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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 333-50219
SBA Communications Corporation
(Exact name of registrant as specified in its charter)
Florida 65-0716501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Town Center Road, 33486
Third Floor, Boca Raton, Florida (Zip code)
(Address of principal executive
offices)
(561) 995-7670
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such report), and (2) has been subject to
such filing requirement for the past 90 days.
Yes X No
Number of shares of common stock outstanding at May 7, 1999
Class A Common Stock--880,922 shares
Class B Common Stock--8,075,000 shares
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SBA COMMUNICATIONS CORPORATION
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and March 31,
1999............................................................. 4
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1999.......................................... 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1999.......................................... 6
Condensed Notes to Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 18
PART II--OTHER INFORMATION
Item 2. Changes in Securities ........................................... 19
Item 6. Exhibits and Reports on Form 8-K................................. 19
SIGNATURES................................................................. 20
2
SBA COMMUNICATIONS CORPORATION
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following consolidated financial statements of SBA Communications
Corporation, a Florida corporation (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the financial
information for the interim period reported have been made. Results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1999.
3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents, includes interest
bearing amounts of $26,227,973 and $1,811,140 in
1998 and 1999................................... $ 26,743,270 $ 2,277,530
Accounts receivable, net of allowances of
$436,671 and $538,494 in 1998 and 1999.......... 12,512,574 14,164,266
Prepaid and other current assets................. 5,981,134 7,605,903
Costs and estimated earnings in excess of
billings on uncompleted contracts............... 598,971 359,529
------------ ------------
Total current assets........................... 45,835,949 24,407,228
Property and equipment, net...................... 150,946,480 184,824,539
Note receivable-stockholder...................... 3,784,768 3,839,930
Intangible assets, net........................... 6,932,486 6,797,787
Deferred financing fees, net..................... 6,563,772 11,221,890
Other assets..................................... 509,871 750,009
------------ ------------
Total assets................................... $214,573,326 $231,841,383
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................. $ 14,447,384 $ 12,115,877
Accrued expenses................................. 2,247,282 3,098,326
Accrued salaries and payroll taxes............... 1,841,392 1,141,040
Notes payable.................................... 17,001,000 --
Billings in excess of costs and estimated
earnings on uncompleted contracts............... 166,526 126,333
Other current liabilities........................ 2,049,058 1,968,397
------------ ------------
Total current liabilities...................... 37,752,642 18,449,973
------------ ------------
Other liabilities:
Senior discount notes payable.................... 165,572,133 170,444,840
Notes payable.................................... -- 40,000,000
Deferred tax liabilities......................... 3,370,439 3,370,439
Other long-term liabilities...................... 415,201 445,880
------------ ------------
Total long-term liabilities 169,357,773 214,261,159
------------ ------------
Commitments and contingencies (see Note 8)
Redeemable preferred stock......................... 33,558,333 34,270,833
Stockholders' deficit:
Common stock:
Class A (32,000,000 shares authorized) 880,922
shares issued and outstanding in 1998 and 1999.. 8,809 8,809
Class B (8,100,000 shares authorized) 8,075,000
shares issued and outstanding in 1998 and 1999.. 80,750 80,750
Additional paid in capital....................... 716,131 740,693
Accumulated deficit.............................. (26,901,112) (35,970,834)
------------ ------------
Total stockholders' deficit (26,095,422) (35,140,582)
------------ ------------
Total liabilities and stockholders' deficit $214,573,326 $231,841,383
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets
4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months
ended March 31,
------------------------
1998 1999
----------- -----------
Revenues:
Site development revenue........................... $12,531,250 $ 8,574,687
Site leasing revenue............................... 2,158,539 5,141,614
----------- -----------
Total revenues................................... 14,689,789 13,716,301
----------- -----------
Cost of revenues (exclusive of depreciation shown be-
low)
Cost of site development revenue................... 8,989,385 6,623,195
Cost of site leasing revenue....................... 1,506,871 2,377,506
----------- -----------
Total cost of revenues........................... 10,496,256 9,000,701
----------- -----------
Gross profit..................................... 4,193,533 4,715,600
Operating expenses:
Selling, general and administrative................ 3,942,048 4,077,573
Depreciation and amortization...................... 507,245 3,131,301
----------- -----------
Total operating expenses......................... 4,449,293 7,208,874
----------- -----------
Operating loss................................... (255,760) (2,493,274)
Other income (expense):
Interest income.................................... 764,158 506,943
Interest expense................................... (332,575) (815,490)
Non-cash amortization of original issue discount
and debt issuance costs........................... (1,547,352) (5,200,244)
Other.............................................. -- 9,215
----------- -----------
Total other income (expense)..................... (1,115,769) (5,499,576)
----------- -----------
Loss before provision for income taxes and ex-
traordinary item................................ (1,371,529) (7,992,850)
(Provision) benefit for income taxes................. (86,584) 785,582
----------- -----------
Net loss before extraordinary item............... (1,458,113) (7,207,268)
Extraordinary item................................... -- (1,149,954)
----------- -----------
Net loss......................................... (1,458,113) (8,357,222)
Dividends on preferred stock......................... (437,500) (712,500)
----------- -----------
Net loss to common stockholders.................. $(1,895,613) $(9,069,722)
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months
ended March 31,
--------------------------
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $ (1,458,113) $ (8,357,222)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization.................... 507,245 3,131,301
Provision for doubtful accounts.................. 41,370 101,822
Non cash compensation expense.................... 48,125 24,562
Amortization of original issue discount and debt
issue costs..................................... 1,575,418 5,200,244
Interest on shareholder note..................... (56,466) (55,162)
Write-off of deferred financing fees............. -- 1,149,954
Changes in operating assets and liabilities:
(Increase) decrease in--
Accounts receivable.......................... (2,704,107) (1,753,515)
Prepaid and other current assets............. (603,850) (1,624,769)
Costs and estimated earnings in excess of
billings on uncompleted contracts........... 27,219 239,442
Other assets................................. (172,397) (240,138)
Deferred tax asset........................... 63,744 --
Intangible assets............................ (1,663,766) (5,000)
Increase (decrease) in--
Accounts payable............................. (364,364) (2,331,507)
Accrued expenses............................. (308,623) 851,044
Accrued salaries and payroll taxes........... (771,345) (700,352)
Other liabilities............................ 45,193 (80,661)
Deferred tax liabilities..................... (493,083) --
Other long-term liabilities.................. 386,554 30,679
Billings in excess of costs and estimated
earnings on uncompleted contracts........... (155,774) (40,192)
------------ ------------
Total adjustments........................... (4,598,907) 3,897,752
------------ ------------
Net cash used in operating activities....... (6,057,020) (4,459,470)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower and other capital expenditures............. (11,070,221) (36,869,661)
------------ ------------
Net cash used in investing activities.......... (11,070,221) (36,869,661)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior discount notes payable.. 150,191,513 --
Proceeds from notes payable...................... 12,486,767 40,000,000
Repayment of notes payable....................... (22,669,821) (17,001,000)
Deferred financing fees.......................... (5,380,668) (6,135,609)
------------ ------------
Net cash provided by financing activities...... 134,627,791 16,863,391
------------ ------------
Net increase (decrease) in cash and cash
equivalents................................... 117,500,550 (24,465,740)
CASH AND CASH EQUIVALENTS:
Beginning of period.............................. 6,109,418 26,743,270
------------ ------------
End of period.................................... $123,609,968 $ 2,277,530
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:
Cash paid during the period for:
Interest....................................... $ 235,865 $ 813,682
Taxes.......................................... 469,385 182,496
NON-CASH ACTIVITIES:
Dividends on preferred stock..................... 437,500 712,500
Interest on bonds payable........................ 1,502,365 4,872,707
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying unaudited condensed consolidated financial statements
include the accounts of SBA Communications Corporation and its subsidiaries
(the "Company"). All significant intercompany accounts and transactions have
been eliminated. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which included only normal recurring adjustments)
necessary to fairly state the financial position and the results of operations
for the periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim periods
are not necessarily indicative of the results that can be expected for a full
year. These interim financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto.
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
2. Current Accounting Pronouncements
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income separately from
accumulated deficit and additional paid-in-capital in the equity section of
the balance sheet. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. During the three months ended March 31, 1998 and 1999, the
Company did not have any changes in its equity resulting from such non-owner
sources and accordingly, comprehensive income as set forth by SFAS No. 130 was
equal to the net loss amounts presented for the respective periods in the
accompanying Consolidated Statements of Operations.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999.
Management believes adopting this statement will not have a material impact
upon the Company's results of operations or financial position.
3. Acquisitions
During the three months ended March 31, 1999, the Company completed five
acquisitions consisting of 38 towers and related assets from various sellers,
all of which were individually insignificant to the Company. The aggregate
purchase price was approximately $19,100,000 and was paid with proceeds from
long-term borrowings.
The Company accounted for the above acquisitions using the purchase method
of accounting. The results of operations of the acquired assets are included
with those of the Company from the dates of the respective
7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquisitions. The following unaudited pro forma summary for the three months
ended March 31, 1998 and 1999 presents the consolidated results of operations
as if the acquisitions had occurred as of the beginning of each of the periods
presented, after giving effect to certain adjustments such as depreciation.
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisitions been made as of the beginning of the periods presented or of
results which may occur in the future.
For the three months
ended March 31,
--------------------------
1998 1999
------------ ------------
Unaudited Pro-forma Revenues................... $ 16,239,549 $ 13,941,607
============ ============
Unaudited Pro-forma Net Loss................... $ (1,344,828) $ (8,350,587)
============ ============
4. Property and Equipment
Property and equipment, net consists of the following:
December 31, March 31,
1998 1999
------------ ------------
Land........................................... $ 5,307,754 $ 6,073,413
Towers......................................... 141,755,358 175,193,991
Buildings and improvements..................... 506,120 506,120
Vehicles....................................... 442,496 424,950
Furniture and equipment........................ 1,708,132 2,224,352
Construction in process........................ 7,736,769 10,287,435
------------ ------------
157,456,629 194,710,261
Less: Depreciation and amortization............ (6,510,149) (9,885,722)
------------ ------------
Property and equipment, net.................... $150,946,480 $184,824,539
============ ============
Construction in process represents costs incurred related to towers which are
under development and will be used in the Company's operations.
5. Costs and Estimated Earnings on Uncompleted Contracts
December 31, March 31,
1998 1999
------------ -----------
Costs incurred on uncompleted contracts......... $ 4,633,768 $ 3,598,976
Estimated earnings.............................. 1,357,134 1,121,229
Billings to date................................ (5,558,457) (4,487,009)
----------- -----------
$ 432,445 $ 233,196
=========== ===========
This amount is included in the accompanying balance sheet under the
following captions:
December 31, March 31,
1998 1999
------------ ---------
Costs and estimated earnings in excess of
billing......................................... $ 598,971 $ 359,529
Billings in excess of costs and estimated
earnings........................................ (166,526) (126,333)
--------- ---------
$ 432,445 $ 233,196
========= =========
8
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Current and Long Term Debt
Current and long term debt consists of the following:
December 31, March 31,
1998 1999
------------ ------------
Senior credit facility term loan, interest at 8.437%
at March 31, 1999 quarterly installments based on
reduced availability beginning March 31, 2001,
maturing December 31, 2004......................... -- $ 25,000,000
Senior credit facility revolving credit loan,
interest at 8.437% at March 31, 1999 quarterly
installments based on reduced availability
beginning March 31, 2001, maturing December 31,
2004............................................... -- 15,000,000
Bank Credit Agreement............................... 17,001,000 --
12% Senior discount notes, net of unamortized
original issue discount of $98,555,160 at March 31,
1999, unsecured, cash interest payable semi-
annually in arrears beginning March 1, 2003,
balloon principal payment of $269,000,000 due at
maturity on March 1, 2008.......................... 165,572,133 170,444,840
----------- ------------
182,573,133 210,444,840
Less: current maturities.......................... 17,001,000 --
Long term debt...................................... 165,572,133 $210,444,840
=========== ============
Senior Credit Facility
On February 5, 1999 the Company, through its subsidiary, SBA
Telecommunications Inc., ("Telecommunications") entered into a new senior
credit facility with a syndicate of lenders which replaced and superseded in
its entirety its previous credit agreement. The senior credit facility
consists of a $25 million term loan, which was fully funded at closing, and a
$100 million revolving line of credit, on which the Company had the option to
increase to $150 million under certain conditions. Proceeds from the term loan
were used to repay the previous bank credit agreement. The senior credit
facility also provides for letter of credit availability. Availability under
the senior credit facility is determined by a number of factors, including
number of towers built by the Company with anchor tenants on the date of
completion, the financial performance of the Company's towers, site
development and construction segments, as well as by other financial
covenants, financial ratios and other conditions. The senior credit facility
matures December 31, 2004 and amortization pursuant to a schedule and reduced
availability begins March 31, 2001. Borrowings under the senior credit
facility bear interest at the eurodollar rate plus a margin ranging from 2.25%
to 3.50% (determined by a leverage ratio) or "base rate" (as defined in the
senior credit facility) plus a margin ranging from 1.25% to 2.50% (determined
by a leverage rate). The senior credit facility is secured by substantially
all of the assets of Telecommunications and its direct and indirect
subsidiaries, requires Telecommunications to maintain certain financial
ratios, and places restrictions on, among other things, the incurrence of debt
and liens, dispositions of assets, transactions with affiliates and certain
investments. In connection with the termination of the previous credit
agreement, the Company recorded an extraordinary charge of approximately
$1,150,000 representing the write-off of previously capitalized deferred
financing fees related to the previous bank credit agreement. Deferred
financing fees related to obtaining the new senior credit facility were
approximately $3.9 million. Additionally, on March 8, 1999, after receiving
the requisite consents from the holders of our senior discount notes, we
amended the indenture governing the notes to increase one of the categories of
permitted indebtedness from $125.0 million to $175.0 million. In connection
therewith, we paid $2.1 million to the holders of the notes. The amount is
also reflected in deferred financing fees. Simultaneously, Telecommunications
exercised its option to increase the revolving line of credit portion of the
senior credit facility from $100.0 million to $150.0 million.
9
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
Income taxes have been provided for based upon the Company's annual
effective income tax rate. A reconciliation of the statutory U.S. Federal tax
rate (34%) and the effective income tax rate for the period is as follows:
For the three months
ended March 31,
----------------------
1998 1999
--------- -----------
Federal income tax................................ $(480,035) $(2,717,569)
State income tax.................................. 86,584 140,034
Foreign tax....................................... -- 230,998
Change in valuation allowance..................... 480,035 1,560,955
--------- -----------
$ 86,584 $ (785,582)
========= ===========
The Company has recorded a benefit in the first quarter of 1999 as a result
of net operating loss carrybacks available. The amount recorded as a benefit
represents the entire carryback amount available If the Company generates
taxable losses in the future, net operating loss carryforwards will be
generated.
8. Commitments and Contingencies
The Company is involved in various claims, lawsuits and proceedings arising in
the ordinary course of business. While there are uncertainties inherent in the
ultimate outcome of such matters and it is impossible to presently determine
the ultimate costs that may be incurred, management believes the resolution of
such uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
10
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Segment Data
The Company operates principally in three business segments: site development
consulting, site development construction, and site leasing. The Company's
reportable segments are strategic business units that offer different
services. They are managed separately based on the fundamental differences in
their operations. Revenue, operating income, identifiable assets, capital
expenditures and depreciation and amortization pertaining to the segments in
which the Company operates are presented below:
For the three months
ended March 31
-------------------------
1998 1999
------------ ------------
Revenue:
Site development--consulting....................... $ 9,731,091 $ 3,921,229
Site development--construction..................... 2,800,159 4,653,458
Site leasing....................................... 2,158,539 5,141,614
------------ ------------
$ 14,689,789 $ 13,716,301
============ ============
Gross Profit:
Site development-- consulting...................... $ 2,486,279 $ 888,369
Site development-- construction.................... 1,055,586 1,063,123
Site leasing....................................... 651,668 2,764,108
------------ ------------
$ 4,193,533 $ 4,715,600
============ ============
Capital expenditures:
Site development-- consulting...................... $ 5,561,848 $ 2,427,225
Site development-- construction.................... 31,795 1,006
Site leasing....................................... 5,212,626 33,928,913
Assets not identified by segment................... 263,952 512,517
------------ ------------
$ 11,070,221 $ 36,869,661
============ ============
As of As of
December 31, March 31,
1998 1999
------------ ------------
Assets:
Site development--consulting....................... $ 14,516,752 $ 16,027,326
Site development--construction..................... 9,690,197 10,834,906
Site leasing....................................... 173,075,271 182,011,550
Assets not identified by segment................... 17,291,106 22,967,601
------------ ------------
$214,573,326 $231,841,383
============ ============
10. Subsequent Events
In April 1999, the Company adopted the 1999 Equity Participation Plan. A
total of 2,500,000 shares of Class A common stock are reserved for issuance
under this plan. In April, 1999, the Company granted options to employees for
the purchase of an aggregate of approximately 900,000 shares of Class A common
stock at an exercise price of $8.00 per share. The options will vest in three
installments commencing December 31, 1999 and ending April 19, 2002. Since the
exercise price range of these options is substantially below the midpoint of
the anticipated price range in the proposed initial public offering of Class A
common stock, the Company will record a non-cash compensation charge over the
vesting period of approximately $3.3 million.
11
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 19, 1999, the Company filed a Registration Statement on Form S-1 to
register shares of its Class A common stock in an initial public offering. The
Company filed for an offering of gross proceeds of $150.0 million, which is
anticipated to produce net proceeds after deduction of the underwriting
discount and estimated offering expenses of $138.5 million. The Company
expects to use approximately $32.7 million of these net proceeds to pay all
outstanding dividends on all outstanding shares of the Company's Series A
preferred stock and to redeem all outstanding shares of the Company's Series B
preferred stock. The Company also expects to use $50.0 million to repay all
revolving credit loans under the senior credit facility. Remaining proceeds
will be used for the construction and acquisition of towers, the acquisition
of tower companies or related businesses, and for general working capital
purposes. There can be no assurance that the Company's planned initial public
offering of Class A common stock will be successfully consummated or, if
consummated, of the final terms of such initial public offering.
On April 30, 1999, the Company acquired through merger all of the issued and
outstanding stock of Com-Net Construction Services, Inc. ("Com-Net"). The
Company issued 780,000 shares of its Class A common stock to the shareholders
of Com-Net, of which 480,000 shares have been pledged back to the Company and
are subject to forfeiture if certain 1999 earnings targets are not achieved by
the acquired company. The Company also assumed working capital debt of
approximately $4.5 million. In addition, the shareholders of Com-Net may
receive up to $2.5 million in cash and 320,000 additional shares of Class A
common stock if certain 1999 earnings targets are met by the acquired company,
and up to an additional 400,000 shares of Class A common stock if certain 2000
earnings targets are met.
On the same date the Company acquired all of the issued and outstanding
capital stock of an affiliate of Com-Net, Com-Net Development Group, LLC
("Development Group"). Development Group owns 15 completed towers located in
Texas, Ohio and Tennessee and over 30 additional tower sites in various stages
of development under build-to-suit programs. The Company paid $1.0 million in
cash and assumed debt of approximately $2.5 million for Development Group.
The Company will account for each of the above acquisitions as a purchase.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis reflects only changes from information
previously presented for the 1998 fiscal year. Financial information relating
to the March 31, 1999 and March 31, 1998 periods is unaudited. This interim
discussion and analysis should be read in conjunction with our 1998 audited
financial statements, notes thereto and management's discussion and analysis
of financial condition and results of operations.
Additionally, the following discussion includes "forward-looking
statements". This discussion contains statements concerning projections,
plans, objectives, future events or performance and underlying assumptions and
other statements which are other than statements of historical fact. We wish
to caution readers that certain important factors may have affected and could
in the future affect our actual results and could cause our actual results for
subsequent periods to differ materially from those expressed in any forward-
looking statement made by us. Such factors include (i) substantial capital
requirements and leverage principally as a consequence of our ongoing
acquisition and construction activities, (ii) dependence on demand for
wireless communication and (iii) the success of our new tower construction
program. The following discussion should be read in conjunction with the "Risk
Factors" section of our Form 10-K filed with the SEC on March 31, 1999 and
Form S-1 filed with the SEC on April 19, 1999.
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. Our strategy is to use our historical
leadership position in the site development business, a project revenue
business, to expand our ownership and leasing of communication towers, a
recurring revenue business. We are transitioning our revenue stream from
project driven revenues to recurring revenues through the leasing of antenna
space at or on communications facilities.
While we intend to continue to offer site development services to wireless
carriers where demand and profitable opportunities exist, we will emphasize
our site leasing business through the construction of owned towers for lease
to wireless service providers, the acquisition of existing sites and the
leasing, subleasing and management of other antenna sites. We believe that as
the site development industry matures, our revenues and gross profit from the
consulting segment of that business will continue to decline substantially in
the near term and this rate of decline will increase for the foreseeable
future as wireless service providers choose to outsource ownership of
communication sites in order to conserve capital. We also believe that, over
the longer term, our site leasing revenue will increase as carriers move to
outsource tower ownership and management and as the number of towers we own
grows.
As a result of these trends and the shift in focus of our business, our
earnings declined in 1999 from the prior period and capital expenditures
increased sharply as we accumulated towers. We expect capital expenditures to
increase even more in 1999 as compared to 1998. In addition, we anticipate
that our operating expenses may remain at or above 1998 levels as we continue
to construct and acquire tower assets.
We derive our revenues from two businesses--site development and site
leasing. Our site development business consists of site development consulting
and site development construction. We provide site development services, both
consulting and construction, on a contract basis which is usually customer and
project specific. We generally charge for site development services on either
a time and materials basis or a fixed price basis. Approximately 13% and 31%
of site development services were performed on a time and materials basis in
the periods ended March 31, 1999 and 1998, respectively. We also provide site
leasing services on a contract basis. Revenue from our site development
business may fluctuate from period to period depending on construction
schedules, which are a function of our clients' build-out schedules, weather
and other factors. Our antenna site leases are typically long-term agreements
with renewal periods. Leases are generally paid on a monthly basis. Because of
the low variable operating costs of the site leasing business, additional
tenants on a tower generate disproportionately larger increases in tower cash
flow.
We are in the process of acquiring and constructing towers to be owned by us
and leased to wireless service providers. We intend to continue to make
strategic acquisitions in the fragmented and rapidly consolidating tower
13
owner and operator industry. Of the 642 towers we owned or controlled as of
April 30, 1999, 418 were new builds. At that date, we had non-binding mandates
to build over 400 additional towers under build-to-suit programs (the majority
of which we expect will result in binding anchor tenant lease agreements). We
believe we have one of the largest number of non-binding build-to-suit
mandates from wireless service providers in the industry. In addition, we are
currently actively negotiating to acquire additional towers. At April 30,
1999, we had letters of intent or definitive agreements to acquire 51
additional towers in a number of separate transactions for an aggregate
purchase price of approximately $12.6 million. We cannot assure you that we
will be able to close these transactions, or identify towers or tower
companies to acquire in the future.
On April 30, 1999, we acquired Com-Net. Com-Net constructs towers and
terminal switches on a turn-key basis for wireless and other
telecommunications companies, primarily throughout the midwestern, eastern and
western United States and for the year ended December 31, 1998 had revenues of
over $20.0 million and gross profit of $2.2 million. We issued 780,000 shares
of our Class A common stock to the shareholders of Com-Net, of which 480,000
shares have been pledged back to us and will be returned to us if certain 1999
earnings targets are not achieved by the acquired company. In addition, the
shareholders of Com-Net may receive up to $2.5 million in cash and 320,000
additional shares of Class A common stock if certain 1999 earnings targets are
met by the acquired company, and up to an additional 400,000 shares of Class A
common stock if certain 2000 earnings targets are met.
On the same date we acquired an affiliate of Com-Net "Development Group".
Development Group owns 15 completed towers in Texas, Ohio and Tennessee and
over 30 additional tower sites in various stages of development under build-
to-suit programs. We paid $1.0 million in cash and assumed debt of
approximately $2.5 million for Development Group.
Results of Operations
As we continue our transition into site leasing, operating results in prior
periods may not be meaningful predictors of future prospects. You should be
aware of the dramatic changes in the nature and scope of our business when
reviewing the ensuing discussion of comparative historical results. We expect
that the acquisitions consummated to date and any future acquisitions, as well
as our new tower builds, will have a material impact on future revenues,
expenses and net income. In particular, depreciation and amortization and
interest expense increased significantly in the period ended March 31, 1999
over the prior period, and will continue to increase significantly in future
three month periods. We believe that our construction programs will have a
material adverse effect on future results of operations, until such time, if
ever, as the newly constructed towers attain higher levels of tenant use.
First Quarter 1999 Compared to First Quarter 1998
Total revenues decreased 6.6% to $13.7 million for the first quarter of 1999
from $14.7 million for the first quarter of 1998. We derive our revenues from
two businesses--site development and site leasing. Our site development
business consists of site development consulting and site development
construction. Site development revenue decreased 31.6% to $8.6 million in the
first quarter of 1999 from $12.5 million in the first quarter of 1998 due to a
substantial decline in site development consulting revenue, which was
partially offset by a substantial increase in site development construction
revenue. Site development consulting revenue decreased 59.7% to $3.9 million
for the first quarter of 1999 from $9.7 million for the first quarter of 1998,
due primarily to the decreased demand for site acquisition and zoning services
from PCS licensees, as well as the increasing acceptance by wireless carriers
of outsourced communication site infrastructure through build-to-suit
programs. Site development construction revenue increased 66.2% to $4.7
million for the first quarter of 1999 from $2.8 million for the first quarter
of 1998, due to the expanded customer base of our construction company and the
number of projects on which services were rendered. We expect our site
development construction revenues to continue to increase substantially as a
result of the recently completed Com-Net acquisition. Site leasing revenue
increased 138.2% to $5.1 million for the first quarter of 1999 from $2.2
million for the first quarter of 1998, due to the substantially greater number
of towers in our portfolio during 1999 compared to 1998.
14
Total cost of revenues decreased 14.2% to $9.0 million for the first quarter
of 1999 from $10.5 million for the first quarter of 1998. Site development
cost of revenue decreased 26.3% to $6.6 million for the 1999 period from $9.0
million for the 1998 period due to the decrease in the cost of site
development consulting revenue, which was partially offset by an increase in
the cost of site development construction revenue. Site development consulting
cost of revenue decreased 58.1% to $3.0 million for the first quarter of 1999
from $7.2 million for the first quarter of 1998 due primarily to lower level
of activity. Site development construction cost of revenue increased to $3.6
million for the 1999 period from $1.7 million for the 1998 period, due
primarily to the increased level of activity. Site leasing cost of revenue
increased 57.8% to $2.4 million for the 1999 period from $1.5 million for the
1998 period, due primarily to the increased number of owned resulting in an
increased amount of lease payments to land owners.
Gross profit increased 12.5% to $4.7 million for the first quarter of 1999
from $4.2 million for the first quarter of 1998 due to the increase in high
margin site leasing revenue which was offset by a decrease in gross profit in
our site development business. Gross profit from site development decreased
44.9% to $2.0 million in the 1999 period from $3.5 million in the 1998 period,
due to the decline in site development consulting activity and a slight
decline in that segment's gross profit in the 1999 period to 22.7% from 25.5%
in the 1998 period. Gross profit from site development construction remained
flat at $1.1 million in each of the periods. Gross profit margin on site
development construction dropped in the 1999 period to 22.8% from 37.7% in the
1998 period, reflecting the increased use of subcontractor labor in 1999. In
the future, we believe our gross profit margin on site development
construction may be lower than that experienced in the first quarter of 1999
as we integrate Com-Net's business, which has historically had gross profit
margins in the 15% to 20% range. Gross profit for the site leasing business
increased 324.2% to $2.8 million in the first quarter of 1999 from $0.7
million in the first quarter of 1998, and site leasing gross profit margin
improved to 53.8% in the 1999 period from 30.2% in the 1998 period. The
increased gross profit and improved margin were both due to the substantially
greater number of towers owned or controlled in the 1999 period. As a
percentage of total revenues, total gross profit increased to 34.4% in the
1999 period from 28.5% in the 1998 period due to increased levels of higher
margin site leasing gross profit.
Selling, general and administrative expenses increased 3.4% to $4.1 million
for the first quarter of 1999 from $3.9 million for of 1998. As a percentage
of total revenues, selling, general and administrative expenses increased to
29.7% for 1999 from 26.7% in 1998 period.
Depreciation and amortization increased to $3.1 million for the first
quarter of 1999 as compared to $0.5 million for the first quarter of 1998.
This increase is directly related to the increased amount of fixed assets
(primarily towers) we owned or controlled in the 1999 period as compared to
the 1998 period.
Operating loss increased to $(2.5) million for the first quarter of 1999
from $(0.3) million for the first quarter of 1998 as a result of the increased
depreciation and amortization expenses in 1999 associated with the increase in
tower ownership. Other income (expense) increased to $(5.5) million for the
1st quarter of 1999 from $(1.1) million for the 1st quarter of 1998. This
increase resulted primarily from the interest expense associated with the
Notes. The extraordinary item in the first quarter of 1999 of $1.1 million
relates to the write-off of deferred financing fees associated with our prior
bank credit agreement. Net loss was $(8.4) million for the 1999 period as
compared to net loss of $(1.5) million for the 1998 period.
Future Compensation Changes Related to Stock Option Grants
In April 1999, we granted options to employees for the purchase of 900,000
shares of our Class A common stock at an exercise price of $8.00 per share
pursuant to our 1999 Equity Participation Plan. These options will vest over
the next three years, commencing on December 31, 1999 and ending in April
2002. Since the exercise price of these options is substantially below the
anticipated price to the public in the offerings, we will record non-cash
compensation charges in each quarter during the vesting period beginning with
the second quarter of this year. The amount of these charges is a function of
the price to the public in the offerings. Based upon the midpoint of the
anticipated price range in the offerings, these charges will total
approximately $3.3 million over the next three years.
15
Liquidity and Capital Resources
SBA Communications Corporation is a holding company with no business
operations of its own. It's only significant asset is the outstanding capital
stock of its subsidiaries. It conducts all its business operations through its
subsidiaries. Accordingly, its only source of cash to pay its obligations is
distributions from its subsidiaries from their net earnings and cash flow.
Even if our subsidiaries determined to pay a dividend on or make a
distribution in respect of their capital stock, there can be no assurance that
our subsidiaries will generate sufficient cash flow to pay such a dividend or
distribute such funds or that they will be permitted to pay dividends by the
terms of the senior credit facility.
Net cash used in operations during the three months ended March 31,1999 was
$4.5 million compared to net cash used in operations of $6.1 million in the
three months ended March 31,1998. Net cash used in investing activities for
the three months ended March 31,1999 was $36.9 million compared to $11.1
million for the three months ended March 31,1998. This increase is
attributable to a higher level of tower acquisition and new build activity in
1999 versus 1998. Net cash provided by financing activities for the three
months ended March 31, 1999 was $16.9 million compared to $134.6 million for
the three months ended March 31,1998. The 1998 amount includes the proceeds of
the Notes.
Our balance sheet reflected positive working capital of $6.0 million and
$8.1 million as of March 31, 1999 and December 31, 1998, respectively.
On March 2, 1998 we issued $269.0 million in aggregate principal amount at
maturity of Notes. This offering provided approximately $150.2 million of
gross proceeds to us. From these gross proceeds, we repaid approximately $20.2
million of existing indebtedness and paid approximately $5.7 million of fees
and expenses. The remaining proceeds were used primarily for the acquisition
and construction of communications towers. Prior to March 1, 2003, interest
expense on the Notes will consist solely of non-cash accretion of original
issue discount and the Notes will not require cash interest payments. After
such time, the Notes will have accreted to $269.0 million and will require
annual cash interest payments of approximately $32.3 million. In addition, the
Notes mature on March 1, 2008.
In February 1999, we entered into a new senior credit facility through
Telecommunications with a group of lenders. This new $175.0 million senior
credit facility, which replaced our prior $55.0 million credit facility,
consists of a $25.0 million term loan and a $150.0 million revolving line of
credit. The term loan was fully funded at closing. Availability under the new
senior credit facility is determined by a number of factors including number
of towers built by us with anchor tenants on the date of completion, the
financial performance of our other towers, site development and construction
segments, as well as by other financial covenants, financial ratios and other
conditions. The senior credit facility matures December 31, 2004 and, pursuant
to a schedule, amortization and reduced availability begins March 31, 2001.
Borrowings under the new facility will bear interest at the eurodollar rate
plus a margin ranging from 2.25% to 3.50% (determined by a leverage ratio) or
a "base rate" (as defined in the senior credit facility) plus a margin ranging
from 1.25% to 2.50% (determined by a leverage ratio). The senior credit
facility is secured by substantially all of the assets of Telecommunications
and its direct and indirect subsidiaries, requires Telecommunications to
maintain certain financial ratios and places restrictions on, among other
things, the payment of dividends to us, the incurrence of debt and liens,
disposition of assets, transactions with affiliates and certain investments.
In connection with the termination of the previous credit agreement, we
recorded an extraordinary charge of approximately $1.1 million representing
the write-off of previously capitalized deferred financing fees related to the
previous bank credit agreement. Deferred financing fees related to obtaining
the senior credit facility were approximately $3.9 million. Additionally, on
March 8, 1999, after receiving the requisite consents from the holders of our
Notes, we amended the indenture governing the Notes to increase one of the
categories of permitted indebtedness from $125.0 million to $175.0 million. In
connection therewith, we paid $2.1 million to the holders of the Notes. The
amount is also reflected in deferred financing fees.
In the event that the business acquired in the Com-Net acquisition achieves
certain EBITDA targets in 1999 and 2000, we may be obligated to issue up to
720,000 additional shares of Class A common stock and to pay up
16
to $2.5 million to the former shareholders of Com-Net. If the business
acquired in the Com-Net acquisition does not achieve certain EBITDA targets in
1999, the former shareholders of Com-Net will return to us up to 480,000 of
the shares we issued to them at the closing of the Com-Net acquisition.
We currently estimate that we will make at least $160.0 million of capital
expenditures during 1999 for the construction and acquisition of communication
sites, primarily towers, and the acquisition of Com-Net. We currently expect
that capital expenditures will be at the same or higher levels in 2000. We
expect to use cash from operations together with proceeds from the initial
public offering and availability under our senior credit facility to fund
these capital expenditures. These expected capital expenditures will
substantially exhaust our availability under our senior credit facility.
However, the exact amount of our future capital expenditures will depend on a
number of factors. In 1999, we currently anticipate building a significant
number of towers for which we have non-binding mandates pursuant to our build-
to-suit program. We also intend to continue to explore opportunities to
acquire additional towers, tower companies and/or related businesses. Our
capital expenditures in 1999 will depend in part upon acquisition
opportunities that become available during the period, the needs of our
primary build-to-suit customers and the availability to us of additional debt
or equity capital on acceptable terms. In the event that the borrowings under
the senior credit facility have otherwise been used when an acquisition or
construction opportunity arises, we would be required to seek additional debt
or equity financing. We cannot assure you that any such financing will be
available on commercially reasonable terms or at all or that any additional
debt financing would be permitted by the terms of our existing indebtedness.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, or to fund planned capital expenditures, will depend on our
future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control. Our business strategy contemplates substantial
capital expenditures in connection with our planned tower build-out and
acquisitions. Based on our current operations and anticipated revenue growth,
we believe that, if our business strategy is successful, cash flow from
operations, the proceeds of the initial public offering, and available
borrowings under the senior credit facility will be sufficient to fund our
anticipated capital expenditures in fiscal 1999. Thereafter, however, or in
the event we exceed our currently anticipated capital expenditures for 1999,
we anticipate that we will need to seek additional equity or debt financing to
fund our business plan. Failure to obtain any such financing could require us
to significantly reduce our planned capital expenditures and scale back the
scope of our tower build-out or acquisitions, either of which could have a
material adverse effect on our projected financial condition or results of
operations. In addition we may need to refinance all or a portion of our
indebtedness (including the Notes and/or the senior credit facility) on or
prior to its scheduled maturity. We cannot assure you that we will generate
sufficient cash flow from operations in the future, that anticipated revenue
growth will be realized or that future borrowings or equity contributions will
be available in amounts sufficient to service our indebtedness and make
anticipated capital expenditures. In addition, we cannot assure you that we
will be able to effect any required refinancing of our indebtedness (including
the Notes) on commercially reasonable terms or at all.
On April 19, 1999 the Company filed a Registration Statement on Form S-1 to
register shares of its Class A common stock in an initial public offering. The
Company filed for an offering of gross proceeds of $150.0 million, which is
anticipated to produce net proceeds after deduction of the underwriting
discount and estimated offering expenses of $138.5 million. The Company
expects to use approximately $32.7 million of these net proceeds to pay all
outstanding dividends on all outstanding shares of the Company's Series A
preferred stock and to redeem all outstanding shares of the Company's Series B
preferred stock. The Company also expects to use $50.0 million to repay all
revolving credit loans under the senior credit facility. Remaining proceeds
will be used for the construction and acquisition of towers, the acquisition
of other companies or related businesses, and for general working capital
purposes. There can be no assurance that the Company's planned initial public
offering of Class A common stock will be successfully consummated or, if
consummated, of the final terms of such initial public offering.
17
Year 2000
During 1999, we continued our review of the installation of new systems
hardware and software and determined that the installation is on schedule for
completion before the year 2000.
There are five phases that describe our process in becoming Year 2000
compliant. The awareness phase encompasses developing a budget and project
plan. The assessment phase identifies mission-critical systems to check for
compliance. Both of these phases have been completed. We are at various stages
in the three remaining phases: renovation, validation and implementation.
Renovation is the design of the systems to be Year 2000 compliant. Validation
is testing the systems followed by implementation.
We have begun implementation of a new financial system. The system is
certified by the vendor as Year 2000 compliant. In conjunction with this
implementation, we have undertaken the renovation of our operational systems.
The testing and implementation of these systems is scheduled for completion in
1999. The cost of the new financial system and renovation of our operational
systems is expected to be approximately $750,000.
Management is reviewing the state of Year 2000 readiness for third parties
with whom we share a material relationship, such as banks and vendors used by
us. At this time, we are unaware of any third party Year 2000 issues that
would materially effect these relationships or our financial condition.
We expect to be Year 2000 compliant in 1999 for all major systems. We are
assessing our risks and the full impact on operations if the worst case Year
2000 scenario were to occur. In conjunction with this, we are developing a
contingency plan and expect to complete the development of this plan in 1999.
Inflation
The impact of inflation on our operations has not been significant to date.
However, we cannot assure you that a high rate of inflation in the future will
not adversely affect our operating results.
Senior Discount Note Disclosure Requirements
The indenture governing our Notes requires certain financial disclosures for
restricted subsidiaries separate from unrestricted subsidiaries and the
disclosure to be made of Tower Cash Flow, as defined in the indenture, for the
most recent fiscal quarter and Adjusted Consolidated Cash Flow, as defined in
the indenture, for the most recently completed four-quarter period. As of
March 31, 1999, we had no unrestricted subsidiaries. Tower Cash Flow, for the
quarter ended March 31, 1999 was $1.2 million. Adjusted Consolidated Cash Flow
for the four-quarter period ended March 31, 1999 was $0.5 million.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business, and in some cases, relate to our acquisition of
related businesses. We are subject to interest rate risk on our senior credit
facility and any future financing requirements. Our fixed rate debt consists
primarily of the accreted balance of the Notes. Our variable rate debt
consists of borrowings made under the senior credit facility.
18
The following table presents the future principal payment obligations and
weighted average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term debt indebtedness:
1999 2000 2001 2002 2003 Thereafter
---- ---- --------- --------- --------- -----------
Liabilities:
Long-term debt............ -- -- -- -- -- 269,000,000
Fixed rate (12.0%)
Term Loan................. -- -- 2,500,000 2,500,000 7,500,000 12,500,000
Variable rate (8.437% at
March 31, 1999)
Revolving Loan............ -- -- 1,500,000 3,000,000 4,500,000 6,000,000
Variable rate (8.437% at
March 31, 1999)
Our primary market risk exposure relates to (1) the interest rate risk on
long-term and short-term borrowings, (2) our ability to refinance our Notes at
maturity at market rates, (3) the impact of interest rate movements on our
ability to meet interest expense requirements and exceed financial covenants
and (4) the impact of interest rate movements on our ability to obtain
adequate financing to fund future acquisitions. We manage the interest rate
risk on our outstanding long-term and short-term debt through our use of fixed
and variable rate debt and interest rate swaps. While we cannot predict or
manage our ability to refinance existing debt or the impact interest rate
movements will have on our existing debt, we continue to evaluate our
financial position on an ongoing basis.
PART II--OTHER INFORMATION
ITEM 2. Changes in Securities
On March 8, 1999, after receiving the requisite consents from the holders of
the Company's 12% senior discount notes due 2008, the Company amended the
indenture governing the Notes to increase one of the categories of permitted
indebtedness from $125.0 million to $175.0 million.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (filed only electronically with the SEC)
(b) Reports on Form 8-K
The Company filed a report on form 8-K on February 24, 1999. In this report,
the Company reported, under Item 5, the consummation of a new $125.0 million
senior credit facility which replaces the prior $55.0 million credit facility.
The Company also filed, under Item 7, a press release dated February 16, 1999
and the Amended and Restated Credit Agreement pursuant to which the
transaction was consummated.
Items 1, 3, 4 and 5 are not applicable and have been omitted.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SBA Communications Corporation
May 7, 1999 /s/ Jeffrey A. Stoops
-------------------------------------
Jeffrey A. Stoops
Chief Financial Officer
(Duly Authorized Officer)
May 7, 1999 /s/ Robert M. Grobstein
-------------------------------------
Robert M. Grobstein
Chief Accounting Officer
(Principal Accounting Officer)
20