SBA Communications Corporation — Q1 2020 Form 10-Q
Business context and period: The filing reports the unaudited three months ended March 31, 2020, compared with Q1 2019. SBA owns and operates wireless communications sites; site leasing is its primary business. It owned 32,515 towers at quarter-end.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $517.1 million | $493.3 million |
| Operating income | $151.2 million | $139.3 million |
| Operating margin | 29.2% | 28.2% |
| Net income (loss) attributable to SBA | $(127.1) million | $26.0 million |
| Diluted earnings (loss) per share | $(1.14) | $0.23 |
| Adjusted EBITDA | $369.9 million | $345.6 million |
| Cash provided by operating activities | $277.7 million | $222.7 million |
Site leasing revenue was $492.4 million, up 8.9%; site development revenue was $24.7 million, down 39.9%. Adjusted EBITDA rose 7.1% reported and 9.4% on a constant-currency basis. Foreign exchange reduced reported international site leasing revenue; constant-currency international revenue increased 32.1%.
Cash, cash equivalents and restricted cash totaled $229.6 million at March 31, 2020, versus $141.1 million at year-end. Net cash used in investing was $132.0 million, including $89.5 million of acquisitions and $39.3 million of capital expenditures. Net cash used in financing was $43.3 million. The filing does not present a standalone free-cash-flow measure.
Total debt carrying value was $10.57 billion, including $522.7 million of current maturities. Long-term and current lease liabilities totaled approximately $2.39 billion. Debt principal was $10.65 billion. Management estimated $898.5 million of debt service over the next 12 months, including $508.5 million for the 2015-1C Tower Securities anticipated repayment in October 2020. The company reported covenant compliance and stated that cash, revolver capacity and operating cash flow should cover debt service for the next 12 months.
Material changes and unusual items
- Revenue increased 4.8%, led by domestic and international site leasing growth from acquired and built towers, new leases, lease amendments and contractual escalators. Site development declined amid reduced carrier activity, primarily from Sprint and T-Mobile.
- Net loss primarily reflected a $230.1 million pretax foreign-exchange remeasurement loss on U.S.-dollar-denominated intercompany loans. The company also recorded a $16.9 million debt-extinguishment loss after issuing $1.0 billion of 3.875% notes due 2027 and redeeming $750 million of 2014 notes.
- The income tax line was a $66.5 million benefit, compared with a $10.2 million provision in Q1 2019. Unrealized swap losses and foreign currency translation also contributed to comprehensive loss.
- Asset impairment and decommission costs rose to $14.4 million from $5.8 million, mainly due to higher tower impairment charges.
- The company repurchased 0.8 million shares for $200.0 million and paid $52.2 million in dividends. It declared a further $0.465-per-share dividend for payment in June 2020.
- After quarter-end, T-Mobile finalized its merger with Sprint. Together, the two carriers represented 33.3% of Q1 total revenue, making consolidation-related customer impacts relevant.
Outlook, risks and contingencies
- Management expected organic site leasing revenue in both domestic and international segments to increase over 2019 levels during the remainder of 2020, partly due to carriers deploying unused spectrum.
- For 2020, the company forecast $32–42 million of non-discretionary cash capital expenditures and $270–290 million of discretionary cash capital expenditures. It expected to fund these with cash, operating cash flow and borrowing or new financing. It also reported post-quarter purchases or agreements to purchase 137 sites for $52 million.
- COVID-19 had minimal impact on Q1 operations as of March 31, but its future effect was uncertain. The filing identifies possible impacts on tenant finances and spending, lease payments and renewals, construction and permitting, financing access, and foreign exchange.
- Other principal risks include carrier consolidation, foreign currency and political/economic exposure, refinancing and floating-rate debt risk, LIBOR’s expected transition after 2021, acquisition execution, and the ability to retain tenants and grow leasing demand.
- Approximately 15.1% of revenue and 18.0% of operating expenses were denominated in foreign currencies. A hypothetical 10% adverse Brazilian real movement would have reduced quarterly revenue by about 1.1% and operating income by about 0.7%; a 10% move in exchange rates on unsettled intercompany debt would have caused an estimated $83.2 million gain or loss.
Important facts for investors to verify
- Whether the reported foreign-exchange loss is recurring or volatile, and how it affects the interpretation of GAAP earnings versus operating performance.
- The effect of the T-Mobile–Sprint merger on leasing, site-development demand and customer concentration.
- The October 2020 anticipated repayment of $500 million of 2015-1C Tower Securities and the company’s refinancing or repayment plan.
- Whether 2020 capital expenditure plans and acquisition commitments remain achievable under COVID-19 and market conditions.
- Future tenant activity, international currency movements, and the company’s substantial debt and lease obligations.