618 wireless communications sites. Site leasing is its principal business; it generated 97.4% of segment operating profit. SBA is a REIT.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Total revenue | $2.712 billion | $2.633 billion | Up 3.0% |
| Site leasing revenue | $2.517 billion | $2.337 billion | Up 7.7%; domestic up 3.9%, international up 19.6% on a constant-currency basis |
| Site development revenue | $194.6 million | $296.9 million | Down 34.4% |
| Operating income | $923.7 million | $925.4 million | Down 0.2%; margin was approximately 34.1%, versus 35.1% |
| Net income attributable to SBA | $501.8 million | $461.4 million | Up 8.7%; diluted EPS was $4.61 versus $4.22 |
| Adjusted EBITDA | $1.894 billion | $1.769 billion | Up 6.9% on a constant-currency basis; non-GAAP measure |
| Operating cash flow | $1.544 billion | $1.286 billion | Up $258.7 million |
| Cash, cash equivalents and restricted cash | $250.9 million | $189.3 million | At year-end |
| Principal debt | $12.388 billion | $12.952 billion | Down $564 million; shareholders’ deficit was $5.171 billion |
Operating cash flow increased mainly with working-capital timing and higher site-leasing profit. Investing activities used $468.2 million, versus $1.394 billion in 2022, when major tower acquisitions drove spending. Financing activities used $1.017 billion, including $370.0 million of dividends and $100.0 million of share repurchases. Year-end current assets were $484.3 million and current liabilities were $1.363 billion, including $643.1 million of current debt maturities.
Fourth quarter: Revenue was $675.0 million, operating income $209.7 million, net income attributable to SBA $109.5 million, and diluted EPS $1.01. Compared with Q4 2022, revenue fell from $686.1 million and operating income from $234.7 million, while attributable net income rose from $103.3 million and diluted EPS from $0.94.
Material changes and unusual items
- Site-leasing growth reflected organic leasing, lease amendments and escalators, and acquired or built sites. International results also benefited from acquisitions, including the 2022 GTS Brazil portfolio.
- Site development revenue and profit declined with reduced carrier activity, principally from T-Mobile and DISH Wireless.
- Asset impairment and decommission costs rose to $169.4 million from $43.2 million, primarily for planned abandonment of sites with limited expected economic benefit, including Sprint- and Oi-related churn. The total included a $45.1 million benefit from lease-term reassessments.
- Other income included an $81.2 million gain on remeasurement of U.S.-dollar-denominated intercompany loans and a $7.6 million loss on tower asset sales. Interest expense increased to $400.4 million from $353.8 million.
- SBA sold all its Argentina tower assets in Q4 2023. At year-end, it operated in 14 international markets.
Outlook, financing and risks
- Management expects 2024 organic site-leasing revenue to increase in both domestic and international segments, partly as carriers deploy unused spectrum. The filing does not provide clear full-year revenue or EPS guidance.
- Management forecast 2024 cash capital expenditures of $51–$61 million for maintenance and general corporate needs, plus $320–$340 million of discretionary spending for acquisitions, construction, upgrades and ground-lease purchases.
- Expected T-Mobile/Sprint lease churn is $125–$150 million of cash site-leasing revenue in aggregate from 2024 through 2028; timing is not expected to be uniform. Oi restructuring is expected to cause a further $13–$23 million of churn, excluding $10 million of TIM-related churn experienced in 2023.
- After year-end, SBA refinanced its $2.3 billion 2018 Term Loan with a new $2.3 billion term loan due in 2031, extended the revolving facility maturity to January 2029, and increased its commitment to $2.0 billion. The new term loan’s SOFR margin is 200 basis points; a swap fixes $1.95 billion at 2.05% through March 2025. Management stated liquidity and operating cash flow should cover debt service over the next 12 months.
- Key risks include customer concentration (T-Mobile contributed 32.5% of total revenue; AT&T 19.5%; Verizon 14.6%), carrier consolidation and spending decisions, high leverage and refinancing costs, foreign-exchange and political risks, and access to or renewal of underlying land rights. The filing reports approximately $24 million of annual Oi wireline revenue tied to a judicial recovery process and uncertainty regarding land concessions underlying 2,113 towers.
- A Brazilian tax assessment remains contested. The estimated reasonably possible loss above accrued amounts is $0–$97.8 million, excluding $104.6 million of penalties and interest. Ordinary-course litigation is not expected by management to have a material adverse effect.
- SBA is reviewing tower and intangible asset useful lives, historically estimated at 15 years for towers. Preliminary analysis indicates lives may be extended, potentially reducing future depreciation and amortization materially; the review was expected to conclude in Q1 2024.
- CEO Jeffrey Stoops retired at year-end; Brendan Cavanagh became CEO, and Marc Montagner became CFO. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Actual timing and amount of Sprint and Oi churn against management’s estimates, and the offset from organic leasing growth.
- Carrier capital spending and spectrum deployment, especially whether DISH builds out its network as anticipated.
- Progress and outcome of the Oi wireline recovery process and Brazilian land-concession rights, including the potential revenue and site implications.
- Debt service, refinancing costs, covenant headroom and the effect of variable interest rates; the filing estimates a 1% increase in variable rates would raise 2023 interest expense by approximately 4.8%.
- Results of the useful-life review and resulting effects on depreciation, lease accounting and reported earnings.
- Resolution of the Brazilian tax assessment and exposure to foreign-exchange movements, including remeasurement of intercompany loans.