SBA Communications Corporation Reports First Quarter 2019 Results; Updates Full Year 2019 Outlook
BOCA RATON, Fla.–(BUSINESS WIRE)–SBA Communications Corporation (Nasdaq: SBAC) (“SBA” or the “Company”) today reported results for the quarter ended March 31, 2019.
Highlights of the first quarter include:
- Strong leasing and services results
- Net income of $26.0 million or $0.23 per share
- AFFO per share growth of 14.6% over the year earlier period on a constant currency basis
- Increased 2019 Outlook for Revenue, Adjusted EBITDA and AFFO
“We had a great start to 2019,” commented Jeffrey A. Stoops, President and CEO. “Our customers rolled into the new year with the continued strong levels of activity we saw in the second half of 2018, and that level of activity continues. In the U.S., both our leasing and our services results in the first quarter were ahead of expectations, contributing to the increase in our full year Outlook. Internationally, leasing activity remains strong as well, with changes in the International Outlook driven entirely by foreign currency movements. Against this favorable demand environment, we executed very well and produced material growth in AFFO per share. We believe 2019 is shaping up to be another strong year for SBA.”
Operating Results
The table below details select financial results for the three months ended March 31, 2019 and comparisons to the prior year period.
| % Change | |||||||||||||||
|
excluding |
|||||||||||||||
| Q1 2019 | Q1 2018 | $ Change | % Change | FX (1) | |||||||||||
| Consolidated | ($ in millions, except per share amounts) | ||||||||||||||
| Site leasing revenue | $ | 452.1 | $ | 430.5 | $ | 21.6 | 5.0% | 7.2% | |||||||
| Site development revenue | 41.1 | 27.8 | 13.3 | 48.1% | 48.1% | ||||||||||
| Tower cash flow (1) | 362.9 | 339.0 | 23.9 | 7.0% | 8.8% | ||||||||||
| Net income | 26.0 | 31.5 | (5.5) | (17.5%) | (5.1%) | ||||||||||
| Earnings per share – diluted | 0.23 | 0.27 | (0.04) | (14.8%) | 0.0% | ||||||||||
| Adjusted EBITDA (1) | 345.6 | 318.8 | 26.8 | 8.4% | 10.3% | ||||||||||
| AFFO (1) | 236.1 | 218.4 | 17.7 | 8.1% | 10.9% | ||||||||||
| AFFO per share (1) | 2.07 | 1.85 | 0.22 | 11.9% | 14.6% | ||||||||||
| (1) | See the reconciliations and other disclosures under “Non-GAAP Financial Measures” later in this press release. |
Total revenues in the first quarter of 2019 were $493.3 million compared to $458.3 million in the year earlier period, an increase of 7.6%. Site leasing revenue in the quarter of $452.1 million was comprised of domestic site leasing revenue of $362.8 million and international site leasing revenue of $89.3 million. Domestic cash site leasing revenue was $361.2 million in the first quarter of 2019 compared to $338.7 million in the year earlier period, an increase of 6.7%. International cash site leasing revenue was $88.3 million in the first quarter of 2019 compared to $86.4 million in the year earlier period, an increase of 2.2%, or 13.0% excluding the impact of changes in foreign currency exchange rates.
Site leasing operating profit was $359.5 million, an increase of 6.4% over the year earlier period. Site leasing contributed 97.3% of the Company’s total operating profit in the first quarter of 2019. Domestic site leasing segment operating profit was $297.7 million, an increase of 7.6% over the year earlier period. International site leasing segment operating profit was $61.7 million, an increase of 1.2% over the year earlier period.
Tower Cash Flow for the first quarter of 2019 of $362.9 million was comprised of Domestic Tower Cash Flow of $301.8 million and International Tower Cash Flow of $61.1 million. Domestic Tower Cash Flow for the quarter increased 7.8% over the prior year period and International Tower Cash Flow increased 3.4% over the prior year period. Tower Cash Flow Margin was 80.7% for the first quarter of 2019, as compared to 79.8% for the year earlier period.
During the first quarter of 2019, the Company received a partial recovery of pre-petition obligations owed to the Company from Oi, S.A. (“Oi”) in accordance with the reorganization plan approved by the Brazilian courts. Net of costs incurred in connection with the Oi bankruptcy process, the Company recovered $2.3 million in the quarter (the “Oi recovery”). The Oi recovery resulted in a partial reversal of the Company’s allowance for doubtful accounts which was recorded as an offset to bad debt expense within Selling, general and administrative expenses. Any future recoveries will be recorded in a similar manner in the period in which payment is received.
Adjusted EBITDA for the quarter was $345.6 million, which includes the $2.3 million Oi recovery, an 8.4% increase over the prior year period. Adjusted EBITDA Margin was 70.4% in the first quarter of 2019 compared to 70.4% in the first quarter of 2018.
Net Cash Interest Expense was $96.9 million in the first quarter of 2019 compared to $87.6 million in the first quarter of 2018, an increase of 10.6%.
Net income for the first quarter of 2019 was $26.0 million, or $0.23 per share, and included a $2.1 million loss, net of taxes, on the currency related remeasurement of U.S. dollar denominated intercompany loans with a Brazilian subsidiary, while net income for the first quarter of 2018 was $31.5 million, or $0.27 per share, and included a $1.6 million gain on the currency related remeasurement of U.S. dollar denominated intercompany loans with a Brazilian subsidiary.
AFFO for the quarter was $236.1 million, which includes the $2.3 million Oi recovery, an 8.1% increase over the prior year period. AFFO per share for the first quarter of 2019 was $2.07, an 11.9% increase over the prior year period.
Investing Activities
During the first quarter of 2019, SBA purchased 54 communication sites for total cash consideration of $36.1 million. SBA also built 72 towers during the first quarter of 2019. As of March 31, 2019, SBA owned or operated 29,687 communication sites, 16,289 of which are located in the United States and its territories, and 13,398 of which are located internationally. In addition, the Company spent $15.4 million to purchase land and easements and to extend lease terms. Total cash capital expenditures for the first quarter of 2019 were $91.7 million, consisting of $7.2 million of non-discretionary cash capital expenditures (tower maintenance and general corporate) and $84.5 million of discretionary cash capital expenditures (new tower builds, tower augmentations, acquisitions, and purchasing land and easements).
The Company has agreed to purchase and anticipates closing on 256 additional communication sites for an aggregate amount of $123.9 million. The Company anticipates that the majority of these acquisitions will be consummated by the end of the third quarter of 2019.
Financing Activities and Liquidity
SBA ended the first quarter of 2019 with $9.8 billion of total debt, $7.2 billion of total secured debt, $142.0 million of cash and cash equivalents, short-term restricted cash, and short-term investments, and $9.7 billion of Net Debt. SBA’s Net Debt and Net Secured Debt to Annualized Adjusted EBITDA Leverage Ratios were 7.0x and 5.1x, respectively.
As of the date of this press release, the Company had $50.0 million outstanding under the $1.25 billion Revolving Credit Facility.
The Company did not repurchase any shares of its Class A common stock during the first quarter. As of the date of this press release, the Company has $204.5 million of authorization remaining under the stock repurchase plan authorized on February 16, 2018.
Outlook
The Company is updating its full year 2019 Outlook for anticipated results. The Outlook provided is based on a number of assumptions that the Company believes are reasonable at the time of this press release. Information regarding potential risks that could cause the actual results to differ from these forward-looking statements is set forth below and in the Company’s filings with the Securities and Exchange Commission.
The Company’s full year 2019 Outlook assumes the acquisitions of only those communication sites under contract and anticipated to close at the time of this press release. The Company may spend additional capital in 2019 on acquiring revenue producing assets not yet identified or under contract, the impact of which is not reflected in the 2019 guidance. The Outlook also does not contemplate any repurchases of the Company’s stock during 2019. The Outlook contemplates one new financing during the third quarter of 2019 to refinance the Company’s 2014-1C Tower Securities. The assumed interest rate of this new financing is 4.25%. There are no additional new financings contemplated in our 2019 Outlook.
The Company’s Outlook assumes an average foreign currency exchange rate of 3.90 Brazilian Reais to 1.0 U.S. Dollar and 1.33 Canadian Dollars to 1.0 U.S. Dollar throughout the last three quarters of 2019. When compared to the Company’s initial full year 2019 Outlook provided February 21, 2019, the variances in the actual first quarter foreign currency exchange rates versus the Company’s assumptions, and the changes in the Company’s foreign currency rate assumptions for the remainder of the year negatively impacted the full year 2019 Outlook by approximately $4.5 million for Site Lease Revenue, $3.0 million for Tower Cash Flow, and $2.7 million for Adjusted EBITDA and AFFO.
| (in millions, except per share amounts) | Full Year 2019 | |||||||
| Site leasing revenue (1) | $ | 1,823.0 | to | $ | 1,843.0 | |||
| Site development revenue | $ | 120.0 | to | $ | 140.0 | |||
| Total revenues | $ | 1,943.0 | to | $ | 1,983.0 | |||
| Tower Cash Flow (2) | $ | 1,467.0 | to | $ | 1,487.0 | |||
| Adjusted EBITDA (2) | $ | 1,379.0 | to | $ | 1,399.0 | |||
| Net cash interest expense (3) | $ | 381.0 | to | $ | 391.0 | |||
| Non-discretionary cash capital expenditures (4) | $ | 31.0 | to | $ | 41.0 | |||
| AFFO (2) | $ | 922.0 | to | $ | 973.0 | |||
| AFFO per share (2) (5) | $ | 8.02 | to | $ | 8.47 | |||
| Discretionary cash capital expenditures (6) | $ | 325.0 | to | $ | 345.0 | |||
| (1) | The Company’s Outlook for site leasing revenue includes revenue associated with pass through reimbursable expenses. | |
| (2) | See the reconciliation of this non-GAAP financial measure presented below under “Non-GAAP Financial Measures.” | |
| (3) | Net cash interest expense is defined as interest expense less interest income. Net cash interest expense does not include amortization of deferred financing fees or non-cash interest expense. | |
| (4) | Consists of tower maintenance and general corporate capital expenditures. | |
| (5) | Outlook for AFFO per share is calculated by dividing the Company’s outlook for AFFO by an assumed weighted average number of diluted common shares of 114.9 million. Our Outlook does not include the impact of any potential future repurchases of the Company’s stock during 2019. | |
| (6) | Consists of new tower builds, tower augmentations, communication site acquisitions and ground lease purchases. Does not include expenditures for acquisitions of revenue producing assets not under contract at the date of this press release. |
Conference Call Information
SBA Communications Corporation will host a conference call on Monday, April 29, 2019 at 5:00 PM (EST) to discuss the quarterly results. The call may be accessed as follows:
| When: Monday, |
April 29, 2019 at 5:00 PM (EDT) |
|
| Dial-in Number: | (800) 230-1085 | |
| Conference Name: | SBA first quarter results | |
| Replay Available: | April 29, 2019 at 8:00 PM to May 13, 2019 at 11:59 PM (TZ: Eastern) | |
| Replay Number: | (800) 475-6701 | |
| Access Code: | 465875 | |
| Internet Access: |
Information Concerning Forward-Looking Statements
This press release and our earnings call include forward-looking statements, including statements regarding the Company’s expectations or beliefs regarding (i) customer demand and its ability to capture demand, (ii) the Company’s portfolio growth goals, its strategy with respect to portfolio growth and opportunities throughout its domestic and international markets, (iii) capital allocation and the Company’s target net debt leverage range, (iv) the Company’s financial and operational guidance for the full year 2019, the assumptions it made and the drivers contributing to the increase in its full year guidance, (v) the timing of closing for currently pending acquisitions, (vi) additional capital spending in 2019 and the Company’s capital allocation mix, including allocating capital to both share repurchases and portfolio growth, (vii) its belief that 2019 will be a strong year for the Company, (viii) financing of indebtedness in 2019, and (ix) foreign exchange rates and their impact on the Company’s financial and operational guidance.
The Company wishes to caution readers that these forward-looking statements may be affected by the risks and uncertainties in the Company’s business as well as other important factors may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. With respect to the Company’s expectations regarding all of these statements, including its financial and operational guidance, such risk factors include, but are not limited to: (1) the ability and willingness of wireless service providers to maintain or increase their capital expenditures; (2) the Company’s ability to identify and acquire sites at prices and upon terms that will provide accretive portfolio growth; (3) the Company’s ability to accurately identify and manage any risks associated with its acquired sites, to effectively integrate such sites into its business and to achieve the anticipated financial results; (4) the Company’s ability to secure and retain as many site leasing tenants as planned at anticipated lease rates; (5) the impact of continued consolidation among wireless service providers, including the impact of the potential T-Mobile and Sprint merger, on the Company’s leasing revenue; (6) the Company’s ability to successfully manage the risks associated with international operations, including risks associated with foreign currency exchange rates; (7) the Company’s ability to secure and deliver anticipated services business at contemplated margins; (8) the Company’s ability to maintain expenses and cash capital expenditures at appropriate levels for its business while seeking to attain its investment goals; (9) the Company’s ability to acquire land underneath towers on terms that are accretive; (10) the economic climate for the wireless communications industry in general and the wireless communications infrastructure providers in particular in the United States, Brazil, and internationally; (11) the Company’s ability to obtain future financing at commercially reasonable rates or at all; (12) the ability of the Company to achieve its long-term stock repurchases strategy, which will depend, among other things, on the trading price of the Company’s common stock, which may be positively or negatively impacted by the repurchase program, market and business conditions; (13) the Company’s ability to achieve the new builds targets included in its anticipated annual portfolio growth goals, which will depend, among other things, on obtaining zoning and regulatory approvals, weather, availability of labor and supplies and other factors beyond the Company’s control that could affect the Company’s ability to build additional towers in 2019; and (14) the Company’s ability to meet its total portfolio growth, which will depend, in addition to the new build risks, on the availability of sufficient towers for sale to meet our targets, competition from third parties for such acquisitions and our ability to negotiate the terms of, and acquire, these potential tower portfolios on terms that meet our internal return criteria. With respect to its expectations regarding the ability to close pending acquisitions, these factors also include satisfactorily completing due diligence, the amount and quality of due diligence that the Company is able to complete prior to closing of any acquisition and its ability to accurately anticipate the future performance of the acquired towers, the ability to receive required regulatory approval, the ability and willingness of each party to fulfill their respective closing conditions and their contractual obligations and the availability of cash on hand or borrowing capacity under the Revolving Credit Facility to fund the consideration. With respect to the repurchases under the Company’s stock repurchase program, the amount of shares repurchased, if any, and the timing of such repurchases will depend on, among other things, the trading price of the Company’s common stock, which may be positively or negatively impacted by the repurchase program, market and business conditions, the availability of stock, the Company’s financial performance or determinations following the date of this announcement in order to use the Company’s funds for other purposes. Furthermore, the Company’s forward-looking statements and its 2019 outlook assumes that the Company continues to qualify for treatment as a REIT for U.S. federal income tax purposes and that the Company’s business is currently operated in a manner that complies with the REIT rules and that it will be able to continue to comply with and conduct its business in accordance with such rules. In addition, these forward-looking statements and the information in this press release is qualified in its entirety by cautionary statements and risk factor disclosures contained in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K filed with the Commission on February 28, 2019.
This press release contains non-GAAP financial measures. Reconciliation of each of these non-GAAP financial measures and the other Regulation G information is presented below under “Non-GAAP Financial Measures.”
This press release will be available on our website at www.sbasite.com.
About SBA Communications Corporation
SBA Communications Corporation is a first choice provider and leading owner and operator of wireless communications infrastructure in North, Central, and South America. By “Building Better Wireless,” SBA generates revenue from two primary businesses – site leasing and site development services. The primary focus of the Company is the leasing of antenna space on its multi-tenant communication sites to a variety of wireless service providers under long-term lease contracts. For more information please visit: www.sbasite.com.
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
| (in thousands, except per share amounts) | ||||||
| For the three months | ||||||
| ended March 31, | ||||||
| 2019 | 2018 | |||||
| Revenues: | (unaudited) | (unaudited) | ||||
| Site leasing | $ | 452,183 | $ | 430,542 | ||
| Site development | 41,110 | 27,760 | ||||
| Total revenues | 493,293 | 458,302 | ||||
| Operating expenses: | ||||||
| Cost of revenues (exclusive of depreciation, accretion, | ||||||
| and amortization shown below): | ||||||
| Cost of site leasing | 92,714 | 92,817 | ||||
| Cost of site development | 31,101 | 22,520 | ||||
| Selling, general, and administrative (1)(2) | 50,959 | 36,049 | ||||
| Acquisition and new business initiatives related adjustments and expenses | 2,437 | 3,044 | ||||
| Asset impairment and decommission costs | 5,771 | 8,506 | ||||
| Depreciation, accretion, and amortization | 171,038 | 165,398 | ||||
| Total operating expenses | 354,020 | 328,334 | ||||
| Operating income | 139,273 | 129,968 | ||||
| Other income (expense): | ||||||
| Interest income | 1,800 | 1,295 | ||||
| Interest expense | (98,667) | (88,923) | ||||
| Non-cash interest expense | (641) | (733) | ||||
| Amortization of deferred financing fees | (5,061) | (5,388) | ||||
| Loss from extinguishment of debt, net | — | (645) | ||||
| Other income (expense), net | (508) | 4,553 | ||||
| Total other expense, net | (103,077) | (89,841) | ||||
| Income before income taxes | 36,196 | 40,127 | ||||
| Provision for income taxes | (10,207) | (8,582) | ||||
| Net income | $ | 25,989 | $ | 31,545 | ||
| Net income per common share | ||||||
| Basic | $ | 0.23 | $ | 0.27 | ||
| Diluted | $ | 0.23 | $ | 0.27 | ||
| Weighted average number of common shares | ||||||
| Basic | 112,708 | 116,494 | ||||
| Diluted | 114,344 | 118,293 | ||||
| (1) | Includes non-cash compensation of $22,605 and $9,893 for the three months ended March 31, 2019 and 2018, respectively. | |
| (2) | Includes the impact of the recovery of the $2.3 million Oi reserve for the three months ended March 31, 2019. |
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
| (in thousands, except par values) | ||||||
| March 31, | December 31, | |||||
| 2019 | 2018 | |||||
| ASSETS | (unaudited) | |||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 117,613 | $ | 143,444 | ||
| Restricted cash | 23,883 | 32,464 | ||||
| Accounts receivable, net | 113,017 | 111,035 | ||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 23,482 | 23,785 | ||||
| Prepaid expenses and other current assets (1) | 22,574 | 63,126 | ||||
| Total current assets | 300,569 | 373,854 | ||||
| Property and equipment, net (1) | 2,761,325 | 2,786,355 | ||||
| Intangible assets, net | 3,258,952 | 3,331,465 | ||||
| Right-of-use assets, net (1) | 2,552,304 | — | ||||
| Other assets (1) | 439,609 | 722,033 | ||||
| Total assets | $ | 9,312,759 | $ | 7,213,707 | ||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||
| Current Liabilities: | ||||||
| Accounts payable | $ | 34,545 | $ | 34,308 | ||
| Accrued expenses | 53,534 | 63,665 | ||||
| Current maturities of long-term debt | 942,442 | 941,728 | ||||
| Deferred revenue | 98,970 | 108,054 | ||||
| Accrued interest | 35,059 | 48,722 | ||||
| Current lease liabilities (1) | 228,776 | — | ||||
| Other current liabilities (1) | 11,328 | 9,802 | ||||
| Total current liabilities | 1,404,654 | 1,206,279 | ||||
| Long-term liabilities: | ||||||
| Long-term debt, net | 8,780,606 | 8,996,825 | ||||
| Long-term lease liabilities (1) | 2,282,803 | — | ||||
| Other long-term liabilities (1) | 147,477 | 387,426 | ||||
| Total long-term liabilities | 11,210,886 | 9,384,251 | ||||
| Shareholders’ deficit: | ||||||
| Prefer. stock-par value $.01, 30,000 shares authorized, no shares issued or outst. | — | — | ||||
| Common stock – Class A, par value $.01, 400,000 shares authorized, 113,205 | ||||||
| shares and 112,433 shares issued and outstanding at March 31, 2019 | ||||||
| and December 31, 2018, respectively | 1,132 | 1,124 | ||||
| Additional paid-in capital | 2,359,195 | 2,270,326 | ||||
| Accumulated deficit | (5,131,347) | (5,136,368) | ||||
| Accumulated other comprehensive loss | (531,761) | (511,905) | ||||
| Total shareholders’ deficit | (3,302,781) | (3,376,823) | ||||
| Total liabilities and shareholders’ deficit | $ | 9,312,759 | $ | 7,213,707 | ||
| (1) | On January 1, 2019, the Company adopted ASU 2016-02 which requires lessees to recognize a right-of-use asset and a lease liability. |
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||
| (unaudited) (in thousands) | ||||||
| For the three months | ||||||
| ended March 31, | ||||||
| 2019 | 2018 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
| Net income | $ | 25,989 | $ | 31,545 | ||
| Adjustments to reconcile net income to net cash provided by operating | ||||||
| activities: | ||||||
| Depreciation, accretion, and amortization | 171,038 | 165,398 | ||||
| Non-cash asset impairment and decommission costs | 5,451 | 8,446 | ||||
| Non-cash compensation expense | 23,414 | 10,410 | ||||
| Deferred income tax (benefit) expense | 3,470 | 2,277 | ||||
| Other non-cash items reflected in the Statements of Operations | 4,647 | 2,784 | ||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||
| AR and costs and est. earnings in excess of billings on uncompleted contracts, net | 1,931 | (5,198) | ||||
| Prepaid expenses and other assets | (130) | (9,277) | ||||
| Operating lease right-of-use assets, net | 24,116 | — | ||||
| Accounts payable and accrued expenses | (5,050) | (14,336) | ||||
| Accrued interest | (13,663) | (15,137) | ||||
| Long-term lease liabilities | (19,652) | — | ||||
| Other liabilities | 776 | 1,665 | ||||
| Net cash provided by operating activities | 222,337 | 178,577 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
| Acquisitions | (55,287) | (117,622) | ||||
| Capital expenditures | (36,374) | (31,096) | ||||
| Other investing activities | 6,685 | (2,879) | ||||
| Net cash used in investing activities | (84,976) | (151,597) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
| Net borrowings (repayments) under Revolving Credit Facility | (215,000) | 195,000 | ||||
| Repayment of Tower Securities | — | (755,000) | ||||
| Proceeds from issuance of Tower Securities, net of fees | — | 631,848 | ||||
| Repurchase and retirement of common stock | — | (38,545) | ||||
| Proceeds from employee stock purchase/stock option plans | 63,475 | 6,901 | ||||
| Other financing activities | (6,522) | (6,155) | ||||
| Net cash (used in) provided by financing activities | (158,047) | 34,049 | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (13,743) | (504) | ||||
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (34,429) | 60,525 | ||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH: | ||||||
| Beginning of period | 178,300 | 104,295 | ||||
| End of period | $ | 143,871 | $ | 164,820 | ||
Contacts
Mark DeRussy, CFA
Capital Markets
561-226-9531
Lynne Hopkins
Media Relations
561-226-9431
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